Office of the Inspector General 
October 1, 2001 . March 31, 2002
Semiannual Report To CONGRESS 
United States Office of Personnel Management 

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

April 30, 2002 
Honorable Kay Coles James 
Director 
U.S. Office of Personnel Management 
Washington, D.C. 20415 
Dear Mrs. James: 
I respectfully submit the Office of the Inspector Generals Semiannual Report to Congress for the period October 1, 2001 to March 31, 2002. This report describes our offices 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 

Message from the IG 
Our Office of Inspector General has embarked on an initiative to improve the efficiency and the effectiveness of our audits relating to the Federal Employees Health Benefits Program (FEHBP). The initiative combines the use of affordable computer technology with expert knowledge in the field of health benefit analysis. The goal is to develop a data warehouse, employ program-wide review strategies and, ultimately, implement sophisticated data analysis (data mining) techniques to thoroughly analyze FEHBP health benefit payments. 
Because this is such a significant development in the way our OIG and our agency may more efficiently and effectively combat waste, fraud and abuse in a federal program worth billions of dollars, I wanted to address the most significant aspects of this auditing initiative and our future goals relating to data warehousing and data mining. 

We have discussed components of this initiative for several years. However, only recently have the necessary resources become available to implement the project successfully. Advancements in affordable computer hardware and software, as well as the maturity of our information systems audit function, are the key factors in making our goals in this area achievable. We have developed an implementing strategy that will have an immediate impact on our claims analysis capabilities, while offering future opportunities for our auditors to use their expertise to 
discover other types of improper claims payments. We envision that this data warehouse/data mining project will significantly increase our ability to highlight potential health care fraud in the FEHBP. The project will also provide our investigative staff with the ability to react quickly 
to investigative leads. For example, our investigators will be able to determine the potential 
program risks associated with an identified provider or subscriber fraud allegation, and take appropriate action in a matter of hours versus days or weeks. Our current data warehouse plan centers around health benefit claims data from the FEHBP contract with the BlueCross BlueShield Association (BCBS Association). In 2001, the BCBS FEHBP contract was worth $7 billion in FEHBP health benefit payments. BCBS enrollment represents approximately 50 percent of all subscribers in the FEHBP. Our ultimate goal is to include claims data from all carriers who determine premium rates using the same methodology 
as FEHBP-participating Blue Cross and Blue Shield plans. 
To date, we have implemented a series of computer claims analysis applications that our auditors are using as part of our routine BCBS Association FEHBP audits. Prior to the development of these applications, the auditors were required to work through a single computer specialist. While 
we were very successful with this approach, it limited the number of audits that could be completed annually. Now, by applying these technical advancements in computer hardware and software with the skills of our staff (computer specialists, information systems audit staff and FEHBP program 
auditors), we have realized two important auditing goals. First, we have made our claims analysis process more comprehensive; secondly, we have significantly increased the number of health care audits we are able to complete each year. 

These user-friendly, computer-assisted audit techniques have standardized the audit process, while allowing our auditors the necessary flexibility to adjust the applications to the specific requirements of their assignments. By empowering our auditors to complete more routine computer analyses, 
our computer specialists, in turn, are free to concentrate on more complex ones. These specialists also have time to work on the development of our OIG data warehouse and, ultimately, our data mining applications. A recent advancement also allows our OIG auditors to run these computer applications from remote locations throughout the country through a secure, virtual private network. 
Our next challenge is to implement our claims analysis applications on a global rather than plan-by-plan basis. The data warehouse, once populated with multiple years of claims data for all BCBS plans participating in the FEHBP, will enable us to identify the global impact of claim payment issues that we currently can only review on a plan-by-plan basis. This approach offers us the opportunity to address significant issues one time only instead of multiple times per year and to recover overcharges to the program when appropriate. One of the key components of this strategy is to work with OPM's Retirement and Insurance 
Service (RIS) and the appropriate carriers to identify and resolve the root causes of these claim 
payment issues. The goal is to work cooperatively to resolve issues once and for all. With routine 
data updates to the data warehouse, we will be able to monitor our joint efforts in resolving these 
global issues. 
We also anticipate that other program offices within the agency will benefit from access to our 
data warehouse. Initial discussions with management representatives within RIS's contract office 
and actuarial staff have identified practical applications for their respective organizational units. 
Once operational, we plan to provide staff members within these organizations access to the data 
warehouse. 
Finally, we plan to apply data mining techniques to our data warehouse to automate the process of 
discovering useful trends and unusual payment patterns. Our first step has been to form a data mining 
team. This team, made up of a senior FEHBP program auditor and a senior computer specialist, 
will have the unique challenge of employing data mining software to discover relationships and 
hidden patterns in FEHBP claims data. Using their combined technical skills, the team will use 
these relationships and patterns to identify potential health benefit payment errors and possible 
fraudulent payments. The data mining team is also supported by additional auditors with claims 
audit experience, as well as our OIG information systems audit unit. As we venture further into 
our data mining efforts, we plan to contact other federal programs that have practical experience 
in data warehousing and/or data mining applications. 
The key to our ongoing success is to provide the audit and investigative staff.our experts.with 
powerful, yet easy-to-use, computer-assisted auditing tools that will increase our effectiveness 
and efficiency in combating fraud, waste and abuse in the Federal Employees Health Benefits 
Program. This initiative mixes affordable computer technology with our human capital expertise 
to maintain and enhance our audit and investigative capabilities in a rapidly changing technical 
environment. 

Productivity 
Indicators Financial Impact:
Audit Recommendations for 
Recovery of Funds total $10,389,342 
Recoveries Through Investigative Actions total  $4,019,851 
Management Commitments to 
Recover Funds total $43,211,226 
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 total 27 
Investigative Cases Closed total 32 
Indictments total 14 
Convictions total 19 
Hotline Contacts and Complaint Activity total 429 
Health Care Provider Debarments and Suspensions total 1,664 

