*Pages 1--53 from  Untitled*
Semiannual Report Semiannual Report 
Office of the Inspector General 

United States Office of Personnel Management 
TO CONGRESS TO CONGRESS 
October 1, 2000March 31, 2001 
1
For additional information or copies of this publication, 
please contact: 

Telephone: (202) 606-1200 Fax: (202) 606-2153 
Web site: www.opm.gov/oig 

Office of the Inspector General 
U.S. Office of Personnel Management 
1900 E Street, NW. Room 6400 
Washington, DC 20415-1100 
2
April 30, 2001 
Honorable Steven R. Cohen 
Acting Director 
U. S. Office of Personnel Management 
Washington, D. C. 20415 

Dear Mr. Cohen: 
I respectfully submit the Office of the Inspector General's Semiannual Report to Congress 
for the period October 1, 2000 to March 31, 2001. This report describes our office's 
activities during the past six-month reporting period. 

Should you have any questions about the report or any other matter of concern, please do 
not hesitate to call upon me for assistance. 

Sincerely, 

Patrick E. McFarland 
Inspector General 

UNITED STATES 
OFFICE OF PERSONNEL MANAGEMENT 
WASHINGTON, D.C. 20415-0001 

OFFICE OF 
THE INSPECTOR GENERAL 
3
OIG Semiannual Report 
Table of Contents Message from the IG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Productivity Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Statutory and Regulatory Review . . . . . . . . . . . . . . . . . . . . . . . . . . 
Audit Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Health and Life Insurance Carrier Audits . . . . . . . . . . . . . . . . . . . . 

Information Systems Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other External Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
OPM Internal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Investigative Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Health Care-Related Fraud and Abuse . . . . . . . . . . . . . . . . . . . . . . 

Retirement Fraud and Special Investigations . . . . . . . . . . . . . . . . . . OIG Hotlines and Complaint Activity . . . . . . . . . . . . . . . . . . . . . . . 

Index of Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Appendix I: Final Reports Issued With Questioned Costs . . . . . . . . . . . . . . . . . 

Appendix II: Final Reports Issued With Recommendations 
for Better Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Appendix III: Insurance Audit Reports Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Appendix IV: Internal Audit Reports Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Appendix V: Information Systems Audit Reports Issued . . . . . . . . . . . . . . . . . . . . 
Appendix VI: Combined Federal Campaign and 
Other External Audit Reports Issued . . . . . . . . . . . . . . . . . . . . . . 
Investigations Tables Table 1: Investigative Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 

Table 2: Hotline Calls and Complaint Activity . . . . . . . . . . . . . . . . 

i 
iii 
1 
5 5 

15 19 
22 
31 31 

33 35 

39 
41 

41 
42 
45 
45 

46 
34 36 

October 1, 2000  March 31, 2001 
4
Message from the IG 
t is with a strong sense of better government that I take liberty with this I 
message. In so doing, I will not speak of Office of Inspector General (OIG) 
work per se. Instead, I am asking this Congress and new Administration to con-
sider an outreach effort by the Inspector General (IG) community that would be 
above and beyond our legislatively mandated responsibilities under the Inspector 
General Act of 1978. 

I propose, by virtue of a Presidential memorandum, that the Inspector General 
community be permitted to enter into a public/private partnership with the 
National Center for Missing and Exploited Children. Our cadre of almost 3,000 
special agent criminal investigators, with a minimal amount of effort, could 
provide a unique and benevolent service to American families who have lost 
their children. 

The partnership would be well defined and it is this: The National Center for 
Missing and Exploited Children presently has a backlog of cases that are referred 
to as cold cases, because, unfortunately, police departments throughout the na-
tion have stopped investigating them primarily due to a lack of resources or other 
priorities. The National Center houses all of these cold cases wherein the child 
has never been found and/or the suspect has never been identified. 

As an example of this proposed partnership I would assign, in my capacity as IG, 
one of the special agents from my office, workload permitting, to spend a day or 
two at the National Center in Alexandria,Virginia, reviewing cold cases. The sole 
purpose for this would be to analyze and review these old cases in an attempt, hope-
fully, to identify clues that may never have been followed, witnesses that may not 
have been interviewed, suspects that may not have been pursued, and so forth. 

The reevaluated case would then be discussed with National Center personnel, 
and, once agreed upon, sent back to the police department with primary juris-
diction, along with a letter from the National Center. In that letter, the National 
Center would strongly encourage the police department to reactivate the cold 
case based on new findings. 

The reopening of a cold case could have monumental results. The best possibility, 
of course, would be the safe return of a missing child to his or her family. The 
next best result, sad as it is, would be locating the murdered child. Finally, a result 
may be identification and arrest of the murderer. As difficult as this is to say and 
read, we should not forget that the last result does help the family deal with closure. 

OIG Semiannual Report 

October 1, 2000  March 31, 2001 i 
5
Message From the IG October 2001 
ii OIG Semiannual Report 
Hopefully, through our limited involvement, we can help ensure that the National 
Center will be able to acknowledge to these desperate families that a thorough re-
evaluation of their cases has been completed. 

So why should the IG community become involved? Why us? I answer it with 
another question. Why should we not get involved? We have one of the most di-
verse and talented criminal investigative cadres in the federal government. Indeed, 
a vast majority of our special agents have come from traditional law enforcement 
agencies. These individuals have all been highly trained and are extremely capable 
of dealing with complex, criminal cases. Certainly, our 23-year IG community 
history has given us the opportunity to illustrate our competence in the area of 
criminal investigations. When we consider the small amount of time that our IG 
community would need to invest, with its resources of almost 3,000 special agents, 
the potential impact of this outreach effort far exceeds the investment. 

In closing, I respectfully suggest that the White House look favorably upon the 
suggestion of a Presidential memorandum as an expeditious way to create a most 
humanitarian and worthwhile partnership. In 1990, I received a Presidential 
appointment to be the Inspector General at the U.S. Office of Personnel Management 
(OPM). From my tenure, and as the chairman of the Investigations Committee 
of the Presidents Council on Integrity and Efficiency, I believe the American 
taxpayer would be pleased and well served by the little effort we would expend 
in such an outreach endeavor, especially with the potential for success so great. 
6
OIG Semiannual Report 
Productivity Indicators Financial Impact: 
Audit Recommendations for Recovery of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . $214,341,387 
Recoveries Through Investigative Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,082,218 
Management Commitments to Recover Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59,329,197* 
* Note: OPM management commitments for recovery of funds during this reporting period reflect amounts 
covering current and past reporting period audit recommendations. 

Accomplishments: Audit Reports Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 
Investigative Cases Closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
Cases Accepted for Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 
Indictments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 
Convictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 
Hotline Contacts and Complaint Activity . . . . . . . . . . . . . . . . . . 626 
Health Care Provider Debarments and Suspensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,114 

October 1, 2000  March 31, 2001 iii 
7
October 1, 2000  March 31, 2001 1 
Statutory and Regulatory 
Review 

As is required under section 4 (a)(2) of the Inspector General Act of 1978, as amended, (IG Act) our office monitors and reviews legislative and 
regulatory proposals for their impact on the Office of the Inspector General (OIG) and the Office of Personnel Management (OPM) pro-
grams and operations. Specifically, we perform this activity to evaluate their potential for encouraging economy and efficiency and preventing 
fraud, waste and mismanagement. We also monitor legal issues that have a broad effect on the Inspector General community and present testi-
mony and other communications to Congress as appropriate. 

uring the current reporting period, D we have continued exercising our 
oversight responsibilities regarding regu-latory and legislative issues, examining 
in particular those having a direct ef-fect on our Office of Inspector General 
mission. 
With a new Congress and new Admin-istration in place, we will be monitoring 

with particular interest OIGs legislative priorities held over from the 106th Con-
gress that we hope will receive early consideration. These priorities are: 

n Including the Federal Employees 
Health Benefits Program (FEHBP) in the Health Insurance Portability 

and Accountability Act (HIPAA) anti-fraud provisions. 

n Amending the IG Act to improve 
OIG operations. 
n Establishing statutory law enforce-
ment authority for special agents in 23 presidentially appointed OIGs that 

do not currently have individual statutory authority. 

We will also be following any new legis-lative proposals in the 107th Congress 
that may affect the IG community as a whole and our OIG operations in par-
ticular. With respect to regulatory issues, we are also hopeful that the draft admin-
istrative sanctions regulations our OIG completed last summer will be placed 

OIG Semiannual Report 
in the Federal Register for public com-ment and that the final regulations can 
be implemented later this year. 
More details about the importance of this administrative sanctions program 

to our office and our agency can be found under Administrative Sanctions 
Activities in this section on pages 3-4. 

Legislative Review As we begin the first session of the 
107th Congress, we consider the sub-jects of the three articles appearing in 
this section to be of utmost importance for legislative consideration and passage 
in this Congress. 

FEHBP Inclusion in HIPAA Anti-Fraud Provisions 
Since 1996, our OIG has considered its foremost legislative priority to be passage 
of legislation to rectify the statutory exclusion of the Federal Employees 
Health Insurance Program (FEHBP) from the anti-fraud enforcement pro-
visions of the Health Insurance Port-ability and Accountability Act of 1996. 

Health care fraud is as important an issue in the FEHBP as it is in all other 
federal health care programs. Unfortu-nately, our agency does not have the 

EHBP 
Inclusion 
Under HIPAA 
a Necessity 

F 
8
2 OIG Semiannual Report 
same enforcement tools or sanction authorities provided to other agencies 
for the simple reason that the FEHBP has never been included under HIPAAs 
anti-fraud provisions. The latter led U.S. Attorneys offices in a number of cases 
to process our FEHBP health care fraud cases differently from those involving the 
same type of offenses existing in other federal health care programs. This gets 
particularly complicated when cases of fraud reveal Medicare violations as well 
as FEHBP violations. In those instances, the FEHBPs exclusion from HIPAA cov-
erage means that the FEHBP portion of these cases often must be negotiated and 
settled separately. In some situations, this has led to significant delays in monetary 
recoveries for the FEHBP. 
Within the context of our commitment to carry out our OIG mission against 

waste, fraud and abuse, our office remains strongly committed to early passage of 
any bill that would include the FEHBP under the provisions of the Federal 
Employees Health Insurance Portability and Accountability Act. 

Amending the IG Act 
During the 106th Congress, Chairman Susan Collins, Senate Permanent Sub-

committee on Investigations, introduced the Inspector General Act Amendments 
of 1999 (S.870), which, among other issues, addressed the following: 

n Setting IG term limits. 
n Prohibiting performance and cash 
awards for IGs. 
n Increasing pay rates for IGs. 

n Providing external reviews of OIG 
operations. 
n Changing OIG reporting requirements. 

Senator Collins worked closely with sev-eral IGs in drafting many of the bills 

provisions that the IG community felt must be addressed through legislation. 
None were more important than those referenced in the preceding bulleted items 
and which Inspector General McFarland supported. This was one of several pieces 
of legislation before the Senate Govern-mental Affairs Committee that did not 
pass before adjournment. 
In early January, however, Representa-tive Judy Biggert introduced legislation 

similar to S.870. This bill has been re-ferred to the House Committee on 
Government Reform. Many of the pro-visions that Inspector General Patrick 
McFarland supported in S. 870 also appear in H.R. 44. We will continue to 
follow this legislation closely. 

OIGs Need New Statutory Law Enforcement Authority 
Over the years, it has been demonstrated repeatedly that there is an ongoing need 
within the IG community to have law enforcement authority to exercise its 
investigative mandate under the IG Act. While the IG Act authorizes the Inspec-
tor General community to investigate fraud and other types of wrongdoing in 
federal programs, it is totally silent on the subject of having authority to make 
arrests, carry firearms, serve warrants, and perform other associated activities. 

As a result of this exclusionand prior to 1995OIG special agents conducting 
criminal investigations were required to ask the Department of Justice (DOJ) 
for deputation from the U.S. Marshals Service on a case-by-case basis to exer-
cise law enforcement powers to investi-gate fraud and abuse within their respec-
tive agency programs. However, by 1995, the DOJ and the IG community had 
agreed that this special U.S. Marshals deputation process, using a case-by-case 
approach, was cumbersome, time con-suming and inflexible. The workload of 

STATUTORY and REGULATORY REVIEW April 
G Community 
Supports 
IG Act 
Amendments 

I 

IGs Seek 
Statutory 
Law Enforcement 
Authority 

O 
9
October 1, 2000  March 31, 2001 3 
the IG community by then had evolved to the point that a more practical ap-
proach was necessary. 
To help resolve the problem and relieve this administrative burden for OIGs 

as well as the U.S. Marshals Service the Department of Justice agreed to 
provide blanket deputation to over 2,600 special agents, designating them 
Special Deputy U.S. Marshals. These special agents were from 23 specific 
OIGs, each headed by a presidentially appointed Inspector General, with none 
having independent law enforcement authority. 

The frequency with which these law enforcement authorities have been 
exercised by OIG special agents is reflected in recent OIG statistics. For 
example, during fiscal years 1998 and 1999, special agents covered by blanket 
deputation made 1,294 arrests and served 694 arrest and search warrants. OIG 
special agents coordinate their efforts with the DOJ and other law enforce-
ment agencies while also participating on numerous task forces. 

Deputations have proven useful as an interim measure. However, the one ma-
jor drawback of the blanket deputation approach remains: it must be renewed 
periodically, thus continuing the admin-istrative burden for OIGs and the U.S. 
Marshals Service. And so, during the 106th Congress, the IG community 
opened discussions with congressional leaders to explore the possibility of 
providing this type of law enforcement authority permanently via statute. We, 
of course, strongly support these efforts since the statute would give criminal 
investigators from this office and the other 22 OIGs similarly affected the same 
authorities to conduct the business of our statutorily mandated investigations 
as other federal criminal investigation offices outside the IG community. 

