oversight

Audit of the U.S. Office of Personnel Management's Administration of the Federal Employees Dental And Vision Insurance Program For Fiscal Years 2010 through 2013

Published by the Office of Personnel Management, Office of Inspector General on 2016-06-03.

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 U.S. Office of Personnel Management’s
              Administration of the Federal Employees Dental
                        And Vision Insurance Program
                     For Fiscal Years 2010 through 2013
                                           Report Number 4J-0L-00-15-038
                                                   June 3, 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 U.S. Office of Personnel Management’s Administration of the 

                      Federal Employees Dental and Vision Insurance Program 

Report No. 4J-0L-00-15-038                                                                           June 3, 2016


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

The objective of the audit was to       The audit identified three findings related to administrative
obtain reasonable assurance that the    expenses, the FEDVIP Trust Fund, and program operations and
U.S. Office of Personnel                questions $127,229 in unsupported or unallowable expenses.
Management’s (OPM) administration
of the Federal Employees Dental and     Specifically, we identified the following findings related to fiscal
Vision Insurance Program (FEDVIP)       year (FY) 2010 through FY 2013 (unless otherwise stated):
was compliant with Federal
regulations and the provisions of the      FEDVIP Expense Review:
FEDVIP Solicitation which is               	 The FEDVIP was overcharged $127,229 as a result of the
incorporated in each agreement                lack of sufficient documentation and oversight of FEDVIP
between OPM and the individual                expenses on the part of OPM’s Office of the Chief
FEDVIP Carriers (Contract), and that          Financial Officer (OCFO) and Federal Employee Insurance
monies received by OPM from                   Operations (FEIO). This was also a finding in our previous
FEDVIP carriers were used only for            audit (Report #1J-0L-00-11-033, dated February 1, 2012).
FEDVIP purposes.
                                           FEDVIP Trust Fund Review:
What Did We Audit?                         	 In FY 2013, the OCFO inadvertently permitted an
                                              unbalanced journal entry resulting from the change of
The Office of the Inspector General           accounting systems to remain in the accounting records of
has completed a performance audit of          the FEDVIP Trust Fund.
OPM’s administration of FEDVIP for
fiscal years 2010 through 2013 to          OPM Program Operations Review:
include a review of program expenses,       The OCFO did not perform financial viability reviews of
the FEDVIP Trust Fund, OPM’s                 the FEDVIP carriers’ annual certified financial statements.
administrative fee, and OPM’s
program operations. Our audit was       In addition, we also identified two opportunities for program
conducted from June 15 through          improvement in areas related to the FEDVIP loading for OPM’s
July 24, 2015, at our office in         administrative costs and the review and approval of non-labor
Washington D.C.                         expenses by the FEIO.




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

Contract     FEDVIP Solicitation OPM-RFP-06-00060
FEDVIP       Federal Employees Dental and Vision Insurance Program
FEIO         Federal Employee Insurance Operations
FY           Fiscal Year
OA           Office of Actuaries
OCFO         Office of the Chief Financial Officer
OIG          Office of the Inspector General
OPM          U.S. Office of Personnel Management
Trust Fund   FEDVIP Trust Fund




                                  ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                         Page 

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


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


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


  II.	    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................2 


  III.	   AUDIT FINDINGS AND RECOMMENDATIONS.................................................6


          A. FEDVIP EXPENSE REVIEW ................................................................................6 


               1. Unreasonable Expenses .....................................................................................6 


          B. FEDVIP TRUST FUND REVIEW .........................................................................9 


               1. Reversing Entry Not Made ................................................................................9 


          C. OPM ADMINISTRATIVE FEE REVIEW ...........................................................10 


          D. OPM PROGRAM OPERATIONS REVIEW........................................................11 


               1. Review of Certified Annual Financial Statements...........................................11 


          E. PROGRAM IMPROVEMENT AREAS ...............................................................12 


               1. Excessive Administrative Fees Received ........................................................12 

               2. FEDVIP Expense Review and Approval.........................................................14 


  IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................16 


          APPENDIX (OPM’s response to the draft report, dated October 1, 2015)


          REPORT FRAUD, WASTE, AND MISMANAGEMENT

IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                       TO THIS REPORT
This report details the results of our audit of the U.S. Office of Personnel Management’s (OPM)
Administration of the Federal Employees Dental and Vision Insurance Program (FEDVIP) for
fiscal years (FYs) 2010 through 2013. The audit was performed by OPM’s Office of the
Inspector General (OIG), as authorized by the Inspector General Act of 1978, as amended.

The Federal Employee Dental and Vision Benefits Enhancement Act of 2004, Public Law 108-
496, 118 Stat. 4001, was signed into law on December 23, 2004. It provided for the
establishment of programs under which supplemental dental and vision benefits are made
available to Federal employees, retirees, and their dependents. The first effective date of
coverage was December 31, 2006. OPM initially contracted with 10 FEDVIP carriers to provide
dental and vision insurance services for a period of seven years. In 2014, three new dental plans
and one new vison plan were added.