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. 
Oversight of legislative and regulatory issues affecting our office and 
the Inspector General (IG) community 
remained a high priority during this 
reporting period. While no bills specific 
to the IG community were introduced 
during the period, we have continued 
to assist Congress in reviewing possible 
remedies to problems facing us as Offices 
of Inspector General. 
In particular, we have continued to 
discuss with Congress the need for 
permanent statutory law enforcement 
authority for IG special agent investigators. 
As we have explained in detail in 
several prior semiannual reports, we 
consider this need to be a particularly 
significant concern for the entire IG 
community. We are committed to 
bringing about the statutory changes 
necessary for the efficient operation of 
the law enforcement responsibilities of 
the OIGs. 
One of the most important programs 
our agency administers is the Federal 
Employees Health Benefits Program 
(FEHBP). This program exists to provide 
affordable health insurance to fed- 
eral employees, retirees, their spouses 
and dependents. As such, one of our 
agency's goals, and our OIG's, is to safeguard 
this program and its subscribers 
from unscrupulous and even incompetent 
health care providers. 
The article which directly follows is 
devoted to a settlement agreement that 
underlines our agency's efforts to pro- 
tect the integrity of the FEHBP and 
reduce costs whenever possible for its 
FEHBP enrollees. 
A second article includes a detailed discussion
of how our OIG has systematically improved 
the enforcement tools 
available to our agency to combat health- 
care provider fraud in all its many forms. 
That article appears on pages 3-5 of the 
FEHBP Administrative Sanctions section. 
PacifiCare HMO Settling 
Lawsuit for Over $87 Million 
During the reporting period, our office, 
was heavily involved with the U.S. De- 
partment of Justice (DOJ) in negotiating 
a final settlement of a highly complex 
false claims case against PacifiCare Health 
Systems, Inc. (PacifiCare). While all 
practical aspects of the settlement were 
agreed to during March, final settlement 
did not occur until April 12. 
Our office's interest in this case pre- 
dates the lawsuit that was filed against 
PacifiCare over three years ago. Follow- 
ing multiple OIG audits and follow-up 
investigations linked to PacifiCare and 
its subsidiary health maintenance orga- 
nizations (HMOs), our auditors and in- 
vestigators were in a position to provide 
valuable assistance to the U.S. Depart- 
ment of Justice in its efforts to substan- 
tiate allegations that a number of health 
maintenance organizations owned by 
PacifiCare and its predecessors had over- 
charged for health benefits provided un- 
der their FEHBP contracts. Also making 
significant contributions to the success- 
ful outcome of this case was our agency's 
Retirement and Insurance Service and 
Office of General Counsel. 
The key allegation was that the HMOs 
in question, between contract years 
1990 and 1997, failed to follow the ap- 
plicable rules and regulations set forth 
by our agency in developing the pre- 
mium rates charged for these benefits. 
As an example, although the regulations 
require that the FEHBP receive a pre- 
mium discount equivalent to the largest 
discount given to other groups with a 
similar number of subscribers, our au- 
dits showed that the FEHBP frequently 
did not receive the required discount. 
The settlement of this case, the largest 
false claims case in the history of the 
FEHBP, will result in the return of over 
$87 million dollars to the federal gov- 
ernment. The settlement amount is more 
than six times the annual budget of our 
OIG. More details regarding the settle- 
ment will appear in our next semiannual 
report. 

Administrative Sanctions Activities 
Virtually every federal program is 
protected by administrative sanctions 
authorities, which serve as a crucial tool 
in fighting fraud and other types of 
questionable activities carried out by 
individuals or business entities that 
directly or indirectly participate in 
government programs. 
These sanctions authorities are of two 
general types. Exclusion-based sanctions 
deny individuals or businesses the right 
to participate in federal programs. 
Financial sanctions enable agencies to 
order a sanctioned party to pay damages, 
costs, fines and penalties for violations 
that have had some adverse financial 
impact on a federal program. Either 
type of sanctions authority may be based 
on regulation, statute, executive order 
or some combination thereof. 
Under a delegation of authority from the 
OPM Director, our OIG has operated 
an FEHBP administrative sanctions 
program since 1993. The purpose of 
the program, which currently involves 
debarment and suspensions (exclusion- 
based sanctions) but not financial sanc- 
tions, is to prevent untrustworthy health 
care providers from participating in 
the Federal Employees Health Benefits 
Program. 
The major difference between a debar- 
ment and a suspension is the immediacy 
of a suspension (usually for egregious 
violations) versus the longer process of 
debarment that requires prior notice to 
the offending provider. We have been 
using the authority granted to us under 
the government-wide Nonprocurement 
Suspension and Debarment Common 
Rule (common rule) that allows us to 
exclude health care providers that have 
previously been debarred or suspended 
from another federal health care pro- 
gram, such as Medicare. 
During the reporting period, we debarred 
1,664 health care providers. And, as a 
reflection of the broad impact of these 
sanctions, during the period, we re- 
sponded to a collective total of 2,230 
inquiries relating to debarments and 
suspensions from health care providers, 
health insurance carriers and federal 
agencies. 

While the common rule is an efficient 
basis for administrative action, it was 
designed as a standardized, government- 
wide sanctions authority capable of be- 
ing applied by any agency to virtually 
any program other than procurement 
activities. 
We have long recognized that the FEHBP 
reflects unique enforcement challenges 
for administrative sanctions, making a 
sanctions authority specifically tailored 
to a health care context highly desirable. 
Therefore, our office worked with OPM 
management over a period of several years 
to obtain statutory sanctions authority, 
culminating in the enactment of the Fed- 
eral Employees Health Care Protection 
Act of 1998 (P.L. 105-266) in October 
1998. Section 2 of this act contains 18 
bases for exclusion-based sanctions and 
six bases for financial sanctions. 
The following article describes some of 
the principal policy considerations under- 
lying the statute, and discusses some of 
the issues that make sanctions enforce- 
ment within the FEHBP qualitatively 
more challenging than in other federal 
programs. 
FEHBP Administrative 
Sanction Authorities 
Nearing Implementation 
During the reporting period, the regula- 
tions that we developed to put in place 
the exclusion-based authorities of 
P.L. 105-266 went through a 60-day 
public comment period as a proposed 
rule. As of this writing, the final regu- 
lations are in OPM's final clearance 
process. When issued as a final rule in 
the Federal Register, they will immedi- 
ately supplant the common rule as the 
authority for the FEHBP's exclusion- 
based provider sanctions. 
P.L. 105-266 authorities were drawn 
specifically to supply a sanctions com- 
ponent to OPM's overall efforts to 
combat fraud within the FEHBP and to 
protect the interests of both the FEHBP 
and its members. Thus, their effective- 
ness has a direct, tangible impact, not 
only on the integrity of the FEHBP, but 
also on the health care available to the 
9 million persons who receive health 
insurance coverage through it. 
Sanctions Are Proactive 
Exclusion-based sanctions are intended 
to be proactively protective. The sanctions 
authorities under P.L. 105-266 draw a 
broad circle of protection around the 
FEHBP, with the purpose of preventing 
exposure of the program or its enrollees to 
health care providers whose prior conduct 
indicates that they may pose a risk to the 
integrity of the program or to the health 
care interests of enrollees. 
In furtherance of this protective role, 
the bases for debarment and suspension 
permit.and in some cases require. 
exclusion of providers who have com- 
mitted sanctionable violations, whether 
or not the violation involved the FEHBP 
itself. For example, the statute requires 
OPM to debar health care providers 
n Have been sanctioned by other 
agencies for any reason, even if the 
reason was unrelated to health care. 
n Have been convicted in federal or 
state court of crimes involving 
financial misconduct, patient abuse 
or neglect, controlled substances 
violations or obstruction of justice. 
P.L. 105-266 establishes 13 other catego- 
ries of noncriminal violations as per- 
missive grounds for debarment, meaning 
that the debarring official can exercise 
discretion in deciding whether to debar 
in such cases. In addition, providers 
who have been indicted or for whom 
our OIG obtains credible evidence of 
violations may be suspended (i.e., 
excluded immediately and without prior 
notice) pending further investigation or 
prosecution. 
Rather than being inefficient or ineffec- 
tive, however, the wide reach of the 
sanctions authorities is an absolutely 
essential protective device that serves to 
forestall contact between the FEHBP and 
untrustworthy health care providers. 
Enrollee Protection Provisions 
FEHBP sanctions law specifically places 
responsibility on OPM and FEHBP- 
participating carriers to enforce debar- 
ments of health care providers by deny- 
ing payment to them. However, the 
nature of health-care provider sanctions 
poses enforcement problems that are dif- 
ferent from exclusion-based sanctions in 
other federal programs. 
Typically, participation in a federal pro- 
gram requires some form of preapproval 
by or on behalf of the agency adminis- 
tering the program. For example, loans, 
loan guarantees, grants and contracts 
all involve applications which must be 
reviewed and approved by a federal of- 
ficial or a private-sector designee before 
any federal funds can be paid. 
As a prerequisite for clearing such appli- 
cations, Executive Order 12549 requires 
every agency to determine if the appli- 
cant appears on the official government- 
wide List of Parties Excluded from Pro- 
curement and Nonprocurement Programs, 
a comprehensive listing of every federal 
exclusion-based sanction, and which is 
maintained by the General Services 
Administration (GSA). It is commonly 

referred to as the .GSA List.. If the 
applicant is debarred or suspended by 
any agency, the individual or business 
must be disqualified from participating 
in any other federal program unless the 
agency administering the program spe- 
cifically approves a waiver. 