2001 STATUTORY and REGULATORY REVIEW 
Administrative Sanctions Activities 
Background. As we have discussed on a continuing basis in our semiannual 
reports, OPM and our OIG have been working for several years to implement 
administrative sanctions of health care providers. These sanctions address their 
improper or wrongful conduct that threatens the interests of the FEHBP or 
its subscribers. 
Administrative sanctions, including debarments, suspensions and civil mone-

tary penalties, can be imposed directly by an agency, and, if structured prop-
erly, can be a highly effective means of enforcing integrity in federal programs. 
Virtually every federal agency has some form of administrative sanctions program 
in place. Most notable in the health care area is the exclusion (i.e., debarment) 
program for Medicare providers that the OIG of the Department of Health 
and Human Services has conducted successfully for nearly 15 years. 

Administrative sanctions authority for FEHBP providers was contained in leg-
islation that amended the FEHB law in 1988. However, the procedures called 
for were far more stringent than those of any other federal sanctions program, 
rendering the sanctions ineffective and cost-prohibitive to operate. Especially 
problematic was the provision that no sanctions order could become effective 
until all avenues of appealboth ad-ministrative and judicial had been 
exhausted. This virtually invited pro-longed litigation and the associated 
delay and expense. 
In 1991, the U.S. General Accounting Office identified the absence of effec-

tive sanctions authorities as a significant weakness in OPMs ability to protect the 
FEHBP against fraud, waste and abuse. 

IG Issues 
2,116 
"Common Rule" 
Sanctions During 
Reporting Period 

O 
10
4 OIG Semiannual Report 
Common rule administrative sanctions. As an interim response to the deficiencies 
of the FEHBP sanctions authorities provided in the 1988 amendments to 
the FEHB law, OPM later joined a government-wide regulatory system 
that provided an efficient but limited debarment authority. This regulatory 
system, known as the nonprocurement debarment and suspension common rule, 
permits debarment actions taken by one agency against providers to be applied 
directly by other agencies. 
Since 1993, our office has used these common rule regulations to implement 

within the FEHBP debarments of health care providers by other federal agencies. 
These regulations do not, however, offer the specialized focus tailored to health 
care issues that is needed to support a fully effective FEHBP sanctions program, 
nor do they provide a means to recover FEHBP funds that have been paid to 
providers as a consequence of their misconduct. 

During the current reporting period, we issued 2,114 common rule debar-
ments. This represents the highest total for any reporting period in our eight 
years of common rule activities. In re-sponse to an especially egregious case, 
we were also able to use the common rule to suspend a provider (and his 
associated medical clinic) who had been indicted on 59 counts of health care 
fraud and related violations, many of them directly involving FEHBP enroll-
ees. Our OIG special agents conducted this investigation with the assistance of 
the FBI. For further details concerning this case, please refer to page 33 of this 
report. 
Legislative remedy enacted. Ten years after the original  but flawed  adminis-

trative sanctions provision was enacted, Congress responded to our repeated 
efforts to secure a revised and effective sanctions authority by enacting the 
Federal Employees Health Care Pro-tection Act of 1998. This legislation 
became P.L. 105-266 on October 19, 1998, and contained administrative 
sanctions provisions, including debar-ment, suspension and civil monetary 
penalties, designed specifically to safe-guard the FEHBP and its enrollees from 
untrustworthy health care providers. Its procedures offer a sound basis for 
timely and cost-effective administra-tion of the sanctions authorities. 

Drafting and implementing sanctions regulations. With passage of P.L. 105-
266, our office began drafting adminis-trative sanctions regulations in early 1999. 
After careful and deliberative work on these proposed regulations, we presented 
them to former OPM Director Lachance last summer for her review. As we re-
ported in our semiannual report last fall, Director Lachance approved them 
and forwarded them to the Office of Management and Budget (OMB) in 
August 2000. 
This regulatory package was not pub-lished in the Federal Register prior to 

the presidential transition in January 2001. Therefore, in accordance with 
the new Administrations directive regarding pending and uncompleted 
regulatory actions, these proposed sanctions regulations have been re-
turned to OPM for resubmission to OMB by the new OPM Director once 
this individual is confirmed. OPM management has indicated that issuance 
of the proposed sanctions regulations will be one of its highest regulatory 
priorities for 2001. 

dministrative 
Sanctions 
Regulations to be 
Resubmitted 

A 

STATUTORY and REGULATORY REVIEW April 2001 
11
October 1, 2000  March 31, 2001 5 
Audit Activities 
ur audit universe contains approx-O imately 365 audit sites, consisting 
of health insurance carriers, sponsors, and underwriting organizations, as well 
as two life insurance carriers. These groups shared in annual premium payments in 
excess of $19 billion. 
During the current reporting period, we issued 36 final reports on organizations 

participating in the FEHBP, 30 of which contain recommendations for monetary 
adjustment in the aggregate amount of $214.3 million due the FEHBP. A com-
plete listing of all these reports is pro-vided in Appendices III and V on pages 
42-44 and page 45, respectively, of this report. 

We believe it is important to illustrate the 
dollar significance resulting from our 
audits of FEHBP carriers and what this 
means to the FEHBP trust fund. For in-
stance, during the past six semiannual 
reporting periods, the OIG issued 167 
reports and questioned $368.9 million 
in inappropriate FEHBP charges as the 
graph below illustrates. 

The sections that immediately follow 
explain the differences among the 
types of FEHBP carriers and provide 
audit summaries of significant final 
reports we issued during the past 
six months. 

OIG Semiannual Report 
Health and Life Insurance Carrier Audits 
The Office of Personnel Management (OPM) contracts with private-sector firms to underwrite and provide health and life insurance benefits to 

federal employees, annuitants, and their dependents and survivors through the Federal Employees Health Benefits Program (FEHBP) 
and the Federal Employees Group Life Insurance program (FEGLI). Our office is responsible for auditing these benefits program activities. 
12
6 OIG Semiannual Report 
Community-Rated Plans 
Our office is responsible for auditing community-rated and experienced-rated 

health plans. Within the first category are comprehensive medical plans, com-
monly referred to as health maintenance organizations (HMOs). Our community-
rated HMO audit universe covers approx-imately 265 rating areas. A community-
rated carrier generally sets the subscrip-tion rates based on the average revenue 
needed to provide health benefits to each member of a group, i.e., private 
companies, state or county entities, the FEHBP, etc. 

Under current statutes, HMO subscrip-tion rates can vary from group to group. 
The rates derive from two predominant rating methodologies. The key rating 
factors for the first methodology (com-munity rating by class) are the age and 
sex distribution of a groups enrollees. In contrast, the second methodology 
(adjusted community rating) is based on the projected use of benefits by a 
group using actual claims experience from a prior period of time adjusted for 
increases in medical cost. However, once a rate is set, it may not be adjusted 
to actual costs incurred. The inability to adjust to actual costs, including 
administrative expenses, distinguishes community-rated plans from experience-
rated plans. The latter category includes experienced-rated HMOs and fee-for-
service plans. 
For the period 1991 through 1994, the applicable regulations for HMOs 

required that subscription rates charged to the FEHBP be equivalent to the rates 
charged the two subscriber groups clos-est in size (actual number of enrollees) 
to the FEHBP and whose respective contracts and contain similar benefits. 
In 1995, the provision requiring similar benefits was eliminated. Under these 
revised regulations, each carrier must 

certify that the FEHBP is being offered rates equivalent to the rates given to the 
two groups closest in size to the FEHBP. It does this by submitting to OPM a certif-
icate of accurate pricing. These rates are determined by the FEHBP-participating 
carrier, which is responsible for select-ing the appropriate groups. Should our 
auditors determine that equivalent rates were not applied to the FEHBP, a con-
dition of defective pricing (DP) exists. The FEHBP is entitled to a downward 
rate adjustment to compensate for any overcharges resulting from DP. 

We issued 18 audit reports on community-rated plans during this reporting period. 
In these reports, our auditors recom-mended that OPMs contracting officer 
require the plans to return over $120 million to the FEHBP. Below is a sum-
mary of two of these reports that illus-trate typical problems encountered in 
conducting HMO audits. 

Aetna U.S. Healthcare  New York 
in Blue Bell, Pennsylvania 
Report No. 1C-JC-00-00-002 February 26, 2001 

Aetna U.S. Healthcare  New York has par-ticipated in the FEHBP as a community-
rated comprehensive medical plan since 1986. The plan provides primary health 
care services to its members throughout the New York City area. 

The audit covered contract years 1996, 1997 and 1999, during which time the 
plan received approximately $197 million in premium payments from the FEHBP. 
In a previous reporting period, we is-sued a final report resulting from a 

AUDIT ACTIVITIES April 
13
October 1, 2000  March 31, 2001 7 
2001 AUDIT ACTIVITIES 
separate audit for contract year 1998 wherein we had monetary findings of 
$315,926 in savings to the FEHBP. 
During this current audit, we identified $13,439,139 in questioned costs, includ-

ing $10,790,653 for improper health benefit charges and $2,648,486 for lost 
investment income. Lost investment in-come represents the amount of interest 
the FEHBP would have earned on money the plan overcharged the FEHBP had 
the overcharges not occurred. 
Premium Rates 
A key objective of this audit was to determine if Aetna U.S. Healthcare  

New York met its contract requirement to offer the FEHBP the same premium 
rate discounts it offered to two other groups comparable in subscriber size to 
the FEHBP. Another was to examine specific health benefit premium charges 
that were not part of the plans basic benefits package to see whether these 
charges were fair and reasonable to the FEHBP. These particular charges are 
known as loadings. Finally, we looked at whether the rates were in compliance 
with the laws and regulations governing the FEHBP. The audit findings discussed 
in this report are summarized below. 
Discounted market rates. The audit showed that the FEHBP did not receive a market 

price adjustment equivalent to the larg-est discount given to one of the two 
groups closest in size to the FEHBP in either 1996 or 1997. In both years, one 
of the groups selected by the plan did not meet the selection criteria set forth 
in the FEHBP regulations. We deter-mined that a group other than the one 
the plan chose was actually closer in size to the FEHBP. Our analysis of the 
latter groups rates showed that it had received discounts much larger than the 
plan gave the FEHBP in both years. 

In 1996, the group that should have been selected received a 7.2 percent discount, 
while the FEHBPs discount was only .04 percent. We applied the difference 
in the discounts to the FEHBP rates and found that the FEHBP had been over-
charged $4,120,200. The plan does not agree with the subscriber group we se-
lected in lieu of the one it chose. The plan stated that both subscriber groups 
it identified were appropriate and that no FEHBP overcharges occurred in 1996. 

In 1997, the group that we designated in place of the plans choice received a 
10.3 percent discount. Since the FEHBP did not receive a discount of any kind, 
we applied the full 10.3 percent to the FEHBP rates. As a result, our auditors 
determined that the FEHBP was over-charged $6,516,020. The plan agreed 
that the FEHBP is due a price adjust-ment for 1997, but not $6,516,020. 
The plan contends that the FEHBP is only due $1,679,489, basing its calcula-
tions on the discount it gave to one of the groups it selected over the one our 
auditors identified as the correct one. We strongly disagreed with the plans 
position and recommended in our audit report that OPMs contracting officer 
require the plan to return $6,516,020 to the FEHBP. 

Substance abuse loading. We also found that the plan incorrectly calculated the 
substance abuse loading in contract years 1997 and 1999. As mentioned earlier, a 
loading is a health benefits charge that is in addition to the charge for the plans 
basic health benefits package. Based on our auditors calculations, overcharges 
amounted to $71,556 in 1997 and $82,877 in 1999, for a total of $154,433. 
The plan agreed to return this amount to the FEHBP. 

uditors 
Identify 
$13.4 Million 
in Questioned 
Costs to FEHBP 

A 
14
8 OIG Semiannual Report 
AUDIT ACTIVITIES April 
Lost Investment Income 
The FEHBP contract with community-rated carriers states that the FEHBP is 

entitled to the recovery of lost investment income on defective pricing findings. 
We determined that the FEHBP is due $2,648,4860 from the plan for lost in-
vestment income through December 31, 2000, on the overcharges identified in 
the report. An additional amount is also due from the plan for the period 
beginning January 1, 2001, until all funds have been returned to the FEHBP. 

United Healthcare Select in Minneapolis, Minnesota 
Report No. 1C-H8-00-00-010 December 8, 2000 

United Healthcare Select (United) entered the FEHBP in 1987 as a community-
rated comprehensive medical plan. Although its headquarters are located 
in Minnesota, the plan provides health care services to members in the St. Louis 
metropolitan area as well as mid-and southern Missouri. The audit covered 
contract years 1994 through 1999. During this six-year period, the plan re-
ceived over $122 million in premiums from the FEHBP. 

Our auditors identified $9,190,865 in inappropriate charges to the FEHBP in 
contract years 1994, 1995, 1997, and 1998. In addition, the FEHBP is due 
$1,939,275 for investment income lost as a result of the overcharges. The plan 
agrees that the FEHBP was overcharged, but believes the overcharge is less than 
our auditors calculated. 

Premium Rates 
The primary objectives of the audit were to determine if United Healthcare Select 

gave the FEHBP the same premium rate discounts it gave to similarly sized 
groups that met the selection criteria under its FEHBP contract and if any 
additional health benefit charges (load-ings) the FEHBP received were fair and 
reasonable. We also looked at whether the rates were in compliance with the 
laws and regulations governing the FEHBP. All our findings relate to defec-
tive pricing that occurred because the plan did not give the FEHBP the correct 
premium rate discounts. 
Discounted rates. We found that in only two of the six contract years (1996 and 

1999) we reviewed did the FEHBP re-ceive a market price adjustment equiva-
lent to the largest discount given to the two groups closest in size to the FEHBP 
as called for under its contract. 
In the other four years (1994, 1995, 1997, and 1998), the FEHBP either did 

not receive equivalent discount rates (1994, 1995 and 1997) or received 
none (1998). In the former, United se-lected a subscriber group in these years 
not comparable in size to the FEHBP. Specifically, the groups the plan should 
have selected received discounts of 13.27 percent, 14.4 percent, and 20 per-
cent, respectively. While the FEHBP received discounts in these years, the 
discounts were not as large as those given to these groups. 