OPM has the overall responsibility to maintain the FEDVIP website, act as a liaison and
facilitate the promotion of the FEDVIP through Federal agencies, provide timely responses to
carrier requests for information and assistance, and perform functions typically associated with
insurance commissions, such as the review and approval of rates, forms, and educational
materials.

Our previous audit of OPM’s administration of the FEDVIP (Report No. 1J-0L-00-11-033, dated
February 1, 2012), covered operational activities, cash management, and fraud and abuse policies
and procedures for FYs 2006 through 2009. All recommendations from the prior audit have
been resolved.

The initial results of our current audit were discussed with OPM during an exit conference on
August 18, 2015. A draft report was provided to OPM for review and comment on
August 26, 2015. OPM’s response to the draft report was considered in preparation of this final
report and is included, as appropriate, as an Appendix.




                                                1                           Report No. 4J-0L-00-15-038
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          METHODOLOGY
 Objectives
 The main objective of this audit was to obtain reasonable assurance that OPM’s administration of
 the FEDVIP was compliant with Federal regulations and the provisions of the FEDVIP
 Solicitation which is incorporated in each agreement between OPM and the individual FEDVIP
 Carriers (Contract), and that monies received by OPM from the FEDVIP carriers were used only
 for program purposes.

 Specifically, our audit objectives were:

    FEDVIP Expense Review
     To determine if OPM’s administrative expenses were allowable, allocable and
      reasonable.
     To determine if an annual reconciliation of actual expenses to budgeted expenses was
      being performed.
     To obtain an understanding of the Office of the Chief Financial Officer’s (OCFO)
      responsibilities as it pertains to the FEDVIP.
     To determine if the FEDVIP premium loading (fees received for the administration of the
      FEDVIP) exceeded administrative costs.
     To determine if all administrative expenses were reviewed and properly approved before
      payment.

    FEDVIP Trust Fund Review
    	 To obtain an understanding of OPM’s responsibilities regarding the FEDVIP Trust Fund
       (Trust Fund) according to the Contract and applicable Federal regulations.
     To determine how the funds for OPM’s administrative fees are transferred to OPM.
     To obtain an understanding of the process and procedures for expensing the incoming
       funds; how the Program Office distributes/utilizes these funds; and what the Program
       Office does with any remaining funds.
     To determine how much OPM received for administrative expenses for FYs 2010
       through 2013.
     To reconcile the funds received and the administrative expenses paid to the FEDVIP trial
       balance during the scope of the audit.
     To obtain an understanding of how the Program Office is preventing fraud and abuse of
       FEDVIP funds.

    OPM Administrative Fee Review
    	 To obtain an understanding of the OPM administrative fee, including how the fee is
       determined, who calculates the fee, and how often the fee is reviewed or recalculated.


                                                2	                          Report No. 4J-0L-00-15-038
   	 To determine what the administrative fee was for FYs 2010 through 2013, and if the fee
      was reasonable.

   OPM Program Operations Review
   	 To obtain an understanding of the functions performed for the FEDVIP by OPM’s
      Program Office, the OCFO, the Office of Actuaries’ (OA) and any other OPM
      departments.
    To obtain an understanding of OPM’s Program Office’s responsibilities for administering
      the FEDVIP.
    To review policies and procedures that have been instituted since the last audit of OPM’s
      administration of the FEDVIP.
    To obtain reasonable assurance that the monies received by OPM from the FEDVIP
      carriers were used only for program purposes.

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 program expenses, the Trust Fund, OPM’s
administrative fee, and OPM’s program operations for FY’s 2010 through 2013. The audit
fieldwork was conducted at our office in Washington, D.C. from June 15 through July 24, 2015.
Additional audit work was completed at our Cranberry Township, Pennsylvania, and
Washington, D.C. offices.

OPM reported the following funds received and expensed for FEDVIP operations during the
scope of our audit:

                                    Funds Received            Funds
                                   For Administration       Expensed
                        2010           $9,506,442           $1,876,558
                        2011           $11,369,376           $2,361,824
                        2012            $5,945,090           $5,890,576
                        2013            $3,382,509          $13,288,062
                        Total          $30,203,417          $23,417,019




                                               3	                          Report No. 4J-0L-00-15-038
In planning and conducting the audit, we obtained an understanding of OPM’s internal control
structure, as it relates to the administration of the FEDVIP, 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 detect
all significant matters in the internal control structure, we do not express an opinion on OPM’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 OPM 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
OPM. 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 the 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 if OPM’s administration of the FEDVIP was compliant with provisions of the
Contract and Federal regulations, and that monies received by OPM from the FEDVIP carriers
were used only for FEDVIP purposes, we performed the following steps for FY’s 2010 through
2013 (unless otherwise stated):

   FEDVIP Expense Review
   	 We selected and reviewed a sample of 38 FEDVIP expense transactions, totaling
      $18,063,658, (out of a universe of 3,089 expense transactions totaling $24,012,619) to
      determine if the transactions were reasonable for the administration of FEDVIP.
      Specifically we selected:
       Labor Costs – We selected the three highest dollar amount transactions and the only
          credit transaction for labor account number 111100 from FY 2013. (four transactions
          totaling $59,606).
       Non-Labor Costs – We selected all transactions for review from accounts with 5
          transactions or less (17 transactions, totaling $92,487) and we selected the 3 highest
          dollar amount transactions and all transactions over $1 million from accounts with 6
          transactions or more, (17 transactions, totaling $17,911,565), from FY10 through
          FY13 (34 transactions totaling $18,004,052).