In contrast, FEHBP enrollees, by law, 
enjoy wide latitude to obtain health care 
from providers of their own choosing 
without preapproval by OPM. In these 
circumstances, FEHBP sanctions law 
protects the interests of enrollees by 
ensuring payment for items or services 
obtained from debarred or suspended 
providers even if the enrollee was 
unaware that the provider had been 
previously sanctioned. 
In the case of fee-for-service plans. 
constituting approximately 70 percent 
of enrollees.the FEHBP has no way 
of knowing that an enrollee has used a 
sanctioned provider until after services 
have been provided and a claim for pay- 
ment submitted. As this situation illus- 
trates, the enforcement of sanctions 
orders prior to an individual receiving 
services from one of these excluded 
providers is impossible in the FEHBP 
context. Thus, a debarred or suspended 
provider becomes entitled to receive 
FEHBP payments.even though he or 
she is ineligible to participate in the 
FEHBP'simply by furnishing health 
care services and supplies covered by 
the FEHBP to a member who is not 
aware of the suspension or debarment. 
Clearly, the FEHBP sanctions law con- 
ditions the enforceability of exclusion- 
based sanctions on the enrollee's 
knowledge of a provider's debarment. 
We received several comments on this 
issue during the regulatory public notice 
period. Two health insurance industry 
responses suggested that we require the 
excluded providers themselves to inform 
every FEHBP enrollee seeking services 
from them of their exclusion. Beyond 
questions of the reliability with which 
providers could be expected to carry 
out this responsibility and the difficulty 
of identifying FEHBP enrollees, we 
concluded that the FEHBP sanctions 
statute simply does not contain the 
authority for OPM to regulate the con- 
duct of providers in this way. In fact, 
the law unambiguously designates noti- 
fication as a carrier responsibility. 
Ultimately, we decided to address this 
issue by balancing: (1) the need to en- 
force sanctions; (2) notification costs 
that would be incurred by carriers that 
would be charged back to the FEHBP 
through the carriers. contracts; and 
(3) the likelihood that an enrollee would 
deal with a sanctioned provider. 
Our final regulations will require carri- 
ers to provide provider debarment 
notices to their enrollees who have 
obtained services or supplies within 
12 months prior to a provider's debar- 
ment. We believe this approach affords 
the best combination of opportunities 
to reach the enrollees who are most 
likely to encounter excluded providers, 
while holding notification costs to a 
reasonable level. Once the enrollee is 
notified, no claims for items or services 
received from the excluded provider 
after the effective date of the exclusion 
are payable. 
In addition to the enhanced exclusion- 
based authorities for the FEHBP, regula- 
tions to implement the financial sanctions 
authorities of P.L. 105-266 are now in 
clearance within OPM to be issued as a 
proposed rule in the Federal Register. 
In contrast to the proactive function of 
suspensions and debarments, financial 
sanctions, civil monetary penalties and 
financial assessments, specifically ad- 
dress violations that have actually been 
committed against the FEHBP. They are 
intended to provide an administrative 
method for recovering FEHBP funds 
paid wrongfully because of provider 
violations, and to serve as a deterrent 
to future misconduct by providers. 
We will continue to report regularly on 
all of our administrative sanctions activi- 
ties, including our progress in imple- 
menting these new FEHBP sanctions 
regulations. 

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 
civilian 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 benefit program activities to 
ensure that these various insurance entities meet their contractual 
obligations with our agency. 
Community-Rated Plans 
Our community-rated HMO audit uni- 
verse covers approximately 200 plan 
rating areas. Audits of these plans are de- 
signed to ensure that the plans assess the 
appropriate premium rates in accordance 
with their respective FEHBP contracts 
and applicable federal regulations. 
The rates health plans charge the FEHBP 
are derived predominantly from two 
rating methodologies. The key rating 
factors for the first methodology (com- 
munity rating by class) are the age and 
sex distribution of a group's 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, dis- 
tinguishes community-rated plans from 
experience-rated plans. The latter cat- 
egory includes fee-for-service plans as 
well as experience-rated HMOs. 
The regulations governing the FEHBP 
require each carrier to certify that the 
FEHBP is being offered rates equivalent 
to the rates given to the two groups 
closest in enrollment size to the FEHBP. 
It does this by submitting to OPM a 
certificate of accurate pricing. The rates 
charged are determined by the FEHBP- 
participating carrier, which is responsible 
for selecting the two appropriate groups. 
Should our auditors later determine 
that equivalent rates were not applied 
to the FEHBP, they declare a condition 
of defective pricing to exist. The FEHBP 
is entitled to a downward rate adjustment 
to compensate for any overcharges 
resulting from this practice. 
We issued five audit reports on community- 
rated plans during this reporting period. 
These reports contain recommendations 
for OPM's contracting officer to require 
the plans to return over $3 million to 
the FEHBP. A summary of the findings 
and recommendations for two of these 
audits follows. 