Since the plan incorrectly selected other plans as closest in subscriber size to the 
FEHBP, it violated a contract require-ment. After applying the appropriate 
discounts to the FEHBP rates, we deter-mined that the FEHBP was overcharged 
$1,979,586 in 1994; $1,893,611 in 

uditors 
Determine 
FEHBP Due 
$11. 1 Million 

A 
15
October 1, 2000  March 31, 2001 9 
2001 AUDIT ACTIVITIES 
1995 and $3,674,689 in 1997, totaling $7,547,886 overall. 
In 1998, the group that the plan cor-rectly selected received the highest dis-
count (7.3 percent). Since the FEHBP did not receive a discount of any kind 
from the plan, we applied the 7.3 per-cent discount to the FEHBP rates and 
found that the FEHBP was overcharged $1,642,799. 

Lost Investment Income 
Consistent with the FEHBP contract with community-rated carriers, the 

FEHBP is entitled to lost investment in-come on all defective pricing findings. 
We determined that the FEHBP is due $1,939,275 for lost investment income 
covering the years 1994 through 1999. In addition to this amount, we recom-
mended that OPMs contracting officer charge the plan lost investment income 
on amounts due for the period beginning January 1, 2000, until all funds have been 
returned to the FEHBP. 

Experienced-Rated Plans 
In addition to community-rated, compre-hensive medical plans, (refer to page 6 

for a discussion of HMOs), the Federal Employees Health Benefits Program of-
fers a variety of experience-rated plans, including fee-for-service plans, that con-
stitute the majority of federal contracts in this category. There are also certain 
comprehensive medical plans that qualify as experience-rated HMOs. 

An experience rate is a rate that reflects a given groups projected paid claims, 
administrative expenses and service charges for administering the FEHBP 
contract. Each carrier maintains sepa-rate accounts for its federal contract, 
and future premiums are adjusted to reflect the federal enrollees actual past 
use of benefits. The universe of experience-

rated plans currently consists of about 100 audit sites. The number of audit 
sites fluctuates due to contracts not be-ing renewed or because of plan mergers 
and acquisitions. 
When auditing these plans, our auditors generally focus on three key areas: 

n Allowability of contract charges and 
the recovery of appropriate credits, including refunds. 

n Effectiveness of carriers claims pro-
cessing, financial and cost accounting systems. 

n Adequacy of internal controls to 
ensure proper contract charges and benefit payments. 

During this reporting period, we issued 17 audit reports on experience-rated 
plans, one of which was an HMO com-prehensive medical plan. In these reports, 
our auditors recommended that OPMs contracting officer require the plans to 
return $93.9 million to the FEHBP. 

Government-Wide Service Benefit Plan 

This plan comes under the broad defi-nition of a fee-for-service plan and is 
administered by the BlueCross and BlueShield Association (BCBS Associ-
ation), which contracts with our agency on behalf of its member plans. Partici-
pating Blue Cross and Blue Shield plans throughout the United States under-
write and process the health benefits claims of their federal subscribers 
under the BCBS Service Benefit Plan. Approximately 46 percent of all FEHBP 
subscribers are enrolled in Blue Cross and Blue Shield plans nationwide. 

While its headquarters are in Chicago, Illinois, for administrative purposes, 
the BCBS Association has established a Federal Employee Program (FEP) 

ost 
Investment 
Income Exceeds 
$1. 9 Million 

L 
16
10 OIG Semiannual Report 
AUDIT ACTIVITIES April 
Directors Office in Washington, D.C., to provide centralized management for 
the Service Benefit Plan. The Association oversees a national FEP operations center, 
also located in the Washington, D.C. area, whose activities include verifying 
subscriber eligibility; approving or dis-approving reimbursement of local plan 
FEHBP claims payments (using com-puterized system edits); and maintain-
ing an FEHBP claims history file and an accounting of all FEHBP funds. 

During this reporting period, we issued 15 BlueCross and BlueShield experience-
rated reports in which our auditors cited $65.8 million in costs charged to the 
FEHBP that were determined unallow-able under BCBS contracts. Our auditors 
also noted an additional $24.6 in lost investment income on these questioned 
costs, for a total of $90.4 million owed to the FEHBP. The following audit nar-
rative describes the major findings from one of these reports as well as the ques-
tioned costs associated with them. 

CareFirst BlueCross BlueShield 
in Owings Mills, Maryland 
Report No. 1A-10-06-99-055 November 13, 2000 

Our audit of the FEHBP operations at CareFirst BlueCross BlueShield 
(CareFirst) took place at the plans head-quarters in Owings Mills, Maryland. We 
reviewed health benefit payments made by the plan from July 1, 1995 through 
June 30, 1999, as well as administrative expenses and miscellaneous payments 
covering contract years 1993-1998. 
In performing this audit, we determined whether the plan charged costs to the 

FEHBP and provided services to FEHBP members in accordance with the terms 
of the contract. As a result, our auditors questioned $4,783,026 in claim pay-
ments; $1,050,772 in administrative expenses; and $51,308 in refunds. Of 
these amounts, the BCBS Association agreed with $4,384,336 and disagreed 
with $1,449,462. Lost investment in-come on these questioned costs totaled 
$162,763. Final calculations by our auditors regarding all inappropriate 
charges and lost investment income to the FEHBP totaled $5,996,561. 

Health Benefits 
During the period July 1, 1995 through June 30, 1999, the plan made $843 mil-

lion in actual FEHBP claim payments. We selected claims at random as well 
as in specific health benefit categories, principally those concerning coordi-
nation of benefits with Medicare and potential duplicate payments. We also 
reviewed specific financial and account-ing areas, such as refunds and other mis-
cellaneous credits relating to FEHBP claim payments. Our findings relating 
to health benefit charges totaled $4,783,026. Some of our findings in 
these areas were: 
Coordination of benefits. Although we have identified coordination of benefits 

(COB) problems during our audits at many other plans, we were surprised 
by the magnitude of this problem at CareFirst. We identified 11,080 claim 
lines where the FEHBP paid as primary insurer when Medicare was actually the 
primary insurer. We estimated that these claim payment errors cost the FEHBP 
$4,418,596. 
CareFirsts explanation for this COB oversight was that no information ex-

isted in the FEP national claims system database maintained at the FEP opera-
tions center to make the plan aware that this coordination was necessary. 

uditors 
Calculate 
$5,996,561 Owed 
to the FEHBP 

A 
17
October 1, 2000  March 31, 2001 11 
2001 AUDIT ACTIVITIES 
nappropriate 
Health 
Benefit Charges 
Total $4,783,026 

I 

However, when this Medicare informa-tion was later added to the FEP claims 
system, CareFirst still failed to review and adjust the members prior claim lines 
back to the Medicare effective dates. Therefore, the claims benefit charges 
remained charged to the FEHBP in their entirety. These claims had to do with 
Medicare Parts A and B. Similarly, CareFirst did not follow its procedures 
and coordinate inpatient claims when patients had Medicare Part B only. We 
have recommended that OPMs con-tracting officer disallow these uncoor-
dinated claim payments and instruct CareFirst to make a diligent effort to 
recover these overpayments and credit all amounts recovered to the FEHBP. 

Medicare Part A helps pay for care in hospitals, skilled nursing facilities, 
hospices, and some home health care. 
Medicare Part B helps pay for doctors, outpatient hospital care, and some 

other medical services that Part A does not cover, such as services of 
physical and occupational therapists and some home health services. 

Duplicate claim payments. Our auditors also determined that CareFirst inappro-
priately charged the FEHBP for duplicate claim payments during the period cov-
ered by this audit. Of the approximately $843 million in claims paid during this 
period, we identified 428 duplicate claim payments, totaling $301,637. However, 
we concluded that this relatively small number of duplicate claim payments 
indicated that CareFirst had effective controls in place to minimize such 
payments. 
Recoveries and refunds. CareFirst did not provide documentation to substantiate 

that five fraud recoveries and one health 

benefit refund ($41,768 and $7,155, respectively), had been credited to the 
FEHBP. The FEHBP contract requires the carrier to retain and make available 
all records applicable to a contract year that support the annual statement of 
operations. As a result, we recommended that the contracting officer ensure that 
the plan credits the FEHBP for these recoveries. 

Administrative Expenses 
During our review of administrative ex-penses from 1993-1998, we noted that 

CareFirst charged the FEHBP for unal-lowable and unsupported costs totaling 
$1,111,489, the bulk of which related to unallowable subcontract costs. We 
also noted that the plan undercharged the FEHBP $60,717 for pension costs 
it was entitled to receive from the FEHBP. Under the terms of its FEHBP contract, 
CareFirst can charge personnel expenses, including salary and pension costs, as 
administrative expenses for work asso-ciated with the contract. 

Unallowable subcontract costs. CareFirst charged the FEHBP for two subcontracts 
that were not approved by OPMs con-tracting officer. Federal regulations spe-
cifically state that the plan must notify and receive approval from the contract-
ing officer in advance of entering into a subcontract or subcontract modification 
if: (1) the amount of the subcontract exceeds $100,000; and (2) the amount 
is at least 25 percent of the total cost of the subcontract. In each instance, the 
contracting officer denied the plans request for approval. 

Since OPMs contracting officer did not approve these two subcontracts, 
we determined that the FEHBP is due $1,085,941 for costs associated with 
these subcontracts. 

lan Charges 
the FEHBP 
$1, 085,941 in 
Costs for Denied 
Subcontracts 

P 
18
12 OIG Semiannual Report 
AUDIT ACTIVITIES April 
Experienced-Rated Comprehensive Medical Plans 
As explained earlier in this section, comprehensive medical plans fall into 
either the community-rated or experience-rated category and are commonly re-
ferred to as health maintenance orga-nizations (HMOs). The critical difference 
between the two categories stems from how premium rates are calculated for 
each (see page 6). 
Like other health insurance plans par-ticipating in the FEHBP, experienced-

rated HMOs offer what is termed a point of service product. Under this 
option, members have the choice of using a designated network of provid-
ers or using non-network providers at additional costs. In selecting one health 
provider over another (the point of ser-vice), a members choice has specific 
monetary and medical implications. For example, if a member chooses a non-
network provider, the member will pay a substantial portion of the charges 
and the benefits available may be less comprehensive. 

As mentioned previously, we issued one comprehensive medical plan audit re-
port during this reporting period. The following audit narrative describes the 
major findings from this report, along with questioned costs associated with 
those findings. 

Hawaii Medical Service Association 
in Honolulu, Hawaii 
Report No. 1D-87-00-00-030 January 31, 2001 

Hawaii Medical Service Association (HMSA) is a comprehensive medical 
plan, located in Honolulu, Hawaii, pro-

viding health benefits to approximately 27,000 federal enrollees and their fami-
lies in Hawaii. In addition to offering comprehensive health services and bene-
fits for accidents, illness and injury, HMSA places emphasis on preventive 
benefits, such as office visits, physical examinations, immunizations and well-
child care. 
The purpose of this audit, which covered contract years 1995-1999, was to de-

termine whether HMSA charged costs to the FEHBP and provided services 
to FEHBP members in accordance with the terms of its contract. Our auditors 
examined health benefit payments made by HMSA from 1997 through 1999, as 
well as miscellaneous adjustments, ad-ministrative expenses and cash manage-
ment processes. 
At the conclusion of this audit, our au-ditors determined that HMSA improp-

erly charged the FEHBP $736,856 in claim payments and never credited the 
FEHBP $15,569 for a refund. Final calculations by our auditors regarding 
amounts owed the FEHBP totaled $752,425. HMSA agreed with all the 
questioned amounts. 
Health Benefits 
During the period 1997 through 1999, HMSA paid $300 million in actual claim 

payments. We selected claims at random, as well as in specific health benefits cate-
egories, principally those concerning coordination of benefits with Medicare 
and duplicate payments. We also reviewed FEHBP claim payments activities relating 
to refunds and uncashed checks. Our findings related to health benefit charges 
totaled $752,425. The findings in these areas are highlighted below. 

Coordination of benefits. For the period 1997-1999, our auditors identified 35 
inpatient claim overpayments, totaling $763,362, where the FEHBP paid as the 
19
October 1, 2000  March 31, 2001 13 
2001 AUDIT ACTIVITIES 
primary insurer when Medicare Part A or B was the primary insurer. This type 
of inappropriate charge occurs when there is a failure to coordinate benefits 
properly with Medicare coverage. We recommended that OPMs contracting 
officer disallow these uncoordinated claim payments, and instruct HMSA to 
make a diligent effort to collect these payments and credit all amounts recov-
ered to the FEHBP. 
Duplicate payments. Our auditors also determined that HMSA charged the 

FEHBP inappropriately for duplicate claim payments. During the review 
period of 1997-1999, we identified 14 duplicate claim payments, resulting in 
overcharges of $21,055 to the FEHBP. This relatively small number of duplicate 
claim payments indicated to our auditors that HMSA had effective controls in 
place to minimize payments of this type. Nevertheless, we recommended 
that OPMs contracting officer disallow the duplicate payments, instructing 
HMSA to be conscientious in trying to collect these payments and credit all 
amounts recovered to the FEHBP. 
Claim payment errors. For the period January 1, 1999 through December 31, 

1999, we selected 80 claims and deter-mined if HMSA paid these claims prop-
erly. As a result of this review, our audi-tors identified four claim payment errors, 
resulting in overcharges of $40,298 to the FEHBP. We also identified 11 addi-
tional claim payment errors during our coordination of benefits review that 
showed that the plan undercharged the FEHBP $87,859. 

Our auditors determined that under-charges exceeded overcharges to the 
FEHBP for the above 15 claim payment errors, for a net of $47,561 in under-
charges. In recommending that OPMs contracting officer direct HMSA to 
make a diligent effort to collect the 

uditors 
Determine 
$752,425 
Owed to 
the FEHBP 

A 

claim overpayments and credit all amounts recovered to the FEHBP, our 
auditors also recommended that OPMs contracting officer allow HMSA to 
charge the FEHBP for the claim under-charges if additional payments are made 
to the providers to correct the under-payment errors. 