                                                 4	                           Report No. 4J-0L-00-15-038
   	 We reviewed the annual reconciliation of actual expenses to budgeted expenses to 

      determine if the reconciliation was actually performed. 


   	 We compared the FEDVIP administrative expenses (less OPM’s buy down of premiums)
      to the administrative fees received from the FEDVIP premium loading for each FY to
      determine if fees received exceeded administrative expenses.

   	 We met with the Federal Employee Insurance Operations (FEIO) to determine whether
      all expenses were properly reviewed and approved prior to being paid.

   FEDVIP Trust Fund Review
   	 We reconciled the funds received and the expenses charged each year to the FEDVIP trial
      balance to determine the accuracy of the Trust Fund’s FY 2013 ending balance.

   OPM Administrative Fee Review
   	 To determine if OPM reviewed the administrative fee annually, we reviewed the FEDVIP
      Administrative Loading Memo that was prepared by the OA for FY 2012 and FY 2013.

   OPM Program Operations Review
   	 We reviewed job descriptions of OPM’s Program Office staff to determine if they 

      included the responsibilities of OPM’s administration of the FEDVIP listed in the 

      Contract and Federal regulations. 


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.




                                                5	                          Report No. 4J-0L-00-15-038
  IV. AUDIT
III.   MAJORFINDINGS
             CONTRIBUTORS  TO THIS REPORT
                     AND RECOMMENDATIONS
A. FEDVIP EXPENSE REVIEW

  1.	 Unreasonable Expenses                                                            $127,229

     We identified 10 transactions, totaling $127,229, in FYs 2010 through 2013 that were
     considered unreasonable FEDVIP expenses due to a lack of supporting documentation.


  Adequate documentation       Public Law 108-496, Sections 8958(f)(2) and 8988(f)(2),
     was not provided to       established a dental benefits administrative account and a vision
       determine the           benefits administrative account that are available to OPM, without
  reasonableness of certain    FY limitation, to defray the reasonable expenses incurred by it in
     FEDVIP expenses.          administering the FEDVIP.

     We reviewed a sample of 38 administrative expenses, totaling $18,063,658, to determine if
     the expenses were reasonable for the administration of the FEDVIP. Our review questioned
     10 transactions for the following reasons:

        	 9 transactions, totaling $125,175, where OPM’s OCFO provided only transaction
           screen prints and not actual invoices or any other supporting documentation.
           Therefore, we were unable to determine if the transactions were reasonable, and;
        	 1 transaction, totaling $2,054, where OPM’s FEIO could not verify if the employees
           charging salary to the FEDVIP actually worked on the program. As a result, we
           could not determine if this transaction was a reasonable cost to the program.

     The FEIO is responsible for reviewing and approving FEDVIP expenses on a monthly basis.
     However, it stated that there are times when expenses are charged to the FEDVIP that the
     FEIO does not review and approve.

     Consequently, because of a lack of sufficient documentation and oversight of FEDVIP
     expenses by the OCFO and FEIO, the FEDVIP was overcharged $127,229 for FYs 2010
     through 2013.

     Recommendation 1

     We recommend that the OCFO maintain complete documentation to support all charges for
     the administration of the FEDVIP.




                                            6	                             Report No. 4J-0L-00-15-038
OPM Response:

OPM does not concur with our recommendation. OPM states that the OCFO and FEDVIP
Program Office share responsibility for maintaining documentation to support program
charges, and there are procedures in place to oversee employees’ work reports, travel
expenses and service contracts. All vendor invoices are submitted to the OCFO for payment
and are processed for payment by a Federal shared service provider, and maintained by the
OCFO. The OCFO and FEIO maintain documentation of the FEDVIP expenses paid and
have had robust documentation procedures in place since the resolution of the prior audit of
OPM’s administration of the FEDVIP. The scope of this audit overlaps the actions taken in
response to similar findings from the previous audit.

OIG Comment:

As stated in the finding, the only documentation to support the FEDVIP expenses questioned
were the actual screen prints in OPM’s accounting system. However, the reported
information in the accounting system did not support the transactions, but just showed that
transactions were entered into the system and paid.

We understand the fact that our current audit scope (FY 2010 through FY 2013) encompasses
the period during which our prior audit took place (Report Number: 1J-0L-00-11-033, dated
February 1, 2012; with dates of audit between February 14 to March 31, 2011). We also
acknowledge that the audit findings in the prior report were not fully resolved until
March 26, 2013. However, it should be noted that most of the transactions reviewed in this
audit occurred after the date of issuance of our previous final report (and many after its
resolution date). Therefore, any changes implemented by OPM to maintain supporting
documentation in response to our prior audit should have covered these transactions.