Fallon Community Health Plan 
in Worcester, Massachusetts 
Report No. 1C-JV-00-01-05 
January 15, 2002 
Fallon Community Health Plan (Fallon) 
began its participation in the FEHBP 
as a community-rated comprehensive 
medical plan in 1982. This HMO pro- 
vides primary health care services to its 
members in the central and eastern parts 
of Massachusetts. The audit of the plan's 
FEHBP activities covered contract years 
1995 through 1999. During this five-year 
period, the plan received approximately 
$69.4 million in FEHBP premiums. 
In conducting the audit, we identified 
$1,960,559 in questioned costs, includ- 
ing $1,876,308 for improper health bene- 
fit charges and an additional $84,251 for 
lost investment income. The lost invest- 
ment income amount represents the inter- 
est the FEHBP would have earned on 
money the plan overcharged the FEHBP. 
Fallon disagrees with most of our findings 
and contends that the over-charges, in- 
cluding lost investment income, amount 
to less than $200,000. 
A primary objective of the audit was to 
determine if Fallon met its contractual 
obligation by offering the FEHBP the 
same premium rate discounts it offered 
the two other subscriber groups com- 
parable in size to the FEHBP. Another 
was to determine if specific health bene- 
fit premium charges that were not part 
of the plan's basic benefits package were 
fair and reasonable to the FEHBP. 
We also looked at whether the plan 
developed FEHBP rates in accordance 
with the laws and regulations governing 
the FEHBP. As discussed below, most of 
our findings concern overcharges for 
health benefit loadings. 
Because the FEHBP's universe of sub- 
scribers is so extensive and covers groups 
with special health care needs, our 
agency negotiates with health plans to 
include benefits that go beyond those 
stated in the basic benefits package. 
These additional benefits are called 
loadings within the health care industry. 
Each HMO contract with our agency 
requires a plan to set the charge for its 
basic rates and loadings at a fair and 
reasonable cost to the FEHBP and its 
subscribers. 
In this audit, we uncovered numerous 
problems with the cost of loadings under 
the plan's FEHBP contract and one 
year in which the premiums for basic 
benefits were too high. These findings 
are summarized below: 
Substance abuse loading. In 1995 and 
1996, in setting the charge for the 
FEHBP's unlimited inpatient substance 
abuse loading, the plan calculated these 
additional benefit charges by applying 
an incorrect factor to determine the 
cost of the loading. 
Inflated loadings. In 1999, Fallon over- 
stated FEHBP's base rates, which, in turn, 
inflated the cost of two loadings: (1) the 
unlimited inpatient substance abuse 
loading; and (2) the mental health out- 
patient loading. 
Children's loading. The FEHBP was over- 
charged a total of $118,502 for its 
children's loading in contract years 
1995 through 1999. 
This loading accounts for the difference 
between the plan's standard non-student 
dependent coverage to age 18/19 and the 
FEHBP's dependent coverage to age 22. 
Medicare loading. The FEHBP's Medicare 
loading for individuals over 65 was 
overstated in 1995 through 1999 in the 
Overstated amount of $1,203,504. 
We found that the plan could not support
 the enrollment figures used in its 
Medicare loading calculations and/or 
data regarding distribution of Medicare
in $1.2 Million 
members among those covered by 
Overcharge Medicare Part A, Part B, or Parts A and B 
(see box below for Medicare Parts A 
and B coverage summary). 
The Medicare program is administered 
by the Centers for Medicare and 
Medicaid Services (CMS), an agency 
within the Department of Health and 
Human Services. 
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 physi- 
cal and occupational therapists and 
some home health services. Part B 
helps pay for covered doctor services 
that are medically necessary. 
We also noted that the health benefit 
payments that CMS made on behalf of 
FEHBP Medicare participants were un- 
derstated by Fallon when it calculated 
the Medicare loadings for contract years 
1995 through 1998. Because the payment 
amount was understated, the FEHBP's 
Medicare loading was too high in each 
of these years. 
In an effort to establish an accurate 
Medicare loading for each of the con- 
tract years in question, we obtained 
enrollment and Medicare distribution 
figures from OPM and adjusted the 
amount of money that CMS paid for 
FEHBP Medicare participants. For each 
contract year covered by the audit, we 
compared the Medicare loading we de- 
veloped to the loading amount that the 
Fallon plan charged the FEHBP. We then 
determined that the FEHBP was over- 
charged $1,203,504 in total. 
Contract undercharge. In contract year 
1997, Fallon actually undercharged the 
FEHBP. Despite overstating the inpatient 
substance abuse loading again, overall, 
the plan undercharged the FEHBP 
$98,620. This occured because FEHBP's 
premium rates were not increased to 
account for a reduction in subscriber 
office visit copays. 
Lost Investment Income 
The FEHBP contract with community- 
rated carriers states that the FEHBP is 
entitled to recover lost investment in- 
come on defective pricing findings. 
We determined that the FEHBP is due 
$84,251 from the plan for lost invest- 
ment income through December 31, 
2000, on the defective pricing over- 
charges identified in the report. 

CIGNA HealthCare of 
Virginia, Inc. 
in Raleigh, North Carolina 
Report No. 1C-W2-00-01-014 
January 28, 2002 
CIGNA HealthCare of Virginia (CIGNA) 
began participating in the FEHBP in 
1986. This plan provides comprehensive 
medical services to its members through- 
out the central and southeastern areas 
of Virginia. 

Our audit was conducted at CIGNA 
HealthCare's regional offices in Raleigh, 
North Carolina, and covered the plan's 
FEHBP activities during contract years 
1995 through 2000. During this period, 
the FEHBP paid the plan over $68.5 mil- 
lion in premiums. CIGNA HealthCare 
of Virginia ceased participating in the 
FEHBP as of December 31, 2001. 
Our audit revealed that the FEHBP was 
overcharged $685,998 for defective 
pricing, as well as $104,370 for an 
extension of coverage loading. As de- 
scribed in the previous audit narrative, 
a loading is an additional health care 
benefit added to a plan's basic benefits 
package that increases the overall cost 
of the FEHBP contract. In addition to 
the above overcharges, the FEHBP is 
due $212,520 for lost investment in- 
come on the defective pricing findings. 
In commenting on the report, the plan 
said that it does not totally agree with 
our defective pricing findings. CIGNA 
contends that the FEHBP is due sub- 
stantially less for defective pricing and 
that lost investment income should be 
based on that lower amount. CIGNA 
agrees that it overcharged the FEHBP 
$104,370 for the extension of coverage 
loading previously referenced. 

Premium Rates 
The primary objectives of this audit were 
to determine if: 
- The plan offered the FEHBP market 
price rates. 
- The loadings to the FEHBP were 
reasonable and equitable. 
- The plan developed the premium 
rates in accordance with the laws and 
regulations governing the FEHBP. 
Defective pricing. In 1995, the plan 
could not adequately support the rates 
it charged the two groups closest in en- 
rollment size to the FEHBP. Because we 
did not have sufficient information, we 
could not determine whether or not these 
groups received premium discounts. 
Since the FEHBP is entitled to the 
greatest discount granted to either of 
these two groups, and documentation 
was not provided, we applied a remedy 
that we believed was fair to the FEHBP 
and the plan. 
Under the remedy, we looked at our prior 
audit of CIGNA, covering contract years 
1988 through 1992, to determine if it 
gave discounts during the former period. 
We determined that eight of the groups 
reviewed during the previous audit were 
granted premium discounts. The average 
discount given to those groups amounted 
to 4.185 percent, and we considered it 
to be indicative of the discounts typically 
granted by the plan at that time. There- 
fore, we reduced the FEHBP's 1995 
audited rates by this percentage, deter- 
mining that the FEHBP was overcharged 
$170,140 in 1995. 
In 1996, the plan gave the two groups 
closest in size to the FEHBP substantial 
discounts, while the FEHBP received 
none. In applying the larger discount 
given to one of these two groups com- 
parable in size to the FEHBP, we found 
that CIGNA overcharged the FEHBP 
$253,448. 
For contract year 1997, CIGNA could 
not support the average per-member 
per-month cost of certain medical and 
prescription drug claims it used in de- 
veloping the FEHBP's rates. When we 
used the supporting documentation pro- 
vided during our onsite visit, a lower 
per-member per-month cost for these 
claims resulted. After redeveloping the 
FEHBP rates using the lower cost, we 
compared those rates to the plan's rec- 
onciled rates and found an additional 
FEHBP overcharge of $97,107 in 1997. 
Our analysis of the 1999 rates showed 
that the FEHBP's rates should have been 
higher than what the plan charged. How- 
ever, our auditors also determined that 
the two groups closest in size to the 
FEHBP received discounts in 1999 
while the FEHBP did not. To remedy 
this inequity to the FEHBP, we applied 
the larger rate advantage to the higher 
FEHBP rates and determined that the 
FEHBP was overcharged $168,303 
in 1999. 