Under its FEHBP contract, should HMSA be able to demonstrate that 
all forms of claim overpayments cited in our audit report were made 
in good faith and can show further that it made a reasonable effort to 
collect these funds, then OPMs contracting officer can consider all 
uncollected amounts (i.e., questioned costs by our auditors) to be allowable 
charges to the FEHBP. This applies to all FEHBP Blue Cross and Blue Shield 
plan contracts. 
Miscellaneous adjustments. In review-ing HMSAs procedures for handling 
FEHBP refunds and uncashed health benefit checks, we identified one in-
stance where HMSA did not credit the FEHBP $15,569 for a refund. 

Administrative Expenses 
During our review of administrative ex-penses from 1995-1999, we noted that 

HMSA allocated unallowable advertising, public relations, and lobbying expenses 
of $1,383,217 to the FEHBP. Federal regulations specifically state that lobby-
ing expenses are unallowable. Regarding advertising and public relation expenses, 
federal regulations generally state that such costs are unallowable. For the 
same period, however we noted that $7,321,836 in administrative expenses 
were not reimbursed to HMSA since it had exceeded the contract limitation set 
for administrative expenses reimburse-ment. Our auditors, therefore, did not 
recommend any monetary adjustments for this finding. 
20
14 OIG Semiannual Report 
AUDIT ACTIVITIES April 
Employee Organization Plans 
Employee organization plans also fall into the category of experience-rated and may 

operate or sponsor participating health benefits programs. 

The two largest types of employee organi-zations are federal employee unions and 
associations. Some examples are the American Postal Workers Union, the 
National Association of Letter Carriers, the Government Employees Hospital 
Association and the Special Agents Mu-tual Benefit Association. These plans 
operate on a fee-for-service basis, which allows members to obtain treatment 
through facilities or providers of their choice. 

During the reporting period, we issued one employee organization plan audit 
report relating to the Mail Handlers Benefit Plan (MHBP) (Report No. 1D-
87-00-00-030). Specifically, we examined 

the FEHBP operations at the plans administrator, Claims Administration 
Corporation (CAC), based in Rockville, Maryland. CAC processes FEHBP claims 
on behalf of Continental Assurance Company, which underwrites this plan. 

The audit covered contract years 1997-1999, and was conducted to determine 
whether costs were charged appropriately under the terms of MHBPs FEHBP 
contract. 
As a result of the audit, our auditors questioned $1,851,747 for duplicate 

claim payments, $709,889 for uncoor-dinated claim payments with Medicare 
(see page 12 for COB issue addressed in previous audit narrative), and other claim 
payment errors for $114,779. In total, our auditors questioned $2,676,415 for 
inappropriately charged FEHBP claim payments covering the contract years 
we examined. CAC agreed with all questioned costs. 

lan Agrees 
With 
$2,676,415 
in Audit Findings 

P 
21
October 1, 2000  March 31, 2001 15 
Information Systems Audits In accordance with the Inspector General Act of 1978, as amended, 
we conduct and supervise independent and objective audits of agency programs and operations to prevent and detect fraud, waste and abuse. 
To assist in fulfilling this mission, we perform information systems audits of health and life insurance carriers that participate in the Federal Em-
ployees Health Benefits Program (FEHBP) and the Federal Employees Group Life Insurance program (FEGLI). We also audit the agencys 
computer systems development and management activities. 

2001 AUDIT ACTIVITIES 

ur information systems audit group, O while relatively new, continues to 
gain experience through audits of health insurance carriers participating in the 
Federal Employees Health Benefits Pro-gram (FEHBP) as well as through its 
reviews of OPM computer systems security activity. Thus far, the results 
are encouraging. 
The inherent need for this type of over-sight lies in the reality that the federal 

government is heavily reliant on infor-mation systems to administer federal 
programs, manage federal resources, and accurately report costs and benefits. Any 
breakdown in federal computer systems, including systems of federal contractors, 
can compromise the governments effi-ciency and effectiveness and increase the 
costs of federal projects and programs. The importance of this issue is also under-
scored by the increasing frequency of malicious threats to government com-
puter systems, outbreaks of destructive computer viruses, Web site defacements, 
and theft of valuable or sensitive infor-mation in computer databases. 

To counter this threatening climate, our office audits various agency computer 
systems development and security-related activities. In addition, our office 
audits general and applications controls at health carriers under contract with 
OPM to provide health benefits under the FEHBP. General controls are defined 
as the policies and procedures that apply 

to an entitys overall computing environ-ment. Application controls are those 
directly related to individual computer applications, such as a carriers payroll 
system or benefits payment system. General controls provide a secure setting 
in which computer systems can operate, while application controls ensure that 
the systems completely and accurately process transactions. 

During this reporting period, we com-pleted a review of OPMs efforts to 
protect the critical infrastructure of its computer-based systems. We also com-
pleted one external audit of general computer controls at an FEHBP health 
carrier. A summary of our audit find-ings and recommendations, as well as 
customer response to both, follows. 

Audit of General Information System Controls 
American Postal Workers Union Health Plan 
in Silver Spring, Maryland 
Report No. 1B-47-00-00-027 January 2, 2001 

The American Postal Workers Union Health Plan (APWU), in Silver Spring, 
Maryland, has received approximately 
22
16 OIG Semiannual Report 
$400 million in FEHBP program income associated with its FEHBP contract. Our 
auditors conducted this particular audit, which covers contract year 1999, to ob-
tain reasonable assurance that APWU had implemented proper controls over 
the integrity, confidentiality and avail-ability of computerized data associated 
with its FEHBP contract operations. 
We evaluated the plans internal control structure, specifically its general infor-

mation system controls, using industry standards, guidance contained in the 
General Accounting Offices Federal Information System Controls Audit 
Manual, along with pertinent federal law and regulations. 

This review included examining how well the company was managing security 
policy and access controls, along with software changes related to its general 
information systems. Our auditors also assessed whether there was an appro-
priate segregation of duties among APWU employees who were involved 
in the plans general information sys-tems. For example, we wanted to make 
sure that, where necessary, different in-dividuals were involved at critical steps 
of a given process rather than the same people having access to each of these 
steps. Additionally, we looked at controls over the mainframe operating system 
and examined the companys plan for keeping the totality of its computer 
systems running after a disaster, natural or otherwise. 

Our audit revealed several areas where APWU could improve its computer-
related general control structure. These areas are: developing a comprehensive 
security plan; tightening access controls; improving software development and 
change controls; implementing a disas-ter recovery plan; and strengthening 
controls over the mainframe operating system. 

Our auditors made a number of recom-mendations to address these internal 
control weaknesses. As a result, APWU agreed to: 

n Publish a corporate security policy. 
n Introduce a security awareness train-
ing program. 
n Improve security-related personnel 
controls. 
n Tighten access controls on its main-
frame computer. 
n Establish policy regarding software 
change management. 
n Formally document its disaster 
recovery program. 
n Enhance the integrity of its main-
frame operating system. 

We believe that our review of informa-tion system general controls at APWU, 

along with our specific recommenda-tions, will serve the dual purpose of 
protecting the private medical records of federal employees enrolled in this 
health plan and preventing any potential fraud, waste and abuse in the FEHBP. 

Review of OPMs Compliance with 
Presidential Decision Directive 63 
Report No. 4A-OP-00-00-075 December 15, 2000 

We conducted a review of OPMs compliance with Presidential Decision 
Directive 63 (PDD 63), dated May 1998. This directive requires that each depart-
ment and agency of the federal govern-ment be responsible for protecting its 
own critical infrastructure. 

AUDIT ACTIVITIES April 
PWU 
Agrees with 
OIG Computer 
Security 
Recommendations 

A 
23
October 1, 2000  March 31, 2001 17 
As defined in PDD 63, critical infra-structures are systems so vital that their 
incapacity or destruction would have a debilitating impact on national defense 
or economic security. Within the context of our agencys operations, we believe 
that OPMs retirement, health insurance, and life insurance programs are examples 
of such critical infrastructures. 
Advances in information technology have caused computer-based infrastructures 

to become increasingly automated and interlinked, and have created new vul-
nerabilities due to equipment failures, human error, weather, along with physi-
cal and cyber attacks. Cyber attacks, of course, come primarily through the 
Internet. To combat these increased vulnerabilities, PDD 63 requires each 
agency to: 
n Appoint an individual (Chief Infor-
mation Assurance Officer) to lead its efforts in identifying and protecting 

an agencys critical infrastructure. 
n Develop a plan for protecting an 
agencys critical infrastructure. 
n Cooperate with a national infrastruc-
ture protection center that will serve as the national focal point for threat 

assessment, warning, investigation, and response to attacks on critical 
infrastructures. 
n Develop controls to restrict its 
computer systems access to only authorized individuals. 

Note: Access controls would include physical access restrictions, as well 
as logical access restrictions, such as passwords. 

n Work with the Office of Management 
and Budget to include assigned infra-structure assurance functions within 

its Government Performance and Results Act strategic planning and 
performance measurement frame-work. 

In the fall of 1999, the Presidents Coun-cil on Integrity and Efficiency (PCIE) 
and the Executive Council on Integrity and Efficiency (ECIE) agreed that the 
Inspector General community could provide support for the Presidents di-
rective by initiating a government-wide review of agency infrastructure assurance 
programs. The review would consist of four phases. Phases I and II relate to 
critical computer-based infrastructures, while Phases III and IV relate to critical 
physical infrastructures. 
In order to complete the reviews in a consistent manner, a PCIE/ECIE work-

ing group was established. The working group, chaired by the OIG at the National 
Aeronautics and Space Administration, has the overall responsibility to: 

n Develop review guides. 
n Coordinate the efforts of the partici-
pating Offices of Inspector General. 
n Prepare and issue consolidated reports 
summarizing the results of the reviews. 
n Make government-wide recommen-
dations as appropriate. 
n Conduct follow-up work regarding 
recommendations. 

In turn, the participating OIGs are responsible for conducting reviews at 

their respective agencies and reporting the results to the working group. 

In accordance with Phase I of this multi-agency assessment, we evaluated the 
adequacy of OPMs planning and assess-ment activities for protecting its critical 
computer-based infrastructure. Specifi-cally, this included a review of OPMs 
critical infrastructure protection plan, asset identification efforts, and vulner-
ability assessments as appropriate. 
Our Phase I review shows that OPM management officials have a strong 

commitment to protecting the agencys 

2001 AUDIT ACTIVITIES 
G Community 
Provides 
Support for 
PDD 63 Agency 
Infrastructure 
Assurance 
Program Initiative 

I 
24
18 OIG Semiannual Report 
AUDIT ACTIVITIES April 
critical assets. The agency has devoted significant efforts to improving the over-
all security of OPMs information sys-tems. However, we have observed that 
OPM has not taken the action neces-sary to address formally those critical 
infrastructure planning and assessment requirements defined in PDD 63. We 
believe that the computer security con-trol efforts that have been introduced 
and planned can be used as a basis to meet the directives requirements. 

Agency officials believe that PDD 63 requirements should be addressed using 
security best practices criteria instead of requiring strict implementation. They 
also indicated that a lack of adequate funding limits OPMs ability to imple-
ment this presidential directive. 
Our offices position is straightforward: We believe that PDD 63 applies to OPM 

and that it is in OPMs best interest to comply with it as a structured strategy 
to minimize the risks associated with cyber attacks. Certainly, recent events, 
including the Melissa and I Love You virus attacks on computer hard drives 
and files, have highlighted an increased risk for all computer systems to cyber 
attack. 
As we indicated above, OPM has taken information technology security very 

seriously. For example, we have noted steps OPM management has taken to 
enhance, update and consolidate OPMs information technology security policies. 
Agency management has also refocused and increased resource commitments to 
this highly visible issue. 

While we agree that these steps provide improved protection for OPMs critical 
infrastructure, we also continue to believe that formally implementing PDD 63 will 
enhance our agencys efforts to protect its critical computer-based infrastructure. 
This has led us to recommend to OPM management that it take the action nec-
essary to implement PDD 63. 
Our office has now completed its Phase I review and forwarded those results and 

recommendations to the IG communitys Presidents Council on Integrity and 
Efficiency and Executive Council on Integrity and Efficiency. The PCIE/ECIE 
consolidated Phase I report to the Office of Management and Budget can be re-
viewed on the IGNet Web site at http:// www.ignet.gov/randp/rpts.html#2001. 

As the above audit work illustrates, in todays computer-dependent work envi-
ronment, it is essential that we take the position that security measures are of 
paramount importance in protecting sensitive data and ensuring that federal 
funds are safeguarded. To this end, we recognize the significant role our infor-
mation systems audits group can play by helping the FEHBP health insurance 
carriers assess their security risks and make improvements where necessary. 

Likewise, regarding our oversight of OPMs internal computer systems and 
operations, our auditors believe that monitoring the work performed by in-
dependent external auditors provides additional assurance that our agencys 
computer-based operations will remain secure. 

IG 
Recommends 
OPM Officials 
Formally 
Implement 
PDD 63 

O 
25
October 1, 2000  March 31, 2001 19 
2001 AUDIT ACTIVITIES 
Other External Audits When requested by Office of Personnel Management (OPM) procurement 
officials, our office conducts pre-and post-award contract audits relating to the acquisition of goods and services by agency program offices. We 
also conduct audits of the local organizations of the Combined Federal Campaign (CFC), the only authorized fund-raising drive conducted in 
federal installations throughout the world. 

Agency Contract Audits 
ur office conducts two types of O agency contract audits. We perform 

pre-award contract audits to: (1) ensure that a bidding contractor is capable of 
meeting contractual requirements; (2) assess whether estimated costs are 
realistic and reasonable; and (3) deter-mine if the contract complies with all 
applicable federal regulations. In the other instance, we conduct post-award 
contract audits to ensure that costs claimed to have been incurred under the terms 
of an existing contract are accurate and in accordance with provisions of federal 
contract regulations. 
These audits provide OPM procurement officials with the best information avail-

able for use in contract negotiations and oversight. In the case of post-award 
contract audits, for example, the verifi-cation of actual costs and performance 
charges may be useful in negotiating fu-ture contract modifications pertaining 
to cost-savings and efficiency. 
During this reporting period, we con-ducted one pre-award and one post-

award contract audit at the request of OPMs Office of Contracting and Ad-
ministrative Services (OCAS). The fol-lowing summaries include some of the 
determinations we made concerning these audits. 