Recommendation 2

We recommend that OCFO return $127,229 to the Trust Fund for FEDVIP administrative
expenses determined to be unreasonable due to a lack of supporting documentation.

OPM Response:

OPM does not concur with our recommendation and states that, as noted previously, steps
were being put in place during the scope of this audit, which the OIG has since accepted and
approved.




                                            7                           Report No. 4J-0L-00-15-038
OIG Comment:

We again understand that OPM was in the process of implementing procedures for proper
documentation during the scope of the audit. However, this fact does not relieve OPM from
the requirement to support expense charges. As OPM was unable to provide support for
these charges, the $127,229 remains questioned as unreasonable charges.

Recommendation 3

We recommend that FEIO strengthen its controls to ensure that only expenses related to the
administration of the FEDVIP are charged and that proper approvals are obtained prior to
expenses being paid.

OPM Response:

OPM does not concur with our recommendation. It states that in response to a prior audit all
appropriate offices have instituted procedures to ensure that only expenses related to the
administration of FEDVIP are charged to the FEDVIP and that proper approvals are
obtained. It also stresses that these procedures were developed and implemented during the
scope of this audit.

OPM noted that during the last audit, 21 salary expense transactions were questioned and
only one transaction was questioned during this audit. Although OPM strives for 100 percent
accuracy, the dramatic reduction of erroneous charges to the FEDVIP demonstrates that
OPM has strengthened its controls regarding expenses charged to the FEDVIP.

OIG Comment:

As stated previously, we understand that OPM was in the process of implementing
procedures to ensure that only expenses related to the administration of FEDVIP are charged
to the program and that proper approvals are obtained prior to the expenses being paid.

However, as stated in our finding, the FEIO indicated that there are charges made to the
FEDVIP by other departments that it does not review and approve. This statement was made
in May 2015, nearly two years after resolution of the prior audit. Therefore, this issue still
exists. The fact that there is not a single office having final approval over all expenses made
to the FEDVIP continues to be a concern and a risk to the program (see Section E.2).

OPM’s comment regarding the reduction of questioned costs in this area is of great concern
to us. The fact that the number of salary expense transactions questioned was greatly



                                             8                           Report No. 4J-0L-00-15-038
     reduced is misleading. It should be noted that we questioned 50 percent (two out of four
     transactions; one transaction is included with the nine transactions questioned for inadequate
     support) of the transactions reviewed. More importantly, we had to greatly reduce our salary
     expense sample due to problems encountered by the OCFO. Originally, our review of labor
     costs consisted of 149 transactions from FYs 2010 through 2013. After the OFCO expressed
     concern that it could not provide the information requested in a timely manner, we reduced
     our labor sample to only four transactions from FY 2013. It should be noted that a majority
     of the expenses incurred by FEDVIP are labor related, and if information supporting these
     charges is not more readily available, it will greatly limit our ability to review these types of
     costs to determine if they are reasonable to the program.

B. FEDVIP TRUST FUND REVIEW

  1. Reversing Entry Not Made                                                             Procedural

     The OCFO inadvertently permitted an unbalanced journal entry resulting from the change of
     accounting systems to remain in the accounting records of the Trust Fund.

     The OCFO is responsible “for all OPM disbursements and accountability processes, as well
     as management and coordination of OPM planning, budgeting, and analysis.” Therefore, the
     OCFO responsibilities include accuracy of its reports used for planning of OPM programs
     such as FEDVIP.

                                                                                    OPM did not
     During our verification of the Trust Fund balance, we discovered a
                                                                                 perform necessary
     credit entry of $2,616,419 to the FY 2013 FEDVIP administrative
                                                                                  reversing entries
     expense account that was not included on the FEDVIP trial balance.
                                                                                    for FY 2013.
     This immediately appeared to us as an overstatement of expenses.

     Following discussions with the OCFO, it was explained that the entry in question was a
     correcting journal entry posted in FY 2013 to clear voided transactions, due to the transition
     to a new accounting system at OPM. According to the OCFO, this entry did not affect the
     Trust Fund balance as was first thought. The posted entry was not for actual incurred and
     paid expenses, but was for voided expenses that were in the old accounting system and the
     only way to clear them out was to push them through the system, creating the amount in
     question.

     The OCFO stated that, as a result of our bringing this transaction to its attention, it
     discovered that the reversing entry was never made following the move to the new
     accounting system. Subsequently, the OCFO made the reversing entry for $2,616,419 in
     September 2015.



                                                   9                            Report No. 4J-0L-00-15-038
     By failing to make all of the necessary journal entries in FY 2013 the OCFO ran the risk of
     incorrectly reporting FEDVIP financial information, which is relied on for FEDVIP
     planning.