Extension of coverage loading. This load- 
ing is designed to cover any FEHBP- 
participating plan's costs for providing 
benefits to individuals whose employ- 
ment with the U.S. government has 
ended and who are no longer eligible to 
receive FEHBP benefits. Such coverage 
lasts 31 days beyond active employment. 
As this pertains to CIGNA, the additional 
charge for the extension of coverage 
benefit occurred in contract years 1995, 
1996 and 2000. We found, however, 
that a loading was not appropriate be- 
cause CIGNA developed the rates using 
an adjusted community rating method- 
ology. Under this claims-based method- 
ology, the cost related to the extension 
of coverage was already accounted for 
in the FEHBP's per-member per-month 
charge. Consequently, the $104,370 the 
plan charged the FEHBP for this loading 
was not appropriate. 

Lost Investment Income 
In accordance with the FEHBP contract 
with community-rated carriers and 
FEHBP regulations, the FEHBP is en- 
titled to recover lost investment income 
on the defective pricing findings in 
1995, 1996, 1997 and 1999. We deter- 
mined that the FEHBP is due $212,520 
for lost investment income through 
December 31, 2001, on the overcharges 
we identified. Additional lost investment 
income is due for the period beginning 
January 1, 2002, until all questioned 
costs have been returned to the FEHBP. 
Experience-Rated Plans 
The Federal Employees Health Benefits 
Program offers a variety of experience- 
rated plans, including fee-for-service 
plans, the latter constituting the major- 
ity of federal contracts in this category. 
Certain comprehensive medical plans 
qualify as experience-rated HMOs rather 
than community-rated plans. For an 
overview of these rating categories, 
refer to page 7 at the beginning of the 
Audits Activities section. 
The universe of experience-rated plans 
currently consists of approximately 
100 audit sites. When auditing these 
plans, our auditors generally focus 
on three key areas: 
- Allowability of contract charges and 
the recovery of appropriate credits, 
including refunds. 
- Effectiveness of carriers. claims pro- 
cessing, financial and cost accounting 
systems. 
- Adequacy of internal controls to 
ensure proper contract charges and 
benefit payments. 
During this reporting period, we issued 
nine audit reports on experience-rated 
plans. These audits consisted of seven 
Blue Cross and Blue Shield plans, one 
experience-rated comprehensive medical 
plan and one employee organization 
plan. In these reports, our auditors 
recommended that OPM's contracting 
officer require the plans to return $7.3 
million in inappropriate charges and lost 
investment income to the FEHBP. 
A description of the three types of 
experience-rated plans we audit can be 
found on the following pages, along 
with an audit summary from each plan 
category that illustrates typical findings 
associated with these audits.

Government-Wide Service 
Benefit Plan 
This plan comes under the broad defini- 
tion of a fee-for-service plan and is ad- 
ministered by the BlueCross BlueShield 
Association (BCBS Association), which 
contracts with our agency on behalf of 
its numerous member plans. Participat- 
ing Blue Cross and Blue Shield plans 
throughout the United States under- 
write and process the health benefits 
claims of their respective federal sub- 
scribers 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, the BCBS Association has es- 
tablished a Federal Employee Program 
(FEP) Director's Office in Washington, 
D.C., to provide centralized management 
for its federal BCBS plan. 
The BCBS Association also oversees a 
national FEP operations center, also 
located in the Washington, D.C. area, 
whose activities include verifying sub- 
scriber eligibility; approving or dis- 
approving reimbursement of local plan 
FEHBP claims payments (using comput- 
erized system edits); and maintaining 
an FEHBP claims history file as well as 
an accounting of all FEHBP funds. 
During this reporting period, we issued 
eight Blue Cross and Blue Shield 
experience-rated reports in which our 
auditors cited $6,422,158 in question- 
able contract costs charged to the FEHBP. 
Our auditors also noted an additional 
$61,845 in lost investment income on 
these questioned costs, for a total of 
$6,484,003 owed to the FEHBP. The 
BCBS Association agreed with substan- 
tially all the questioned costs in these 
reports. 
The following audit narrative describes 
the major findings from one of these 
reports, as well as the questioned costs 
associated with those findings. 

BlueCross BlueShield of Alabama 
in Birmingham, Alabama 
Report No. 1A-10-09-01-032 
November 29, 2001 
Our audit of the FEHBP operations at 
BlueCross BlueShield of Alabama (BCBS 
of Alabama) took place at the plan's 
offices in Birmingham, Alabama. We 
reviewed health benefit payments made 
by the plan from 1998 through 2000, 
as well as miscellaneous payments, ad- 
ministrative expenses and cash manage- 
ment covering contract years 1997 
through 1999. 
In performing this audit, we determined 
whether BCBS of Alabama charged costs 
to the FEHBP and provided services to 
FEHBP members in accordance with 
the terms of its contract. As a result of 
this audit, our auditors questioned 
$1,716,921 in health benefit costs; 
$361,252 in administrative expense 
charges; and $43,018 in lost investment 
income. As discussed elsewhere in this 
report, lost investment income represents 
those monies the FEHBP would have 
earned on the questioned costs. 
Final calculations by our auditors regard- 
ing amounts owed to the FEHBP totaled 
$2,121,191. The BCBS Association 
agreed with the questioned costs with 
few exceptions. 
During the contract periods 1998 through 
2000, BCBS of Alabama paid $573 mil- 
lion in actual FEHBP claim payments. 
For purposes of this audit, we selected 
claims for examination at random, as 
well as in specific health benefit catego- 
ries, principally those concerning coor- 
dination of benefits with Medicare and 
potential duplicate claim payments. 
We also reviewed specific financial and 
accounting areas, such as refunds and 
other miscellaneous credits relating to 
FEHBP claim payments. Consequently, 
we determined that inappropriate health 
benefit charges to the FEHBP totaled 
$1,716,921 during contract years 
1998-2000. 
Some of our significant findings included: 
Coordination of benefits. For the period 
1998-2000, our auditors identified 1,453 
claim payments wherein the FEHBP 
paid as primary insurer when Medicare 
Part A or B was actually the primary in- 
surer. As a result, we estimated that BCBS 
of Alabama overcharged the FEHBP 
$1,528,646 for these coordination of 
benefit (COB) payment errors. 
This type of inappropriate charge occurs 
when a plan fails to coordinate benefits 
properly with Medicare, a common 
administrative error. To assist its BCBS 
member plans with this and other claim 
reviews, the BlueCross BlueShield 
Association maintains a national claims 
system at its Federal Employee Pro- 
gram (FEP) operations center in the 
Washington, D.C. area, discussed on 
the preceding page. 
For most of the claims questioned, we 
noted there was no information in the 
FEP national claims system to make the 
plan aware that Medicare benefits coor- 
dination was necessary at the time these 
claims were paid. However, when this 
Medicare information was later added 
to the FEP national claims system, BCBS
of Alabama did not review and/or adjust 
the patients. Therefore, 
these claim benefit costs remained 
charged to the FEHBP in their entirety, 
resulting in overcharges to the program. 
The preceding claims involved Medicare 
Parts A and B. Similarly, when patients 
in the hospital had Medicare Part B 
only, BCBS of Alabama also failed to 
follow its procedures and properly 
coordinate inpatient claims. While 
Medicare Part A helps pay for care 
in hospitals, skilled nursing facilities, 
hospices and some home health care, 
Medicare Part B also covers some inpa- 
tient claims, such as ancillary items like 
medical supplies, diagnostic tests and 
clinical laboratory services (see Medicare 
coverage summary below). 
The Medicare program is administered 
by the Centers for Medicare and 
Medicaid Services (CMS), an agency 
within the Department of Health and 
Human Services. 
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. Part 
B also helps pay for covered doctor 
services that are medically necessary. 
We recommended to the OPM con- 
tracting officer that all the uncoordi- 
nated claim payments we identified 
during the audit be disallowed. We fur- 
ther recommended that the contracting 
officer instruct the plan to make a 
reasonable effort to recover the over- 
payments represented by these COB 
payment errors and credit any recovered 
amounts to the FEHBP. 