Pre-Award Contract Audit 
In August 2000, OPM management is-sued a request for proposals to provide 

consolidated facilities management ser-vices at the Federal Executive Institute 
(FEI) in Charlottesville, Virginia. FEI is a residential training center for advanced 
study and executive development. 
Two potential contractors, ARAMARK Services, Inc,. and Wastren, Inc., sub-

mitted proposals to OPMs Office of Contracting and Administrative Services. 
ARAMARK had held the previous contract for providing consolidated 
facilities management services at FEI. In the following section, we discuss our 
post-award audit of ARAMARK and its costs charged to OPM under the ex-
pired contract. Wastren, Inc. is a multi-service corporation, located in Grand 
Junction, Colorado, that has significant experience in performing facility man-
agement services. OCAS requested our office audit the proposal submitted by 
Wastren, Inc. 
Our audit determined the cost proposal submitted by Wastren, Inc., may not have 

been an accurate assessment of its total estimated costs required to fulfill the 
agencys contract requirements. We pro-vided our report (No. 6A-2A-00-01-030), 
26
20 OIG Semiannual Report 
AUDIT ACTIVITIES April 
to OPMs procurement officials to use in contract negotiation. Based on our 
audit results, OCAS awarded the con-tract to ARAMARK. 

Post-Award Contract Audit 
As we described in our semiannual report issued last fall, the subject of this post-

award audit was the facilities management contractor at the Federal Executive In-
stitute (FEI) in Charlottesville, Virginia. ARAMARK Services, Inc., provided a 
full range of services to FEI, including food preparation, security, and grounds 
maintenance, during its multiple-year contract until that contract ended 
December 31, 2000. 
We completed the audit and issued our report (No. 6A-2A-00-00-070) on 

January 31, 2001. We verified actual expenses charged by ARAMARK to FEI 
for services performed from January 1996 through the end of calendar year 2000, 
and evaluated the companys compliance with the provisions in its contract and 
with federal regulations. We concluded that ARAMARK was in general compli-
ance with both. However, we did note in our report that ARAMARK manage-
ment was remiss in the following areas: 
n Did not have written policies and pro-
cedures for determining employee eligibility for performance awards 

and the distribution of performance awards paid under the contract. 

n Did not distribute a performance 
award paid under the contract to an employee who had earned the com-

pensation, because the employee had since left the employ of ARAMARK. 

n Did not properly use and make pay-
ments from the petty cash fund. 

n Did not verify, in all instances, its 
billings to ensure only accurate and complete charges were submitted 

to OPM. 
n Did not approve time cards or manual 
changes to time cards. 

Combined Federal Campaign 
Executive Order 10927 designated the U.S. Civil Service Commission (the pre-

cursor of OPM) as the agency respon-sible for arranging national voluntary 
health and welfare agencies to solicit funds from federal employees and mem-
bers of the armed services at their place of employment. Since then, there have 
been additional executive orders, one public law (P.L. 100-202), and new fed-
eral regulations (5CFR 950) that: 
n Provide for the eligibility of national 
and local organizations and charities participating in the Combined Federal 

Campaign (CFC). 
n Define the role of local CFCs. 

n Cite the Office of Personnel Manage-
ments specific oversight respon-sibilities relating to the Combined 

Federal Campaign. 
Since its inception on March 18, 1961, the CFC has netted over $4 billion in 

charitable contributions. An estimated 387 local campaigns participated in the 
1999 Combined Federal Campaign, the most recent year for which statistical 
data is available. Federal employee con-tributions reached $217.8 million for 
the 1999 CFC, while expenses totaled $18 million. 

Our CFC audits traditionally cover two consecutive campaign years and focus 

uditors 
Call 
for Tighter 
Contractor 
Operational 
Controls 

A 
27
October 1, 2000  March 31, 2001 21 
2001 AUDIT ACTIVITIES 
on the eligibility of participating local charities, local campaign compliance with 
federal regulations and OPM guidelines, as well as testing financial records of the 
various local campaigns. This testing includes reviewing budgets, certified 
financial statements, general ledgers, bank statements and pledge cards to en-
sure that budgets, expenses, as well as cash receipts and disbursements, are ac-
counted for correctly. Combined Federal Campaign audits will not ordinarily 
identify savings to the government, be-cause the funds involved are charitable 
donations made by federal employees, not federal entities. While infrequent, our 
audit efforts can result in an internal re-ferral to our OIG investigators for po-
tential fraudulent activity. We reported one such case in our semiannual report 
issued last fall. 
During the current reporting period, we issued one draft and nine final CFC 

reports, a listing of the latter is on page 47 in Appendix VI. We have summarized 
one of these reports below to illustrate results typically obtained in a CFC audit. 

1998 and 1999 Combined Federal Campaigns of 
Southern New Jersey in Rancocas, New Jersey 
Report No. 3A-CF-00-01-035 March 30, 2001 

We audited the Combined Federal Cam-paigns for Southern New Jersey for 1998 
and 1999 with the objective of deter-mining if the administrator conducted 
these Combined Federal Campaigns in 

accordance with federal regulations and OPMs CFC guidelines. 
The United Way of Burlington County served as the administrator for both 
campaigns. As a CFC administrator, its responsibilities included developing 
campaign plans and budgets, conduct-ing pledge drives, collecting donations, 
and disbursing contributor donations to charities within the various localities 
of the southern New Jersey campaign area. 

Based on our audit, we concluded that the United Way of Burlington County 
conducted these campaigns in accor-dance with federal regulations and 
OPM guidelines with the following notable exceptions: 

n Did not distribute funds to charities 
in southern New Jersey in a timely manner nor on a monthly basis. 

n Made one distribution to an incor-
rect charity. 
n Charged certain unsupportable ex-
penses in its capacity as administrator. 
n Did not send notification letters to 
charities in a timely manner, inform-ing them of the amounts donated 

to them. 
n Did not submit an administrator ap-
plication that met all federal regula-tions and OPM guidelines. 

n Did not prepare the campaign bro-
chure in accordance with federal regulations and OPM guidelines. 

n Did not see that contributor pledge 
card data was accurately entered into its administrator data base. (Note: In 

two instances, these errors resulted in erroneous distributions to charities 
in southern New Jersey.) 

IG Notes 
Need 
for Stricter 
Adherence to 
CFC Regulations 
and Guidelines 

O 
28
22 OIG Semiannual Report 
OPM Internal Audits Our office also has responsibility for conducting audits and evaluations 
and inspections of the Office of Personnel Managements (OPM) programs and administrative operations. For example, we conduct audits of OPMs 
consolidated financial statements required by the Chief Financial Officers Act (CFO Act); government-wide activities based on our par-
ticipation in the Presidents Council on Integrity and Efficiency; OPMs compliance with laws and regulations, such as the Prompt Payment Act, 
the Federal Managers Financial Integrity Act (FMFIA), the Federal Financial Management Improvement Act (FFMIA) and the Government 
Performance and Results Act of 1993 (GPRA). Further, we conduct performance audits and evaluations and inspections of OPM programs 
that involve the retirement, employee development, and personnel management activities. 

ur internal audits staff consists of O auditors and program evaluators 
working together to provide recommen-dations for improving the economy and 
efficiency of our agency operations. We use a risk-based methodology to assess 
OPMs activities and establish annual work agendas. To accomplish this, we 
calculate a risk rating by assigning nu-meric values to risk factors within the 
agencys program offices. The objective is to identify high impact areas where 
the OIG can provide the best possible benefit to the agency. 

To ensure that we achieve our goals, we carefully plan, conduct and monitor our 
activities in accordance with govern-ment standards that apply to audits or 
to evaluations and inspections. We also involve OPM program managers in 
every step of the process to ensure that we have met their needs, addressed 
concerns and obtained feedback on how we can improve our auditing and 
evaluation activities. We believe this cooperative spirit ensures that all 
parties involved with our activities are satisfied with the final product. 

During this reporting period, we com-pleted three internal audits and issued 

final reports in the following areas: (1) OPMs financial statements; (2) agency 
compliance with the Government Per-formance and Results Act (GPRA); and 
(3) agency compliance with the Federal Managers Financial Integrity Act 
(FMFIA). The following pages contain descriptions of our audit efforts in each 
of these areas, including an article on the ongoing financial accounting assistance 
our office is providing to the Office of the Chief Financial Officer (OCFO). 

OPMs Consolidated Financial Statements Audit 
As we have described in previous semi-annual reports, our agency contracts 
with an independent public accounting (IPA) firm to perform OPMs consoli-
dated financial statements audit. This fiscal year 2000 CFO Act audit relates 
to OPMs retirement, health and life insurance benefits programs, as well 
as its revolving fund (RF) and salaries and expense (S&E) accounts. The IPA 
provides audit reports on: (1) the fair-ness of the consolidated financial state-
ments and their conformance with gen-erally accepted accounting principles; 

AUDIT ACTIVITIES April 
29
October 1, 2000  March 31, 2001 23 
2001 AUDIT ACTIVITIES 
(2) agency managements internal con-trols over financial reporting; and 
(3) agency managements compliance with laws and regulations. 

This is the first year that OPM has issued consolidated financial statements. In 
prior years, OPM prepared separate financial statements for each benefits 
program, revolving fund, and salaries and expense accounts. Our office monitored 
the IPAs performance to ensure that all work was conducted in accordance with 
the contract and in compliance with government auditing standards and 
other authoritative references pertaining to OPMs financial statements. Specifi-
cally, we participated in the planning, performance and reporting phases of 
the audit through participation in key meetings and review of the IPAs work 
papers and reports. 
Based on our monitoring efforts, we concurred with the IPAs reports on the 

consolidated financial statements, inter-nal controls, and compliance with laws 
and regulations. A summary relating to this audit report appears below. 

OPMs FY 2000 Consolidated Financial 
Statements Report No. 4A-CF-00-00-074 
February 16, 2001 

Under a contract monitored by our office, the international accounting firm 
of KPMG LLP (KPMG) performed audits of OPMs FY 2000 consolidated 
financial statements. KPMGs audit cov-ered the retirement, health and life in-
surance programs, revolving fund (RF) and salaries and expense (S&E) accounts. 

As we have mentioned in previous semi-annual reports, the benefits programs are 
key to the flow of benefits to federal civilian employees, annuitants and their 
respective dependents, and operate under the following names: the Civil 
Service Retirement System, the Federal Employees Retirement System, the 
Federal Employees Health Benefits Program, and the Federal Employees 
Group Life Insurance program. These programs are administered by OPMs 
Retirement and Insurance Service. 
Consolidated & Benefits Programs Financial Statements 

KPMG determined that the consolidated fiscal year 2000 financial statements and 
the individual statements of the three benefits programs were presented fairly 
in all material respects and were pre-pared in conformance with generally 
accepted accounting principles. 
KPMG noted improvements in the in-ternal control environments of all three 

benefits programs as well as continued areas of concern in the RF and S&E ac-
counts during fiscal year 2000. KPMG considered these latter issues in the RF 
and S&E accounts to be reportable conditions. Reportable conditions are 
defined as items that if left uncorrected could jeopardize the agencys ability to 
record, process, summarize and report financial data accurately, although they 
would not result in material misstatements to the consolidated financial statements. 
If the items would result in material misstatements, then they are defined as 
material weaknesses. 
Table 1 on the next page includes report-able conditions that KPMG identified 

during its audit work on the financial statements. This was the first time since 
the CFO Act was implemented that none 

PM 
Improves 
Financial 
Management 
for FY 2000 

O 
30
24 OIG Semiannual Report 
AUDIT ACTIVITIES April 
of the reportable conditions was con-sidered to be a material weakness in 
the agencys internal controls over financial reporting. 

Specifically, KPMG reported the follow-ing conditions as needing improvement: 
n Controls over program administration 
for community-rated health carriers. 

n Quality control over annual financial 
statement preparation. 

n Budgetary accounting structure of 
the Office of the Chief Financial Officer (OCFO)* 

*Note: Budgetary accounts are in-cluded in two financial statements: 
the statement of budgetary resources and statement of financing. Without 
a set of self-balancing accounts to summarize budgetary activity, the 
risk of reporting inaccurate budget-ary figures exists. 

n Account analysis and other significant 
reconciliation procedures of OCFO. 

 Electronic data processing (EDP) general control environment: 

 Service continuity (as it pertains to information resource pro-
tection and unplanned service interruption) 

 Application change control/systems development 
 Access controls 
 Entity-wide information security program 

 Chief Information Officer man-agement, organizational and 
accountabilities structure 
KPMG reported no instances of non-compliance that are required to be 

reported under government auditing standards or Office of Management 

Table 1: FY 2000 Internal Control Weaknesses Health Life Salaries 
Retirement Benefits Insurance Revolving & Expense Issues Program Program Program Fund Accounts 
................................................................................................................................................................................ Controls Over Program Administration for N/A RC N/A N/A N/A 

the Community-Rated Health Carriers 
Quality Control Over Annual Financial NRC NRC NRC RC RC 
Statement Preparation 

Budgetary Accounting Structure NRC NRC NRC RC RC 
Account Analysis and Other Significant NRC NRC NRC RC RC Reconciliation Procedures of OCFO 

EDP General Control Environment RC RC RC RC RC 
RC = A reportable condition NRC = No reportable condition N/A = Not applicable to the program 

eficiencies 
Still Noted In 
OPM's Financial 
Reporting for 
FY 2000 

D 
31
October 1, 2000  March 31, 2001 25 
2001 AUDIT ACTIVITIES 
and Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal Financial 
Statements, except for the following ar-eas where OPMs financial management 
systems did not substantially comply with the requirements of the Federal Manag-
ers Financial Integrity Act: 
n Federal financial management system 
requirements. 
n Federal accounting standards (RF 
and S&E only). 
n Standard general ledger at the trans-
action level (RF and S&E only). 