     Recommendation 4

     We recommend that the OCFO strengthen its policies and procedures for oversight of
     correcting entries and end of the year adjustments.

     OPM Response:

     OPM does not concur with our recommendation. OPM states that this finding relates to a
     correction journal voucher entry that was posted in FY 2013 during a cleanup effort after the
     OCFO transitioned to a new accounting system. It determined that a reversing entry was not
     generated after a confirmed payment was voided, but has since made the reversing journal
     voucher entry. OPM believes that it has adequate controls in place for financial reporting.

     OIG Comment:

     Although OPM disagrees with this finding, it ultimately processed a correcting journal entry
     to reverse the voided transaction identified in the finding. Therefore, we maintain that OPM
     should improve its current controls by strengthening its policies and procedures to ensure that
     this type of issue (not identifying a needed journal entry for two years) does not reoccur.
     This should be done to ensure that OPM reports accurate information.

C. OPM ADMINISTRATIVE FEE REVIEW

  The results of our review showed that OPM had sufficient policies and procedures in place to
  annually review the administrative fee rate and make adjustments as needed.

D. OPM PROGRAM OPERATIONS REVIEW

  1. Review of Certified Annual Financial Statements                                   Procedural

     The OCFO did not perform financial viability reviews of the FEDVIP carriers’ annual
     certified financial statements.




                                                 10                           Report No. 4J-0L-00-15-038
                      Section K.9(a)(1) of the Contract requires carriers to “prepare annually an
   No formal
                      accounting statement summarizing the financial results of its [FEDVIP]
financial reviews
                      contract for the previous fiscal year.”
    are being
  performed of
                      Furthermore, Public Law 108-496, Sections 8952(b) and 8982(b),
plan participants.
                      Availability of Dental and Vision Benefits, states that OPM, “shall
   determine, in the exercise of its reasonable discretion, the financial requirements for qualified
   companies to participate in the program.”

   Lastly, OPM’s FEDVIP Annual Certified Financial Statement Receipt and Review Process
   states that the purpose of receiving the certified financial statements annually is to monitor
   financial viability, thereby ensuring the success of the FEDVIP.

   OPM’s FEDVIP Annual Certified Financial Statement Receipt and Review Process indicates
   that the FEIO will request and receive annual certified financial statements from FEDVIP
   carriers, review them for completeness and accuracy, and transmit them to the OCFO and the
   OPM Office of Actuaries for reference and review.

   We requested further information on how OPM documents its financial review of the
   certified financial statements and requested an example. The FEIO indicated that the
   statements are sent to the OCFO for review, but it (FEIO) only scans them to ensure
   compliance with Subpart 31.2 of the Federal Acquisition Regulation. The OCFO stated that
   it does not have policies and procedures for the review of the financial statements, and that it
   only “glances” at the statements when received.

   Without a proper review of the annual certified financial statements, there is an increased risk
   of a carrier participating in the program that is not financially viable, which threatens the
   success of the FEDVIP.

   Recommendation 5

   We recommend that OPM develop and implement formal policies and procedures outlining
   the steps for reviewing each FEDVIP carrier’s annual certified financial statements and
   documenting its assessment of the carrier’s financial viability.

   OPM Response:

   OPM concurs with our finding and indicates the OCFO did not review the FEDVIP carrier’s
   certified financial statements during the audited period. The OCFO has since commenced




                                                11                            Report No. 4J-0L-00-15-038
     reviewing the FEDVIP carriers’ 2014 unaudited statements. Formal procedures have been
     developed and are now being followed.

     OIG Comment:

     We have reviewed the financial statement review that was provided and a copy of the
     procedures that were developed to ensure completion of the annual financial statement
     reviews. The procedures provided did not include a signed and dated approval from a
     Department Head. Therefore, we ask that the procedures include the Department Head’s
     signature and date signed to indicate approval and date of implementation. However, the
     procedures provided appear satisfactory to resolve the finding if followed by OPM in the
     future.

E. PROGRAM IMPROVEMENT AREAS

  1. Excessive Administrative Fees Received                                           Procedural

     The FEDVIP loading for OPM’s administrative costs continues to exceed what is needed to
     administer the program.

     Public Law 108-496, Sections 8958(f)(2) and 8988(f)(2), established a dental benefits
     administrative account and a vision benefits administrative account
     that are available to OPM, without FY limitation, to defray the        Administrative fees
     reasonable expenses incurred by it in administering the FEDVIP.        received by OPM to
                                                                              defray FEDVIP
     OPM receives administrative fees to offset its expenses in the form      expenses greatly
     of a loading that is attached to FEDVIP premiums. Since the             exceed the actual
     program’s inception, this loading has far exceeded the actual         expenses on a yearly
     administrative costs.                                                         basis.

     In 2012, as a result of our prior audit (Report Number 1J-0L-00-11-033, dated
     February 1, 2012), OPM lowered its FEDVIP loading from 1.0 percent of net premium for
     national dental plans to 0.25 percent, and from 2.0 percent of net premium for vision plans
     and regional dental plans to 0.5 percent. This reduction was necessary to reduce the Trust
     Fund held by OPM, which had a balance in excess of $28 million as of September 30, 2012.