Duplicate payments. Another type of 
payment error we noted involved dupli- 
cate payments. Of the approximately 
$573 million in claims paid during 
this period, we identified 136 duplicate 
claim payments, resulting in overcharges 
of $109,180 to the FEHBP. We con- 
cluded that this relatively small number 
of duplicate claim payments was evidence 
that the plan had effective controls in 
place to minimize such payments. Never- 
theless, we recommended that the con- 
tracting officer disallow these duplicate 
payments and direct BCBS of Alabama 
to make a diligent effort to recover 
these payments and credit all amounts 
recovered to the FEHBP. 
Payment errors from sampling. We se- 
lected multiple samples of claims for 
the purpose of determining if BCBS of 
Alabama had paid these claims properly 
over the contract periods covered by 
this audit. During our sample reviews, 
we identified 118 claim payment errors, 
resulting in overcharges of $46,161 to 
the FEHBP. We recommended that OPM's 
contracting officer disallow these 118 
claim overcharges and instruct the plan 
to be conscientious in attempting to 
collect these overcharges and credit all 
overpaid amounts recovered to the 
FEHBP. 
Miscellaneous payments. In reviewing 
BCBS of Alabama's procedures, alloca- 
tion methods, along with accounting 
records for refunds, uncashed health 
benefit checks and miscellaneous pay- 
ment and credits, our auditors deter- 
mined that the plan did not return 
uncashed checks to the FEHBP in a 
timely manner. For example, it took 
BCBS of Alabama from 18 to 48 months 
to return uncashed checks to the FEHBP 
once the plan had voided them. 
The FEHBP contract specifically requires 
a carrier to void and return uncashed 
checks to the FEHBP within two years 
of issuance. In addition, federal regula- 
tions require the carrier to credit the 
FEHBP for investment income lost on 
these funds. Consequently, we deter- 
mined that BCBS of Alabama owed the 
FEHBP $32,071 in lost investment in- 
come on the uncashed checks it had not 
returned timely to the FEHBP. 
Note: Under its FEHBP contract, a plan 
should be able to demonstrate that claim 
overpayments cited in an audit report 
have been made in good faith. It should 
also be able to show that it has made a 
reasonable effort to collect these funds, 
in turn, allowing OPM's contracting 
officer to consider all uncollected 
amounts (questioned costs by our auditors) 
as allowable charges to the FEHBP. This 
applies to all FEHBP experience-rated 
plan contracts. 
Administrative Expenses 
During our review of administrative 
expenses for contract years 1997-1999, 
we noted that BCBS of Alabama charged 
the FEHBP for some expenses that did 
not qualify for reimbursement under its 
contract. These disallowed charges and 
costs totaled $261,477. 
We used the following criteria to make 
these determinations, based on federal 
regulations requiring a cost either to: 
n Be incurred specifically for the 
FEHBP contract. 
n Benefit both the FEHBP contract and 
other plan business. 
n Be necessary to the overall operation 
of the plan's business. 
We also noted that BCBS of Alabama 
charged the FEHBP $99,775 twice for 
the same administrative cost. As a result, 
we recommended that the contracting 
officer direct the plan to credit the 
FEHBP $361,252 for all disallowed ad- 
ministrative charges found, including 
this duplicate administrative charge. 
Since January 1, 1997, all BCBS plans 
have been required to use the .checks- 
presented method. to withdraw funds 
from their respective letter of credit 
(LOC) accounts to pay health benefit 
claims. The checks-presented method is 
a procedure whereby LOC withdrawals 
are delayed until checks issued for autho- 
rized FEHBP disbursements have been 
presented to the carrier's financial insti- 
tution for payment. 
During our review of cash management 
for contract years 1997-1999, our audi- 
tors concluded that BCBS of Alabama 
did not withdraw funds from the LOC 
account using this method. For example, 
we reviewed the plan's 1997-1999 LOC 
schedules and found that the plan's daily 
LOC drawdowns did not equal the 
daily health benefit checks presented 
for payment, taking into account adjust- 
ments for miscellaneous credits and 
payments. Since BCBS of Alabama did 
not maintain documentation to support 
its LOC drawdown calculations, plan 
personnel could not explain how the 
LOC drawdowns were derived. 
In our audit recommendations, we stated 
to the contracting officer that she direct 
BCBS of Alabama to withdraw funds 
from the LOC account using the checks- 
presented method. Our auditors also 
recommended that the contracting 
office instruct the plan to maintain 
documentation supporting these LOC 
drawdowns. 
Lost Investment Income 
Federal regulations require a carrier to 
invest and reinvest all excess FEHBP funds 
on hand and to credit all investment in- 
come earned on those funds. We com- 
puted lost investment income resulting 
from our audit findings in the amount 
of $43,018 through June 30, 2001. 
We have recommended to the contract- 
ing officer that this amount be returned 
to the FEHBP, as well as additional lost 
investment income due after that date 
until BCBS of Alabama has returned all 
questioned costs owed to the FEHBP. 
Experience-Rated Comprehensive 
Medical Plans 
Comprehensive medical plans (HMOs) fall 
into one of two categories: community- 
rated or experience-rated. As was pre- 
viously explained in more detail on 
page 7 of the Audit Activities section, 
the key difference between the two cate- 
gories stems from how premium rates 
are calculated for each. 
Like other health insurance plans partici

pating 
in the FEHBP, experience-rated 
HMOs offer what is termed a .point of 
service. product. Under this option, 
members have the choice of using a 
designated network of providers or 
using non-network providers. 
In selecting one health provider over 
another, a member's 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. 
During this reporting period, we issued 
one experience-rated comprehensive 
medical plan audit report. The follow- 
ing audit narrative describes the major 
findings from this report, as well as 
the questioned costs associated with 
those findings. 