OPM FACTS Transmissions Procedures 
Our agency submits our consolidated financial statements (CFS) to the 
Department of the Treasury through FACTS (federal agencies centralized 
trial balance system). Treasury compiles and summarizes the FACTS data at the 
department level. As part of this process, it also requires selected agency Offices 
of the Chief Financial Officer and Of-fices of Inspector General (OIGs), in-
cluding OPM, to compare and identify any differences between the FACTS data 
summarized by Treasury and an agencys consolidated financial statements sub-
mitted to the Office of Management and Budget (OMB). Treasury outlines spe-
cific procedures for OCFOs and OIGs to perform for this verification process. 

We commented on FACTS procedures in our previous semiannual report, em-
phasizing their importance in preparing the government-wide consolidated fi-
nancial statements and notes issued March 31 of each year. The notes are 
a vital component, reflecting both key accounting policies and procedures and 
other accounting data that assist the reader in interpreting the CFS. Treasury 
requires each agencys OCFO to trans-

mit electronically a list of all standard general ledger accounts with preclosing 
balances prepared at fiscal years end and the notes. What appears to be a simple 
procedure of transmitting and verifying data is complicated by the many trans-
missions and parties involved. 
For the FY 2000 verification, insufficient planning and control over this process 

continued to impede successful comple-tion by financial managers. Despite these 
difficulties, we performed the agreed-upon procedures prescribed by OMB, 
the U.S. Treasury and the General Ac-counting Office (GAO). In prior years, 
OPM did not prepare or transmit con-solidated agency financial statements or 
provide all of the required documentation necessary to perform the verification 
procedures required by Treasury. Con-sequently, we could not perform the 
specific agreed-upon procedures. In-stead, our OIG and KPMG performed 
other procedures to ensure that a verifi-cation process was completed. 

Our FY 2000 verification identified the following two differences between the 
FACTS data summarized by Treasury and OPMs consolidated financial statements 
submitted to OMB: 
n An accounts receivable amount 
was understated on the Treasury-summarized FACTS data by 

$3 million. 
n The line item total entitled Liabilities 
& Net Position was understated on the Treasury-summarized FACTS 

data by $24.2 million. 
In addition, OPM is required to provide explanations for any differences that 

are identified. As of the date of our agreed-upon procedure report to OMB, 
the U.S. Treasury and GAO, OPM man-agement was still researching the dif-
ferences we identified. 

IG and 
KPMG 
Note Disparities 
in FACTS Data 

O 
32
26 OIG Semiannual Report 
Performance Audits 
The purpose of our performance audits is to provide an independent assessment 

of how well our agency operates its various programs and activities. These 
audits help improve public accounta-bility and facilitate decisionmaking by 
those within the agency responsible for implementing changes in those programs 
and activities. We conduct two types of performance audits: (1) economy and 
efficiency audits, and (2) program audits. 
Economy and efficiency audits determine: 
n Whether the agency is acquiring 
and managing resources (personnel, property and space) prudently and 

proficiently and the causes of any practices that do not lend them-
selves to economy and efficiency. 
n Whether the agency has complied 
with laws and regulations relating to its operations. 

Program audits determine: 
n The extent to which the desired re-
sults or benefits established by the Congress or another authorizing 

body are being achieved. 
n The effectiveness of organizations, 
programs, activities or functions. 
n Agency compliance with significant 
laws and regulations. 

During this reporting period, we again concentrated our performance audit 

efforts on program audits. Specifically, we reviewed documentation relating to 
our agencys Government Performance and Results Act (GPRA) data. 

The Government Performance and Re-sults Act, enacted in 1993, is commonly 
referred to as the Results Act or by its acronym GPRA. It was designed to 

produce improvements in government performance and accountability in fed-
eral programs and includes directives for federal agencies and departments to 
follow regarding strategic planning and performance management processes 
that emphasize goal-setting, customer satisfaction and results measurements. 
In an October 1998 congressional re-quest, the IG community was asked 
to include in its semiannual reports to Congress a summary of reportable ac-
tions resulting from OIG activities. The following paragraphs describe our ac-
tivities and results during this reporting period. 

Verification and validation reviews. We issued a draft report to OPM manage-
ment regarding our verification and validation reviews. The objectives of 
our reviews were to: (1) verify and validate performance data for selected 
FY 2000 GPRA performance indicators in our agencys performance report, and 
(2) evaluate the effectiveness of controls over performance measurement data. 

We focused our reviews on key OPM program offices and important perfor-
mance goals and measures for FY 2000. 
The OPM performance plan submitted to Congress with its FY 2000 budget 

request established five general agency goals, 117 program goals, and 458 per-
formance indicators. We selected 116 performance indicators from 42 program 
goals to verify and validate from eight major program offices. Included in our 
selection were many of the goals that relate to our top management issues 
reported to members of the House and Senate in letters dated December 1, 2000. 
A description of the top management issues and the status of OPMs actions 
on these issues appear in Table 2 on the next page. 

AUDIT ACTIVITIES April 
uditors 
Note OPM's 
Commitment to 
Reporting 
Accurate 
Performance Data 

A 
33
October 1, 2000  March 31, 2001 27 
Table 2: Summary of Top Management Issues Previously 
Included in Top Issue Reported Management Issues? Agency Actions 
................................................................................................................................................................................ OPMs Financial Management Yes OPM is developing a centralized enrollment system. The system 

Oversight of the FEHBP requirements are being defined and a pilot process is expected (CRC enrollment reconciliations) to be completed in the next year. 

Reconciliation of OPMs Yes OCFO has devoted significant resources to resolving this issue Fund Balance with in the last three years. OCFO has improved reconciliation 
Treasury Account procedures, but there were still large differences between cash balances as of the end of FY 2000. Resolution is not expected 
in the short term. 
Data Reconciliation Yes OCFO has developed detail reports supporting general ledger and Control balances to be used in reconciliations. 

OCFO has increased the level of contractor support in assisting with creating and revising transaction codes, and recently imple-
mented several critical transaction codes. 
OCFO has assigned responsibility for all transaction code work 
to a senior-level manager. 

Revolving Fund and Yes OCFO has contracted for help with development of needed Salaries & Expense Accounts transaction codes, improved the audit trail for year-end adjusting 
Financial Statement Preparation entries. OPM prepared a Statement of Financing, including RF and S&E accounts, in its FY 2000 consolidating financial statements. 

Retirement Systems Yes OPM has put in place an RSM project team for reengineering busi-
Modernization (RSM) ness processes related to the federal civilian retirement program. 

OPMs GPRA Implementation Yes OPM is planning to strengthen its data validation and verification procedures, will ensure that the next performance report more 
clearly describes the link between each performance measure and overall strategic goals and more clearly explain how continuing 
goals and objectives address the agencys management challenges. 
OPMs Office of Executive Resources Management (OERM) will have numerical data checked by more than one person to ensure 

accuracy. However, OERM does not have the resources, nor do they see the benefit of establishing a complex data control process, 
to track and analyze this information. 
Human Resources Management Yes OPM has designed a work force planning model that will allow line managers to analyze their current work force. Also, OPM 
performs oversight reviews in federal agencies covering human resource management areas, including reviews of agency adher-
ence to merit system principles. 
Health Care Fraud and Yes OPM management and the OIG have worked together to have Abuse in the Federal Employees legislation amended. Though an amendment has been included 
Health Benefits Program in at least four bills introduced in the 106th Congress, none has passed to date. 

2001 AUDIT ACTIVITIES 
34
28 OIG Semiannual Report 
uditors 
Review 
OPM's FMFIA 
Compliance 
Efforts 

A 

While we found that OPM needs to improve controls over the performance 
reporting process, we are encouraged that OPM management has been respon-
sive to our findings and recommenda-tions and has already taken steps to 
implement some improvements. 
Performance reporting is still a new pro-cess to the federal government. While 

improvement and better guidance is needed, OPM is committed to present-
ing accurate and consistent data. With each year, OPM has gained experience 
in reporting its performance results. The following are areas within OPM program 
operations we identified in our verifica-tion and validation reviews that need to 
be addressed and improved: 
n Establishing policies and procedures 
for obtaining and compiling perform-ance data. 

n Better oversight and monitoring of 
performance data by OPM managers. 
n Better documentation for supporting 
performance data. 
n Disciplined use of cutoff controls 
(specific time frames) to coincide with performance data. 

n More reliable performance data. 
n Performance results that correlate to 
pertinent measures. 
n Availability of measurement data to 
support performance results. 

While not all program offices had the same issues described in the preceding 

bullets, all of these deficiencies point to the need for OPMs performance results 
to be accurate and reliable. 

As we continue to oversee the agencys 
compliance with the Results Act, our 
evaluators and auditors will continue to 
provide oversight and assistance to the 
agency in preparing its strategic plans, 
along with the agencys annual perform-ance plans and reports. 

OCFOs FMFIA Compliance Efforts 
We reviewed OPMs Federal Managers 
Financial Integrity Act (FMFIA) report-
ing process for FY 2000. Specifically, we 
examined documentation supporting 
the FMFIA process, comparing it to the 
results from our consolidated financial 
statement audits, required by the CFO 
Act. 

We also analyzed managements summary of FMFIA internal control weaknesses 

and financial system nonconformances and found it to be complete. OPM re-
ported four material weaknesses (as defined on page 23), four weaknesses it 
corrected in FY 2000, but are still subject to validation, three material nonconform-
ances, and one material nonconformance that was corrected and now subject to 
validation. A nonconformance is defined as an agencys accounting system that 
does not conform to the principles, standards and related requirements pre-
scribed by the U.S. Comptroller General. 
In our opinion, the results of our and 
KPMGs work provide sufficient evidence 
to support the overall conclusion reached 
by OPM. OCFO has been working 
diligently to correct the control weak-
nesses reported, and is making progress 
in many areas. 

AUDIT ACTIVITIES April 
35
October 1, 2000  March 31, 2001 29 
2001 AUDIT ACTIVITIES 
OIG Accounting Assistance 
We have continued to work with the Office of the Chief Financial Officer 

(OCFO) to provide accounting assistance to help improve and correct some pre-
viously identified reportable conditions and material internal control weaknesses 
(see pages 24 and 25, respectively). 
As we described in our semiannual re-port issued last fall, these areas include 

the agencys training and management assistance (TMA) program and OCFOs 
cash management and payroll account-ing issues. We are encouraged by the 
progress OCFO has made in these areas, but significant improvements are still 
necessary to correct those designated as material weaknesses. We have described 
these reviews in more detail below. 
Training management assistance. As of March 2001, the total difference in 

revenue balances between the general ledger and TMAs recordkeeping system 
is approximately $42 million. We are assisting OCFO in reconciling differences 
between TMAs recordkeeping system and the general ledger system by com-
paring individual project balances and transactions. Progress has been slow, 
due to the age of these projects and the large number of projects and minimal 
supporting documentation for the trans-actions in the general ledger system. We 
will continue working with OCFO to correct the TMA project balances in 
the general ledger. 

Cash reporting process. Our efforts to improve internal controls over the 
agencys cash reporting process have been focused on two areas: (1) manual 
adjustments to the monthly cash man-agement transactions report to the 
U.S. Treasury (reports otherwise gener-ated automatically from the financial 
management system), and (2) reconciling the significant differences between OPMs 
cash management records and Treasurys records. OCFO began implementing 
these improvements during the latter part of FY 2000. We have reviewed the 
documentation since implementation and have noted that the new controls 
need to be applied more consistently. 
Payroll outsourcing. As we described in our last semiannual report, an OIG and 

OCFO quality improvement team iden-tified numerous problems within the pay-
roll accounting process. At the same time, the quality improvement team was de-
veloping methods to correct some of the problems identified, while research-
ing the various causes for others. 
Since that report, OPM has decided to contract out our payroll activities to the 

General Services Administration (GSA). The technical term for this type of inter-
agency support is called cross-servicing. Our office is participating in this pro-
cess to ensure that controls are in place to maximize the accuracy of OPMs 
payroll activities and GSA information transfers to OPM financial systems. 

IG Assists 
OCFO in 
Improving 
Controls Over 
Its Financial 
Activities 

O 
36
October 1, 2000  March 31, 2001 31 
OIG Semiannual Report 
Investigative Activities The Office of Personnel Management (OPM) administers benefits from its trust funds for all federal civilian employees and annuitants partici-pating in the federal governments retirement, health and life insurance 
programs. These trust fund programs cover approximately 9.5 million current and retired civilian employees, their spouses and dependents 
(coverage for these latter two categories is limited by law) and disburse about $61 billion annually. Other responsibilities of the agency include 
administration of the Combined Federal Campaign (CFC). The investi-gation of potential fraud involving OPMs trust funds, the CFC, and other 
agency programs, along with employee misconduct and other wrong-doing, occupies the majority of our OIG investigative efforts. 

uring this reporting period, the D majority of our case work involved 
fraud committed by individuals and cor-porate entities against the three trust 
fund programs (health, retirement and life insurance) administered by our 
agency on behalf of all civilian federal employees, retired annuitants and any 
dependents or spouses eligible to receive these program benefits. 

We aggressively pursued criminal and civil prosecutions against all persons and 
businesses we identified as having en-gaged in some form of trust fund fraud. 
Our efforts resulted in ten arrests and ten convictions, along with $7,024,218 
in judicial and administrative monetary recoveries. We opened 21 investigations, 
closed 19, and 69 were still in progress at the end of the period. For additional 
information on investigative activity dur-ing this reporting period, refer to Table 1 
on page 34 of this section. 
We received a total of 626 hotline calls and complaints during this reporting 

period that covered health care fraud, retirement fraud, as well as employee 
misconduct or other suspected wrong-doing by individuals. Information we 
obtain through these hotline calls, as well as written complaints received in 
the office, continue to be extremely help-ful to us in our investigative efforts to 
protect the programs under the jurisdic-tion of our agency. Please consult page 36 

in this section for additional statistical data relating to our OIG hotline and 
complaint activity. 