     To further reduce the Trust Fund account, OPM initiated a buy down of the BENEFEDS
     loading in FY 2012. As illustrated in the table, OPM has used part of the Trust Fund to buy
     down the BENEFEDS loading fees for both 2012 and 2013, thereby reducing the current
     balance. However, OPM’s loading still greatly exceeds its needs to cover the yearly
     administrative costs.


                                                12                          Report No. 4J-0L-00-15-038
                 Revenue                           Expenses
                                                       OPM Buy Down
          OPM Administrative Administrative              of FEDVIP              End of
 Period     Fees Received      Expenses                  Premiums             FY Balance
FY 2009                                                                       $11,695,587
FY 2010         $9,506,442            $1,876,558               $-             $19,325,471
FY 2011         $11,369,376           $2,361,824               $-             $28,333,023
FY 2012          $5,945,090           $1,080,576           $4,810,000         $28,387,537
FY 2013         $3,382,509            $1,729,156          $11,558,906         $18,481,985

The buy down of the BENEFEDS loading was meant to be a temporary solution to
immediately reduce the current amount of funds held by OPM. However, since the current
“reduced” funding levels were instituted, the fees received still exceed the incurred expenses
by nearly 100 percent (FY 2013). Therefore, it is imperative that a long term solution be put
in place to ensure that excess FEDVIP funds are not held by OPM indefinitely.

Because OPM is continually receiving more funds than needed to administer the program,
FEDVIP members are paying higher premiums than necessary.

Recommendation 6

We recommend that OPM develop a long term strategy to accurately evaluate the FEDVIP
loading received to ensure that it only collects enough in fees to cover the administrative
costs anticipated by OPM. Additionally, OPM should consider the steps necessary to modify
the public law to allow it to reduce the yearly FEDVIP loading to a level necessary to only
collect those funds needed for its administration of the FEDVIP (if the public law is
interfering in the process).

OPM Response:

OPM does not concur with our finding. OPM states that by law, OPM has already reduced
the administrative loading fee to its lowest level without going to zero and that reducing the
loading fee to zero is not feasible due to fluctuations in enrollment. OPM depends on this
loading fee for operations, as there is no government contribution for the administration of
the FEDVIP. OPM indicates that since the scope of this audit was only through FY13, the
OIG did not have the opportunity to review premium buy downs through FY16 and the
current balance of the Trust Fund. A buy down for FY16 almost did not occur due to the low
level of the Trust Fund, which to date is between $5 to $6 million. As more people enroll in
the FEDVIP an increase in the Trust Fund balance is inevitable and OPM sees the buy down



                                            13                           Report No. 4J-0L-00-15-038
  approach as an acceptable way to reduce the Trust Fund balance and also reduce the 

  premiums for enrollees. OPM will use this as a long term operational practice.


  OIG Comment:

  While the OIG agrees that the buy downs have reduced the balance of the Trust Fund, we do
  not believe that this should be the long term practice. As our chart shows, OPM has
  consistently collected more fees than is necessary to administer the FEDVIP. OPM indicated
  a current balance of the Trust Fund of between $5 to $6 million, yet in no year have the
  administrative expenses exceeded $2.5 million.

  OPM’s use of the buy down doesn’t fix the underlying problem that it continually collects
  too much in fees for its administrative expenses in administering the FEDVIP. Its proposed
  solution does not fix the problem, but merely reduces the amounts of excess fees collected
  after the fact. Therefore our recommendation remains that OPM should ensure that it only
  collects enough in fees to cover its anticipated FEDVIP expenses.

  OPM states that by law it has already reduced the administrative loading fee as low as
  possible. However, we do not see where the law expressly limits the loading. If this is the
  case, our recommendation (which was not addressed by OPM) stands that OPM should
  explore the avenue of changing the law to allow for an even lower loading fee in cases where
  administrative fees received continually exceed the expense incurred.

2. FEDVIP Expense Review and Approval                                                Procedural

  The FEIO does not have the opportunity to review and approve all non-labor expenses
  charged against the Trust Fund.

  The Office of Management and Budget, Circular Number A-123, states that “Management is
  responsible for developing and maintaining effective internal control … The agency head
  must establish controls that reasonably ensure that … revenues and expenditures applicable
  to agency operations are properly recorded and accounted for to permit the preparation of
  accounts and reliable financial and statistical reports and to maintain accountability over the
  assets.”

  Based on our understanding of the FEDVIP, the FEIO has the inherit responsibility, as
  administrator of the FEDVIP, to review and approve all non-labor expenses charged to the
  Trust Fund.

  As identified in the unallowable expense finding, there are times when expenses are charged
  to the Trust Fund that the FEIO never sees nor approves. Those non-labor expenses are


                                              14                            Report No. 4J-0L-00-15-038
reviewed and approved by OPM offices other than FEIO, and are paid, after receipt of the
approvals, from the Trust Fund.