California Care 
in Woodland Hills, California 
Report No. 1D-M5-00-01-046 
February 27, 2002 
California Care is a prepaid comprehen- 
sive medical plan, located in Woodland 
Hills California, providing health bene- 
fits to federal enrollees and their families 
throughout the state. 
The purpose of this audit was to deter- 
mine whether the plan charged costs 
to the FEHBP and provided services to 
FEHBP members in accordance with 
the terms of its contract. Our auditors 
reviewed health benefit payments made 
by the plan from 1998 through 2000, 
as well as miscellaneous payments and 
administrative expenses for contract 
years 1995 through 1999. 
At the conclusion of this audit, our au- 
ditors questioned: 
- $341,521 in claim payments. 
- $23,873 in uncashed health benefit 
checks. 
- $36,204 in administrative expenses. 
Of these amounts, California Care agreed 
with $331,408 and disagreed with 
$70,190. Lost investment income on 
these questioned costs totaled $13,151. 
Final calculations by our auditors re- 
garding amounts owed to the FEHBP 
totaled $414,749. 
Health Benefits 
From 1998 through 2000, California 
Care paid $142 million in actual FEHBP 
claim payments. For purposes of this 
audit, we selected claims for examina- 
tion at random, as well as in specific 
health benefit categories, principally 
those concerning coordination of bene- 
fits (COB) with Medicare and potential 
duplicate payments. We also reviewed 
FEHBP claim payment activities relating 
to refunds and uncashed health benefit 
checks. 
Our findings relating to health benefit 
charges totaled $365,394 and included 
the following summarized categories: 
Coordination of benefits. During this re- 
view, our auditors identified 71 hospital 
claim payments and 102 physician claim 
payments wherein the FEHBP paid as 
primary insurer when Medicare Part A 
or B was actually the primary insurer. 
As discussed in the preceding audit nar- 
rative on the BCBS of Alabama plan, 
this type of inappropriate charge oc- 
curs when there is a failure to coordi- 
nate benefits properly with Medicare 
coverage. We estimated that the FEHBP 
was overcharged $334,807 for these 
173 claims. 
We recommended that the contracting 
officer disallow these uncoordinated 
claim payments and instruct California 
Care to make a concerted effort to col- 
lect these payments and credit all over- 
paid amounts to the FEHBP if the plan 
is successful in its recoveries. 
Duplicate payments. Our auditors also 
determined that California Care inap- 
propriately charged the FEHBP for du- 
plicate claim payments. For the period 
1998 through 2000, we identified 17 
duplicate claim payments, resulting in 
overcharges of $6,714 to the FEHBP. 
Although this small number of duplicate 
claim payments indicated to our auditors 
that the plan had effective controls in 
place to minimize payments of this type, 
we still recommended that the contract- 
ing officer disallow them. We also rec- 
ommended to her to instruct the plan 
to make a conscientious effort to collect 
these 17 duplicate payments and credit 
all amounts recovered to the FEHBP. 
Uncashed FEHBP checks. In reviewing 
California Care's procedures for pro- 
cessing FEHBP refunds, uncashed checks 
and miscellaneous credits, we identified 
uncashed health benefit checks issued 
from 1992 through 1996 that had been 
voided by the plan but not credited to 
the FEHBP. 
The FEHBP contract specifically requires 
a carrier to void and return uncashed 
checks to the FEHBP within two years 
of issuance. As a result, we determined 
that California Care owed the FEHBP 
$23,873 for uncashed checks. 
Administrative Expenses 
Under the terms of its FEHBP contract, 
a plan is entitled to be reimbursed for 
certain administrative expenses it incurs 
in administering the contract, using spe- 
cific criteria set forth in federal regula- 
tions and in the contract itself. 
For contract years 1995-1999, California 
Care charged the FEHBP approximately 
$12 million for administrative expenses. 
For audit purposes, we selected samples 
of these administrative expenses and 
determined if the charges were actual 
and met the government's criteria to 
permit reimbursement for these costs. 
During our sample reviews, we noted 
that the plan charged the FEHBP $36,204 
for sales incentive expenses that did 
not meet the criteria. 
In this instance, the expenses in question 
provided no benefit to the FEHBP and, 
thus, could not be allowed as legitimate 
expenses under its FEHBP contract. As 
a result, we recommended that the con- 
tracting officer direct the plan to credit 
the FEHBP for the disallowed sales in- 
centive charges. 
Cash Management 
Regarding cash management of FEHBP 
funds, our auditors noted that California 
Care did not use the .checks-presented 
method. to withdraw funds from its 
letter of credit account from 1997 through 
1999 in conjunction with FEHBP 
health benefit claims and administrative 
expenses. 
As discussed in the preceding audit nar- 
rative on the BCBS of Alabama plan, 
all plans are required to use the checks- 
presented method to withdraw funds 
from their respective LOC accounts. 
Since California Care personnel stated 
that the plan currently draws funds from 
the LOC account using this method, we 
recommended that the contracting of- 
ficer review the plan's current procedures 
for withdrawing funds from the LOC 
account to substantiate compliance. 
Employee Organization Plans 
Employee organization plans also fall into 
the category of experience-rated, and 
may operate or sponsor participating 
health benefits programs. These plans 
operate on a fee-for-service basis, which 
allows members to obtain treatment 
through facilities or providers of their 
choice. 
The largest types of employee organiza- 
tions 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 
Mutual Benefit Association. 
During the reporting period, we issued 
one employee organization plan audit 
report relating to the Mail Handlers 
Benefit Plan (Mail Handlers). A summary 
of that report, including our audit find- 
ings, follows. 

Claims Administration Corporation as 
Administrator for Mail Handlers Benefit Plan 
in Rockville, Maryland 
Report No. 1B-45-00-01-096 
January 24, 2002 
In September 2000, we completed an 
audit of the FEHBP operations at Mail 
Handlers Benefit Plan's administrator, 
Claims Administration Corporation 
(CAC), based in Rockville, Maryland. 
CAC processes FEHBP claims on behalf 
of Continental Assurance Company, 
which underwrites the Mail Handlers 
plan. During the audit, we identified 
one area, enrollment discrepancies, 
that required further review. 
Consequently, we performed a supple- 
mental audit. This audit covered health 
benefit payments with enrollment dis- 
crepancies from 1997 through 1999, 
and was conducted to determine whether 
CAC paid claims during gaps in sub- 
scriber coverage or after termination 
of subscriber coverage with the Mail 
Handlers plan. 
As a result of this new audit, our audi- 
tors identified 3,159 claim payments 
that CAC made during gaps in subscriber 
coverage, resulting in overcharges of 
$384,931 to the FEHBP. We recom- 
mended that the contracting officer 
disallow these claim overcharges and 
instruct CAC to make a diligent effort 
to recover these payments and credit 
all amounts recovered to the FEHBP. 
Our auditors also identified 24,940 
claim lines that CAC may have paid 
after subscribers terminated coverage 
with Mail Handlers. Due to the signifi- 
cant number of claim lines, we established 
specific criteria for selecting those to 
review and subsequently reviewed 100 
claim lines. As a result, we determined 
that CAC made overpayments on 85 of 
these claim lines, totaling $10,712. 
We recommended to OPM's contracting 
officer to: 
- Direct CAC to make a reasonable 
effort to collect these 85 claim over- 
payments. 
- Credit all amounts recovered to the 
FEHBP. 
- Instruct CAC to review the remain- 
ing 24,840 claim lines. 
- Initiate recovery efforts on all addi- 
tional overpayments. 
In total, we questioned $395,643 in 
health benefit overcharges. 