Health Care-Related Fraud and Abuse 
In keeping with the emphasis that Con-gress and various departments and 
agencies in the executive branch place on combating health care fraud, we 
coordinate our investigations with the Department of Justice (DOJ), the FBI, 
and other federal, state and local law enforcement agencies. 

At the national level, we are participating members of DOJs health-care fraud 
working groups. We work actively with the various U.S. Attorneys offices in 
their efforts to further consolidate and increase the focus of investigative re-
sources in those regions that have been particularly vulnerable to fraudulent 
schemes and practices engaged in by unscrupulous health care providers. 
Additionally, our office maintains a close liaison with other federal law 
enforcement agencies participating in health care fraud investigations through-
out the country. As a consequence, we participate in many health-care fraud 
working groups that simultaneously represent governmental interests at the 
federal, state and local levels. 
37
32 OIG Semiannual Report 
INVESTIGATIVE ACTIVITIES April 
Our OIG special agents also work closely with the numerous health insurance 
carriers participating in the FEHBP, providing an effective means for report-
ing instances of possible fraud by FEHBP health care providers and subscribers. 
Our investigators, of course, continue to have a close working relationship with 
OIG auditors on fraud issues that may arise during the course of FEHBP health 
carrier audits. 
The following narratives describe three of the cases we closed in the area of health 

care fraud during this reporting period. 

Major Hospital Chain Involved in Billing Fraud 
Our OIG has been involved in an on-going five-year investigation with the 
Department of Justice and other federal and state agencies regarding a national 
hospital chain, HCA-The Healthcare Company (formerly known as Columbia/ 
HCA Healthcare Corporation). 
HCA-The Healthcare Company allegedly conspired to defraud various govern-

ment health insurance programs out of millions of dollars. These programs in-
clude Medicare; TriCare (the successor to CHAMPUS), which insures our military 
personnel, retirees and family members; the FEHBP; and Medicaid, a federally 
sponsored program administered by the states for the working poor and 
the indigent. 
This investigation focused on Columbia HCAs outpatient billing practices for 

laboratory tests that later were determined not medically necessary or not ordered 
by physicians. Other billing violations involved falsifying diagnostic codes 
through upcoding. Upcoding occurs when treatment codes are changed to reflect 
some type of high-end service not per-formed to gain greater reimbursement 
from insurance companies. 

On December 14, 2000, Columbia HCA agreed to a $745 million civil settle-
ment with the Department of Justice. The FEHBP portion of the settlement 
was $5.8 million in restitution. An ad-ditional $2.5 million in lost investment 
income (interest) for the FEHBP trust fund is to be determined by the Justice 
Department at a later date. 

CVS Subsidiary Engages in RX Drugs Billing Fraud 
On February 21, 2001, the Department of Justice and the CVS Corporation 
signed a settlement agreement in which CVS agreed to pay the federal govern-
ment $4 million. This payment was to resolve CVSs federal liability for the 
alleged submission of false prescription claims by Revco, a CVS subsidiary. 
The FEHBP portion of this payment is $300,000. 

This settlement follows a four-year investigation of several pharmaceutical 
firms billing customers in full for only partially filled prescriptions. Revco 
billed FEHBP members and their insur-ance companies at full price for these 
prescriptions, while only providing them with the amount of a drug in stock at 
the time of pickup. 
Under these circumstances, FEHBP members receiving less than what their 

prescriptions called for would then be asked to return to pick up the remainder 
of these prescriptions at a later date. On those occasions when members 
failed to return, the drugs would be returned to Revcos inventory. After-
wards, Revco failed to amend the insurance claims to reflect that patients 
received only a portion of their pre-scribed medications, resulting in Revco 
overbilling their customers insurance carriers. 

ettlement 
Yields 
$5.8 Million 
Recovery for 
FEHBP 

S 
38
October 1, 2000  March 31, 2001 33 
2001 INVESTIGATIVE ACTIVITIES 
Medical Clinic Physician Involved in Major Billing Fraud 
Our office participated in a three-year 
investigation concerning allegations that a Texas physician, Dr. Dipakkumar 

(Dipak) Patel, owner and operator of 
the Midland Walk-in Clinic in Midland, 
Texas, had engaged in health care fraud 
over several years. The alleged fraud 
resulted in millions of dollars being paid to Dr. Patel by federal health 

insurance programs as well as private 
insurance programs. 

We were joined by the FBI, the Defense 
Criminal Investigative Service, the OIG 
at the Department of Health and Human 
Services, as well as the State of Texas 
Attorney Generals office, in looking into this case. The investigation con-

firmed that Dr. Dipak Patel fraudulently 
billed various federal programs, includ-
ing the FEHBP, as well as several private 
insurance programs, for $1.6 million 
during the period January 1, 1995 through July 22, 1999. Dr. Patel was 

able to do this by generating false 
diagnoses to justify billing unnecessary 
services. 

On January 25, 2001, Dr. Patel was 
indicted by a federal grand jury in the 
Western District of Texas in Midland 
on 51 counts of mail fraud, one count of health care fraud, and seven counts 

of money laundering. A trial date is ex-
pected to be set for late August or early 
September 2001. The outcome of this 
case will be reported in a later semi-
annual report. 

To protect the interest of the FEHBP 
and its subscribers, in the interim, our office recently suspended both the phy-

sician and his clinic from participating 
in the FEHBP. 

Retirement Fraud and Special Investigations 
In addition to health care fraud, our office works closely with other federal, 
state and local law enforcement officials to uncover fraud involving OPMs re-
tirement and life insurance program trust funds. 

Our offices proactive efforts to identify fraud against OPMs retirement fund 
takes two forms: (1) we routinely re-view Civil Service Retirement System 
(CSRS) annuity records for indications of unusual circumstances, and (2) we 
maintain contact with the federal annu-itant population, including telephone 
calls and on-site visits to the homes of annuitants listed in OPMs retirement 
records. While our fraud recoveries in this area are, for the most part, smaller 
than in the health care fraud area, crimi-nal prosecutions and sentences tend to 
be more significant. 
In addition, this office conducts special investigations in other areas having to 

do with serious criminal violations and misconduct by OPM employees. These 
cases primarily involve the theft of gov-ernment funds and property. 

Cited below are three retirement fraud investigations that were completed dur-
ing this reporting period. 

CSRS Annuity Overpayment Linked to Son 
Our office initiated an investigation of the son of a deceased CSRS annuitant 
living in Phoenix, Arizona, who was alleged to have received CSRS annuity 
benefits intended for his deceased father for a period of 14 years following the 
fathers death in 1977. The son received over $414,600 in annuity funds to which 
he was not entitled during this period. 

est Texas 
Provider 
Indicted for 
Health Care 
Fraud Totaling 
$1. 6 Million 

W 
39
34 OIG Semiannual Report 
INVESTIGATIVE ACTIVITIES April 
Based on our investigation, and with the assistance of the U.S. Secret Service, the 
son was indicted in June 1995 in U.S. District Court in Phoenix, Arizona, on 
one count of theft of government funds and one count of making false statements 
to the government. 
In June 1996, the U.S. Attorneys office in Phoenix dismissed the indictment 

against the annuitants son, deciding instead to proceed with a civil action 
against him. In November 1998, the U.S. Attorneys office and the Phoenix 
bank where the annuity funds were de-posited entered into an agreement that 
provided for the bank to reimburse the federal government $100,000 for a 
breach of contract claim. It did so, although not admitting guilt, for alleg-
edly failing to notify the government when it learned of the annuitants death 
in 1978. 

In January 1999, the annuitants son and his parents estate filed for bankruptcy. 
Afterwards, in November 30, 1999, the Department of Justice and the annuitants 
son and the parents estate reached a negotiated agreement wherein the house 
owned by them jointly would be sold and the proceeds from the sale would 
be assigned to the government. The amount of $197,033 was returned to 
the federal government as a result of the sale of the house in December 2000. 

Daughter of CSRS Retiree Guilty of Annuity Fraud 
In January 1998, our special agents began investigating a case of annuity 
fraud involving a New York City resident named Judy Bennett, the daughter of a 
deceased Civil Service Retirement System (CSRS) annuitant. 

SRS 
Trust Fund 
Receives 
$197,033 in 
Settlement 
Agreement 

C 

Table 1: Investigative Highlights 
Judicial Actions: Arrests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

Indictments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 
Convictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

Administrative Actions 1 : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 
Judicial Recoveries: Fines, Penalties, Restitutions and Settlements . . . . . . . . . $6,755,379 

Administrative Recoveries: Settlements and Restitutions . . . . . . . . . . . . . . . . . . . . . . . . $268,839 
Total Funds Recovered . . . . . . . . . . . . . . . . . . . . . . $7,024,218 
1 Includes suspensions, reprimands, demotions, resignations, removals, and reassignments. 
40
October 1, 2000  March 31, 2001 35 
2001 INVESTIGATIVE ACTIVITIES 
With the cooperation and assistance of the New York City Office for Public 
Assistance, the U.S. Secret Service, and the OIG at the Social Security Adminis-
tration, our investigators were success-ful in confirming that over a 13-year 
period, the daughter of this annuitant had illegally used her fathers retirement 
benefits during this period. These CSRS annuity benefits totaled $122,262 during 
this time frame. 
After failing to notify OPM of her fathers death in 1983, Ms. Bennett was able to 

access the deceased annuitants retire-ment benefits through an account they 
shared. These government annuity pay-ments were deposited electronically to 
the joint account. 
Ms. Bennett plead guilty to theft of gov-ernment funds in U.S. District Court 

in New York City in July 2000. Appear-ing again in that court on December 1, 
2000, she was sentenced to six months home confinement, three years of super-
vised probation, and was ordered to make restitution to the government for the 
full amount of $122,262 she had illegally received. 

Annuitants Son Admits to Retirement Fraud 
In a proactive attempt to identify annu-ity fraud, special agents from our office 
routinely check the validity of annuitants addresses and other identifying infor-
mation. During August 1999, our special agents discovered that a CSRS 
annuitant residing in Fairfax County, Virginia, had actually died in 1986. 

Further investigation disclosed that the deceased annuitants son, Norman 
Johnston, had access to these benefits through a bank account held jointly by 
Mr. Johnston and his mother. Access was further facilitated since these CSRS an-

nuity benefits were deposited electroni-cally into the account. 
After being arrested on July 10, 2000, the annuitants son pleaded guilty to 
wire fraud. On October 27, 2000, in U.S. District Court in Alexandria, Virginia, 
Mr. Johnston was sentenced to six months home confinement with electronic 
monitoring, two years of supervised probation, 100 hours of community 
service, and ordered to make restitu-tion in the amount of $66,247 to the 
government. This amount was in addi-tion to the $16,454 previously recovered 
from the joint account, for a total of $82,701. 

OIG Hotlines and Complaint Activity 
The information we receive on our OIG hotlines is generally concerned with 
FEHBP health care fraud, retirement fraud and other complaints that may 
warrant special investigations. Our of-fice receives inquiries from the general 
public, OPM employees, contractors and others interested in reporting waste, 
fraud and abuse within the agency. 
In addition to hotline callers, we receive information from individuals who choose 

to write letters or who appear in our office. Those who report information 
can do so openly, anonymously or con-fidentially without fear of reprisal. 

Retirement Fraud and Special Investigations 
The Retirement and Special Investigations hotline provides the same assistance as 
traditional OIG hotlines in that it is used for reporting waste, fraud and abuse 
within the agency and its programs. 

estitution 
of $122,262 
Ordered 
Following 
Conviction 

R 
41
36 OIG Semiannual Report 
INVESTIGATIVE ACTIVITIES April 
The Retirement and Special Investigations hotline and complaint activity for this 
reporting period included 86 telephone calls, 46 letters, 5 agency referrals, and 
66 complaints initiated by the OIG, for a total of 203. Our administrative mon-
etary recoveries resulting from retirement and special investigation complaints 
totaled $114,266. 

Health Care Fraud 
The primary reason for establishing an OIG hotline was to handle complaints 

from subscribers in the Federal Employ-ees Health Benefits Program administered 
by OPM. The hotline number is listed in the brochures for all the health insur-
ance plans associated with the FEHBP. 
While the hotline is designed to provide an avenue to report fraud by subscribers, 

health care providers or FEHBP carriers, frequently callers have requested assis-
tance with disputed claims and services disallowed by the carriers. Each caller 
receives a follow-up call or letter from 

Table 2: Hotline Calls and Complaint Activity 
Retirement and Special Investigations Hotline 
and Complaint Activity: Retained for Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 

Referred to: OIG Office of Audits. . . . . . . . . . . . . . . . . . . . . . . . 0 
OPM Groups and Offices. . . . . . . . . . . . . . . . . . . . 41 
Other Federal Agencies. . . . . . . . . . . . . . . . . . . . . . 30 

Total. . . . . . . . . . . . . . . . . . . . . . . . . . 203 
Health Care Fraud Hotline and Complaint Activity: Retained for Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 

Referred to: OPM Groups and Offices . . . . . . . . . . . . . . . . . . . 93 
Other Federal/State Agencies. . . . . . . . . . . . . . . . . 42 
Health Insurance Carriers or Providers . . . . . . . . . 90 
Total . . . . . . . . . . . . . . . . . . . . . . . . . 423 
Total Contacts. . . . . . . . . . . . . . . . . . . . . . . . 626 

either the OIG hotline coordinator, the insurance carrier or another OPM pro-
gram office as appropriate. 
The Health Care Fraud hotline and com-plaint activity for the reporting period 

involved 165 telephone calls and 258 letters, for a total of 423. During this 
period, the administrative monetary re-coveries pertaining to health care fraud 
complaints totaled $154,733. 