Because all non-labor expenses charged to the Trust Fund are not reviewed and approved by
the FEIO prior to payment by the OCFO, the FEDVIP could have potentially been charged
for expenses that are unrelated to the program.

Recommendation 7

We recommend that the FEIO and OCFO develop procedures to ensure that all non-labor
expenses charged to the Trust Fund are reviewed and approved by the FEIO prior to payment
by the OCFO.

OPM Response:

OPM does not concur with our recommendation. OPM states that as previously mentioned
new policies and procedures were implemented in FY13 to address findings in the prior
audit. The scope of this audit overlaps the resolution of the prior audit. Therefore, OPM
believes that they have adequate controls in place, including system edits and validations to
ensure expenses are properly approved before payment.

OIG Comment:

While we acknowledge that changes were made as a result of our last audit, we are still
concerned that the FEIO has indicated that there are some FEDVIP expenses charged that
they don’t see or approve. We believe that as FEIO has responsibility to administer the
program and work with OA to review and set the premium loading (budget), that FEIO
should be aware of (see and approve) ALL expenses charged to the program. We understand
that multiple departments charge expenses to FEDVIP; however, for accountability purposes
there should be one department (FEIO) charged with final approval of all FEDVIP expenses.




                                            15                           Report No. 4J-0L-00-15-038
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                 , Auditor-In-Charge

              , Auditor

                , Auditor




            , Group Chief,                  


                  , Group Chief (former),            


                 , Senior Team Leader 





                                                16       Report No. 4J-0L-00-15-038
                                     APPENDIX
                                                                                October 1, 2015

TO:                                    , CHIEF
                      SPECIAL AUDITS GROUP
                      OFFICE OF INSPECTOR GENERAL

FROM:                 LLOYD V. WILLIAMS
                      DEPUTY ASSISTANT DIRECTOR
                      FEDERAL EMPLOYEE INSURANCE OPERATIONS


THROUGH: 	
                      SENIOR HEALTH ACTUARY
                      OFFICE OF THE ACTUARY


                      MANAGER
                      OFFICE OF CHIEF FINANCIAL OFFICER


                      CHIEF, TRUST FUNDS
                      OFFICE OF CHIEF FINANCIAL OFFICER


Reference: 	          DRAFT REPORT of OPM's Administration of the
                      Federal Employees Dental and Vision Insurance Program
                      Audit Report Number – 4J-0L-00-15-038 August 26, 2015

Dear            :

This is in response to the above referenced Draft Audit Report concerning OPM’s administration
of the Federal Employees Dental and Vision Insurance Program (FEDVIP). The findings and
recommendations in this draft audit refer to functions that are administered by the OCFO’s Trust
Funds and Accounting departments, Planning and Policy Analysis’s (PPA), Office of the
Actuary and HI’s Individual Benefits and Life (program office), as well as its Resource
Management Organization (RMO). Each office has reviewed the report, including each
recommendation and the below represents a consolidated response. Where appropriate, we’re
also providing supporting documentation.



                                                                           Report No. 4J-0L-00-15-038
                                     Deleted by the OIG 

                               Not Relevant to the Final Report 


                                FEDVIP EXPENSE REVIEW 



                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Recommendation 1 - We recommend that the OCFO maintain complete documentation to
support all charges for the administration of FEDVIP.

OCFO Response – Non-Concur. The OCFO and the FEDVIP Program Office share the
responsibility for maintaining documentation to support program charges. As indicated in the
attached MOU-FEDVIP Oversight Procedures, there are procedures in place to oversee
employees’ work reports and travel expenses and service contracts. All vendor invoices are
submitted to the OCFO PromptPay@opm.gov for payments. Those invoices are processed for
payment by our federal shared service provider, and maintained by OCFO.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


OCFO assesses its internal controls periodically in the normal course of business, and makes
improvements when needed.

The OCFO and FEIO have had robust documentation procedures in place since the resolution of
the prior audit of the administration of FEDVIP, 11-033. To the extent that this audit’s scope is
2010-2013, overlapping and largely addressed by the actions taken in response to similar
findings in the prior audit, we request that this recommendation be removed from the final audit.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Recommendation 2 - We recommend that OCFO return $2,847,248 to the FEDVIP Trust Fund
(Trust Fund).

OCFO Response – Non-Concur.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report 



                                                                            Report No. 4J-0L-00-15-038
As noted previously procedures were being put in place to eliminate these issues, during the
scope of this audit that the OIG reviewed and accepted.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Recommendation 3 - We recommend that FEIO strengthen its controls to ensure that only
expenses related to the administration of FEDVIP are charged and that proper approvals are
obtained prior to expenses being paid.

FEIO Response – Non-Concur. In response to the prior audit of the administration of FEDVIP,
all appropriate offices instituted procedures to ensure that only expenses related to the
administration of FEDVIP are charged and that proper approvals are obtained. As noted above,
these procedures were developed during the resolution of the prior audit in 2013, which overlaps
the scope of the present audit. The procedures are attached.