OIG-Initiated Complaints 
As illustrated earlier in this section, we respond to complaints reported to our 

office by individuals, government enti-ties at the federal, state and local levels, 
as well as FEHBP health care insurance carriers and their subscribers. We also 
initiate our own inquiries as a means to respond effectively to allegations in-
volving fraud, abuse, integrity, and oc-casionally malfeasance. Our office will 
initiate an investigation if complaints and inquiries can be substantiated. 
42
October 1, 2000  March 31, 2001 37 
2001 INVESTIGATIVE ACTIVITIES 
An example of a specific type of com-plaint that our office will initiate involves 
retirement fraud. This might occur when our agency has already received 
information indicating an overpayment to an annuitant has been made. At that 
point, our review would determine whether there were sufficient grounds 
to justify our involvement due to the potential for fraud. There were 18 such 
complaints associated with agency in-quiries during this reporting period. 

Another example of an OIG-initiated complaint occurs when we review the 
agencys automated annuity records 

system for certain items that may indi-cate a potential for fraud. If we uncover 
some of these indicators, we initiate personal contact with the annuitant to 
determine if further investigation is warranted. This investigative activity 
resulted in 48 instances where our office initiated personal contacts to verify the 
status of the annuitant. 
We believe that these OIG initiatives complement our hotline and outside 

complaint sources to ensure that our office can continue to be effective in 
its role to guard against and identify instances of fraud, waste and abuse. 

IG 
Proactive 
Efforts Help 
Thwart 
Annuity Fraud 

O 
43
October 1, 2000  March 31, 2001 39 
Index of Reporting 
Requirements Inspector General Act of 1978 
(as amended) 

OIG Semiannual Report 
Page 
Section 4 (a) (2): Review of legislation and regulations . . . . . . . . . . . . . . . . . 1-4 

Section 5 (a) (1): Significant problems, abuses 
and deficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-29 

Section 5 (a) (2): Recommendations regarding significant 
problems, abuses and deficiencies . . . . . . . . . . . . . 15-18, 23-29 

Section 5 (a) (3): Recommendations described in previous 
semiannual reports on which corrective 
action has not been completed . . . . . . . . . . . . . . . . . . . . . . . 41 

Section 5 (a) (4): Matters referred to prosecutive authorities . . . . . . . . . . . 32-35 
Section 5 (a) (5): Summary of instances where information was 
refused during this reporting period . . . . . . . . . . . . . No Activity 

Section 5 (a) (6): Listing of audit reports issued during 
this reporting period . . . . . . . . . . . . . . . . . . . . . . . . . . . 42-47 

Section 5 (a) (7): Summary of particularly significant reports . . . . . . . . . . . . 6-29 
Section 5 (a) (8): Audit reports containing questioned costs . . . . . . . . . . . . 42-44 
Section 5 (a) (9): Audit reports containing recommendations 
for better use of funds . . . . . . . . . . . . . . . . . . . . . . . . No Activity 

Section 5 (a) (10): Summary of unresolved audit reports issued 
prior to the beginning of this reporting period . . . . . . . . . . . 41 

Section 5 (a) (11): Significant revised management decisions 
during this reporting period . . . . . . . . . . . . . . . . . . . No Activity 

Section 5 (a) (12): Significant management decisions 
with which OIG disagreed during 
this reporting period . . . . . . . . . . . . . . . . . . . . . . . . . No Activity 
44
October 1, 2000  March 31, 2001 41 
Appendix I: Final Reports Issued With Questioned Costs October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Number of Questioned Unsupported Subject Reports Costs 1 Costs 1 

A. Reports for which no management 19 $ 65,673,570 $5,611,160 decision had been made by the 
beginning of the reporting period 
B. Reports issued during the 30 214,341,387 898,354 reporting period with findings 
................................................................................................................................................................................................................. 
Subtotals (A+B) 49 280,014,957 6,509,514 

C. Reports for which a management 18 62,449,122 5,636,708 decision was made during the 

reporting period: 
1. Disallowed costs 59,329,197 5,636,708 
2. Costs not disallowed 3,119,925 0 
D. Reports for which no management 31 217,565,835 872,806 decision has been made by the end 

of the reporting period 
Reports for which no management 3 8,106,692 2 0 decision has been made within 

6 months of issuance ................................................................................................................................................................................................................. 

1 Questioned costs represent recommendations for recovery of funds resulting from OIG audits. Unsupported costs are included in 
questioned costs. 2 
Resolution of this item has been postponed at the request of the OIG. 

OIG Semiannual Report 

Appendix II: Final Reports Issued With Recommendations for Better Use of Funds October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Number of Dollar Subject Reports Value 

No activity during this reporting period 0 $ 0 
................................................................................................................................................................................................................. 
45
42 OIG Semiannual Report 
Appendix III: Insurance Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Questioned Unsupported Number Subject (Standard Audits) Date Costs Costs 

1A-10-82-00-026 Blue Cross and Blue Shield of Kansas October 12, 2000 $852,317 $ in Topeka, Kansas 

1A-10-34-00-065 Blue Cross and Blue Shield of October 12, 2000 North Dakota in Fargo, North Dakota 
1C-RR-00-00-067 Prudential HealthCare HMO  October 12, 2000 Oklahoma City in Houston, Texas 
TW-00-99-058 PCA Health Plans of Texas October 12, 2000 1,218,341 in Louisville, Kentucky 
1C-N9-00-00-068 Geisinger Health Plan October 16, 2000 in Danville, Pennsylvania 
10-55-96-032 Independence Blue Cross October 18, 2000 73,273,083 in Philadelphia, Pennsylvania 
1A-10-57-00-034 Highmark Blue Cross and Blue Shield October 23, 2000 990,060 in Pittsburgh, Pennsylvania 
10-06-99-055 CareFirst Blue Cross and Blue Shield November 13, 2000 5,996,561 25,548 in Owings Mills, Maryland 
PW-00-00-006 Community Health Plan dba November 20, 2000 51,714 Kaiser Permanente in Latham, New York 
H8-00-00-010 United HealthCare Select December 8, 2000 11,130,140 in Minneapolis, Minnesota 
V8-00-00-001 Aetna U.S. HealthCare of the December 11, 2000 20,866,353 Mid-Atlantic in Blue Bell, Pennsylvania 

68-00-99-043 Harvard Pilgrim HealthCare, Inc., December 11, 2000 477,539 in Dedham, Massachusetts 
10-85-99-054 CareFirst Blue Cross and Blue Shield December 20, 2000 5,468,489 in Washington, D.C. 
75-00-96-029 Humana Michael Reese HMO Plan January 16, 2001 7,763,346 872,806 in Chicago, Illinois 

1A-10-31-00-069 Wellmark Blue Cross and Blue Shield January 17, 2001 248,781 of Iowa in Des Moines, Iowa 
................................................................................................................................................................................................................. 

APPENDICES April 
46
October 1, 2000  March 31, 2001 43 
Appendix III: Insurance Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Questioned Unsupported Number Subject (Standard Audits) Date Costs Costs 

1A-10-95-00-033 Trigon Blue Cross and Blue Shield January 17, 2001 $ 556,165 $ in Richmond, Virginia 
1A-10-53-01-010 Blue Cross and Blue Shield of Nebraska January 19, 2001 166,135 in Omaha, Nebraska 
1C-GF-00-00-003 PacifiCare of Texas in Dallas, Texas January 29, 2001 4,598,962 
1D-87-00-00-030 Hawaii Medical Service Association January 31, 2001 752,425 in Honolulu, Hawaii 

1A-10-74-01-024 Wellmark of South Dakota February 5, 2001 in Sioux Falls, South Dakota 
UR-00-96-030 Humana Health Plan of Texas February 9, 2001 26,057,092 in San Antonio, Texas 

1A-10-11-00-035 Blue Cross and Blue Shield of February 15, 2001 1,157,851 Massachusetts in Boston, Massachusetts 
1A-10-84-01-002 Blue Cross and Blue Shield of February 15, 2001 37,490 Utica-Watertown in Utica, New York 
D2-00-96-028 Humana Health Plan of Louisville February 22, 2001 8,190,253 in Louisville, Kentucky 

1A-10-69-01-001 Regence Blue Shield February 22, 2001 342,322 in Seattle, Washington 
1C-SU-00-00-007 Aetna U.S. HealthCare of Philadelphia February 22, 2001 9,811,061 in Blue Bell, Pennsylvania 
1C-JC-00-00-002 Aetna U.S. HealthCare of New York February 26, 2001 13,439,139 in Blue Bell, Pennsylvania 
1A-10-12-01-011 Blue Cross and Blue Shield of Western March 1, 2001 100,125 New York in Buffalo, New York 
1C-UM-00-00-022 NYLCare Health Plans of the Gulf Coast, Inc., March 5, 2001 1,030,560 in Houston, Texas 
TM-00-00-009 QualMed Washington Health Plan March 5, 2001 175,614 in Bellevue, Washington 
................................................................................................................................................................................................................. 

2001 APPENDICES 
47
44 OIG Semiannual Report 
Appendix III: Insurance Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Questioned Unsupported Number Subject (Standard Audits) Date Costs Costs 

1C-TX-00-01-029 Humana Health Plan of Texas, Inc., March 6, 2001 $ $ in Corpus Christi, Texas 

1A-10-55-00-063 Independence Blue Cross March 12, 2001 1,250,027 in Philadelphia, Pennsylvania 
1C-P3-00-00-008 Aetna U.S. HealthCare of New Jersey March 13, 2001 14,242,064 in Blue Bell, Pennsylvania 
1C-JB-00-00-019 Prudential HealthCare HMO of the March 16, 2001 1,420,963 Mid-Atlantic in Baltimore, Maryland 
1B-45-00-00-064 Claims Administration Corporation March 26, 2001 2,676,415 as Administrator for the Mail Handlers 
Benefit Plan in Rockville, Maryland ................................................................................................................................................................................................................. 
TOTALS $214,341,387 $898,354 

APPENDICES April 
48
October 1, 2000  March 31, 2001 45 
2001 APPENDICES 
Appendix IV: Internal Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Funds Put to Questioned Number Subject Date Better Use Costs 

4A-CF-00-00-074 Office of Personnel Managements February 16, 2001 $ $ Fiscal Year 2000 Consolidated 
Financial Statements ................................................................................................................................................................................................................ 
TOTALS $ $ 

Appendix V: Information Systems Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Funds Put to Questioned Number Subject Date Better Use Costs 

4A-OP-00-00-075 Critical Infrastructure Protection in December 15, 2000 $ $ Presidential Decision Directive 63 
in Washington, D.C. 
1B-47-00-00-027 Information System General Controls January 2, 2001 at American Postal Workers Union 

Health Plan in Silver Spring, Maryland ................................................................................................................................................................................................................ 
TOTALS $ $ 
49
46 OIG Semiannual Report 
Appendix VI: Combined Federal Campaign and Other External Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Funds Put to Questioned Number Subject Date Better Use Costs 

3A-CF-00-00-060 The 1997 and 1998 Combined Federal October 16, 2000 $ $ Campaigns for Military, Veterans and 
Patriotic Service Organizations of America in Corte Madera, California 

3A-CF-00-00-059 The 1997 and 1998 Combined Federal October 23, 2000 Campaigns for Health and Medical 
Research Charities of America in Corte Madera, California 

3A-CF-00-00-058 The 1997 and 1998 Combined Federal October 23, 2000 Campaigns for Animal Funds of America 
in Corte Madera, California 
3A-CF-00-00-061 The 1997 and 1998 Combined Federal November 27, 2000 Campaigns for Christian Service Charities 

in Springfield, Virginia 
3A-CF-00-00-031 The 1997 and 1998 Combined Federal November 30, 2000 Campaigns for the Heartland 

in Kansas City, Missouri 
3A-CF-00-00-062 The 1997 and 1998 Combined Federal December 5, 2000 Campaigns for Earth Share 

in Washington, D.C. 
3A-CF-00-00-050 The 1997 and 1998 Combined Federal December 19, 2000 Campaigns for the National Capital Area 

in Washington, D.C. 
3A-CF-00-00-025 The 1997 and 1998 Combined Federal January 16, 2001 Campaigns of Santa Clara/San Benito 

Counties in Santa Clara, California 
3A-CF-00-00-045 The 1997 and 1998 Combined Federal February 9, 2001 Campaigns of Central Ohio 

in Columbus, Ohio ................................................................................................................................................................................................................ 

APPENDICES April 
50
October 1, 2000  March 31, 2001 47 
Appendix VI: Combined Federal Campaign and Other External Audit Reports Issued October 1, 2000 to March 31, 2001 
................................................................................................................................................................................................................. 
Report Issue Funds Put to Questioned Number Subject Date Better Use Costs 

3A-CF-00-01-035 The 1998 and 1999 Combined Federal March 20, 2001 $ $ Campaigns of Southern New Jersey 
in Rancocas, New Jersey 
6A-2A-00-00-070 Costs Incurred by Aramark Services, Inc., January 31, 2001 under Contract OPM-96-BPO5508 

in Charlottesville, Virginia 
6A-2A-00-01-030 Cost Proposal by Wastren, Inc., March 15, 2001 to Provide Services at the 

Federal Executive Institute in Charlottesville, Virginia 
................................................................................................................................................................................................................ 
TOTALS $ $ 

2001 APPENDICES 
51
United States 
Office of 
Personnel 
Management 

Office of the 
Inspector 
General 

Report Fraud, Waste or Abuse 
to the Inspector General The Director of the Office of Personnel Management 

and the Inspector General need your help to assure the 
integrity of OPMs programs. 

Please Call the : 

Caller can remain anonymous 
Information is confidential 

HOTLINE 

You may also visit or write: 
Office of the Inspector General 
U.S. Office of Personnel Management 
1900 E Street, NW. 
Room 6400 
Washington, DC 20415-1100 

202-606-2423 

OIG HOTLINE OIG HOTLINE 
8 
9 

7 
4 

5 
6 
3 

2 
1 

# 
0 
* 
52
Theodore Roosevelt Building 
1900 E Street, NW. Room 6400 
Washington, DC 20415-1100 

April 2001 
OIG-SAR-24 

United States 
Office of 
Personnel 
Management 

Office of the 
Inspector 
General 
53