In the last FEDVIP Program Office audit, 21 salary expense transactions were questioned.
During this current audit, the OIG found “an employee” whose salary was charged to FEDVIP in
error. Although we strive for 100% accuracy, the dramatic reduction in the number of
employees erroneously charging salary to FEDVIP demonstrates that FEIO and other appropriate
offices have strengthened controls regarding expenses charged to FEDVIP.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


We request that this recommendation be removed in acknowledgement that expense controls
have been strengthened for FEDVIP.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Reversing Entry Not Made                                                             Procedural

                                     Deleted by the OIG 

                               Not Relevant to the Final Report 


Recommendation 4: We recommend that the OCFO strengthen its policies and procedures for
oversight of correcting entries and well as end of year adjustments.

OCFO Response – Non-Concur. This finding relates to a correction journal voucher (JV) that
was posted in FY 2013 during a cleanup effort after OCFO’s transition from GFIS to CBIS. We

                                                                            Report No. 4J-0L-00-15-038
determined then that reversing entries for the Treasury Confirmation were not generated after a
confirmed payment was voided. The system was updated in 2013. For those transactions that
have already been voided, a JV was completed to reverse out the entries. We believe that OPM
has adequate controls in place for its financial reporting.

                        OPM PROGRAM OPERATIONS REVIEW

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Recommendation 5 - We recommend that OPM develop and institute formal policies and
procedures outlining the steps for reviewing each FEDVIP carrier’s annual certified financial
statements and documenting its assessment of the carrier’s financial viability.

OCFO Response – Concur. The OCFO did not review the FEDVIP Carriers certified financial
statements during the audited period. The OCFO/Trust Funds (TF) has commenced reviewing
the FEDVIP Carriers’ 2014 unaudited statements and will proceed with submitting its written
analysis to the Program Office for this period by COB October 30, 2015. Formal procedures,
attached, have been developed and are now being followed.

                                     Deleted by the OIG 

                               Not Relevant to the Final Report


Recommendation 6 - We recommend that OPM develop a long term plan to reduce the FEDVIP
loading received to cover administrative costs. OPM should consider the steps necessary to
modify the public law to allow it to reduce the yearly loading to zero until such a time as funds
are needed to defray the administrative costs of the FEDVIP.

FEIO Response –Not Concur. As indicated in Recommendation #4, the Office of the Actuary
does an annual review of the administrative loading. Since the scope of the audit was 2010-
2013, the OIG did not review the current buy-down decision for 2016.

Reducing the loading to zero is not feasible because of the fluctuation in enrollment. The
administrative fee is a loading on the premium per enrollment and since there is no Government
contribution to the administration of the FEDVIP Program, OPM depends on this loading for
continued operation of the Program.

By law, OPM has already reduced the OPM loading to its lowest level without going to zero. In
fact, a buy-down for 2016 almost did not occur because of the low level of available funds.
Also, buying down the BENEFEDS fee is a viable way of reducing the funds held by OPM and
the premiums paid by enrollees. As FEIO educates the eligible population about their benefits

                                                                           Report No. 4J-0L-00-15-038
options, we expect more people to enroll in FEDVIP. As this occurs, OPM will realize even
more fees in the Fund. An increase in the fund balance is inevitable as enrollments increase and
we see this approach as an acceptable way to reduce that fund and also reduce premiums for
enrollees as a sound long term operational practice, which works per the attached historical
charts.

In 2012, we had close to $31 million in the fund and proposed $12 million for the 2013 buy-
down. As a result of the buy-down process, today we have approximately $5 to $6 million in the
fund, enabling us to use only about $1 million for the 2016 buy-down. We do not anticipate
having a buy-down next year but it will depend on enrollments throughout the 2016 plan year.

Based on the 2016 buy-down effort, which shows the approach is working we request that this
recommendation be removed from the report.

                                      Deleted by the OIG 

                                Not Relevant to the Final Report 


Recommendation 7 - We recommend that the FEIO and OCFO develop procedures to ensure
that all non-labor expenses charged to the Trust Fund are reviewed and approved by the FEIO
prior to payment by the OCFO.

FEIO Response – Non-Concur. As noted above, we implemented new procedures and tighter
controls in 2013 to address the findings in the prior Administration of FEDVIP audit and the
scope of this current audit overlaps the resolution of the prior audit. Hence, we believe there are
adequate control procedures currently in place, including system edits and validations, to ensure
that expenses are properly approved before payments.

We request that this recommendation be removed from the report.

                                      Deleted by the OIG 

                                Not Relevant to the Final Report 


Thank you for the opportunity to review and respond to this draft report. We would like to
request a meeting with to discuss the audit’s findings and any of the responses in greater detail.

                                      Deleted by the OIG 

                                Not Relevant to the Final Report 





                                                                              Report No. 4J-0L-00-15-038
                                                                                                                         



                                       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. 4J-0L-00-15-038