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 informa- 
tion systems audits of health and life insurance carriers that partici- 
pate in the Federal Employees Health Benefits Program (FEHBP) 
and the Federal Employees Group Life Insurance program (FEGLI). 
We also audit the agency's computer systems development and 
have built on our early success 
and are now able to provide a valuable 
service to our customers by auditing 
computer information systems of our 
agency and health insurance carriers 
participating in the Federal Employees 
Health Benefits Program (FEHBP). 
The inherent need for this type of over- 
sight lies in the federal government's 
heavy reliance on information systems 
to administer federal programs, manage 
federal resources, and accurately report 
costs and benefits. Any breakdown in 
federal computer systems, including sys- 
tems of federal contractors, can compro- 
mise the government's efficiency and 
effectiveness, increase the costs of feder- 
al projects and programs, and threaten 
the safety of United States citizens. 
Ever increasing malicious attacks on 
public and private computer systems 
underscore the importance of this issue. 
These threats include outbreaks of 
destructive computer viruses, Web 
site defacements, sabotage, and theft of 
valuable or sensitive information in 
computer databases. 
To minimize information system security 
risks, our office audits various security- 
related activities and agency computer 
systems development. 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 poli- 
cies and procedures that apply to an 
entity's overall computing environment. 
Application controls are those directly 
related to individual computer applica- 
tions, such as a carrier's 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 an audit of Aetna U.S. Healthcare, 
a comprehensive medical organization 
that participates in the FEHBP. This au- 
dit covered Aetna's general information 
system controls environment and appli- 
cation controls over its HMO claims 
processing system. Aetna sponsors 31 
HMO plans in the FEHBP. 

Information System General and Application 
Controls at Aetna U.S. Healthcare 
in Hartford, Connecticut 
Report No. 1C-JN-00-01-007 
November 1, 2001 
Aetna U.S. Healthcare is a community- 
rated health maintenance organization 
(HMO) that provides health insurance 
coverage to subscribers nationwide. In 
conjunction with its FEHBP contract, we 
conducted an audit of its general infor- 
mation system and applications controls 
at its national claims processing center, 
located in Hartford, Connecticut. 
Aetna's HMO claims system processes 
claims for the 31 Aetna HMO plans 
that participate in the FEHBP. During 
contract year 2000, the scope of this 
audit, these plans accounted for ap- 
proximately $784 million in health 
benefit premiums. 
The goal of our audit was to obtain 
reasonable assurance that Aetna had 
implemented proper controls over the 
integrity, confidentiality and availability 
of computerized data associated with its 
FEHBP contracts. We evaluated Aetna's 
information system general control with 
guidance from the U.S. General Account- 
ing Office's Federal Information System 
Controls Audit Manual, industry best 

practices, and pertinent federal law and 
regulations. We also audited the applica- 
tion controls in place to ensure that the 
HMO claims system was processing all 
transactions accurately and completely. 
In reviewing the company's general 
controls, we examined how well the 
company managed security policy and 
access controls, along with software 
changes related to its computer-based 
information systems. Our auditors also 
assessed whether there was an appropriate 
segregation of duties among Aetna em- 
ployees involved in these information sys- 
tems. Additionally, we looked at controls 
over the mainframe operating system and 
examined Aetna's plan for maintaining or 
quickly restoring all its computer-based 
systems in the event of a disaster. 
With respect to Aetna's claims processing 
system, we performed a limited review 
to determine if Aetna had controls in 
place to ensure that transactions were 
valid, properly authorized and accurately 
processed in all respects. The objective 
of the review was to assess the reliabil- 
ity of the data that Aetna's actuarial 
and underwriting department used 
to set premium rates for its FEHBP 
HMO plans. 
We found that Aetna had a number of 
controls in place that helped promote 
a secure computer environment. These 
included: 
- A comprehensive, company-wide 
security policy that was developed 
after performing a risk assessment. 
- A computer network protected 
from unauthorized access through 
the Internet. 
- Correctly configured mainframe 
security software and controls over 
software changes that limited the pos- 
sibility of these being compromised. 
- A well-tested strategy for resuming 
business operations in the event of 
disaster. 
- Adequate application controls for 
Aetna's HMO claims processing 
system. 

On the other hand, we noted several 
areas we believe Aetna management 
should strengthen: 
- Aetna's computer security incident 
policy and controls for handling 
computer security issues when em- 
ployees leave the company. 
- Access controls and security for em- 
ployees who use dial-up technology 
to gain remote access to the network. 
Aetna management agreed to implement 
most of our recommendations. It was 
apparent that Aetna recognized the 
need for a formal policy and associated 
standards and procedures for respond- 
ing to computer security incidents. In 
responding to our recommendations, 
Aetna indicated it intended to revise its 
personnel manual to strengthen em- 
ployee termination procedures. It also 
agreed to develop automated proce- 
dures for handling personnel actions. 
Aetna has also committed to taking 
steps to reduce the risks associated with 
dial-up access to its network. 
We are confident that this OIG review, 
along with our specific recommenda- 
tions, will enhance Aetna's information 
system general and application controls, 
and thereby safeguard the confidential 
medical records of its enrollees. Aetna's 
efforts will also ensure the reliability and 
continued availability of the company's 
critical automated information. 

Campaign (CFC), the only authorized fundraising drive conducted in 
agency responsible 
and welfare agencies to solicit funds from 
CFCs are usually organized within large 
reached $224 million for the 2000 CFC,

Other External Audits

We conduct audits of the local organizations of the Combined Federal 
federal installations throughout the world. At the request of Office of 
Personnel Management (OPM) procurement officials, our office performs 
pre- and post-award contract audits relating to the acquisition of goods 
and services by agency program offices. 
armed services at their place of employ- 
law (P.L. 100-202), and new federal regu- 
Identify the U.S. Office of Personnel 
ticipated in the 2000 Combined Federal 
and live. Federal employee contributions 
Combined Federal Campaign
When we conduct our CFC audits, each
audit covers two consecutive campaign
E August 18, 1961, designated thexecuti ve Order 10927, issued
years of an individual CFC. Our auditors
look closely at the eligibility of partici-
U.S. Civil Service Commission (the pre- 
pating local charities, whether these lo- 
cursor of OPM) as the 
cal charities have complied with federal 
for arranging national voluntary health 
regulations and OPM guidelines, and if 
any irregularities appear in their finan- 
federal employees and members of the 
cial records. In addition, all CFC organ- 
izations are required by regulation to 
ment. Since then, there have been 
have an independent public accounting 

additional executive orders, one public 
firm (IPA) conduct an audit of their re- 
spective financial activities. 
lations (5CFR 950) that collectively: 
In addition, we audit national charitable
federations that participate in the CFC.
n Provide eligibility guidelines for na- 
During these audits, we focus on the
tional and local organizations and 
eligibility of federation member chari-
charities participating in the Com- 
ties and how funds are distributed and
bined Federal Campaign (CFC). 
expenses allocated to member charities. 
n Define the role of local CFCs. 
Combined Federal Campaign audits will
not ordinarily identify savings to the
government, because the funds involved
Management's specific oversight 
are charitable donations made by federal
responsibilities relating to the CFC. 
employees, not federal entities. While 
An estimated 365 local campaigns par- 
infrequent, our audit efforts can result 
in an internal referral to our OIG inves-
tigators for potential fraudulent activity.
Campaign, the most recent year for
which statistical data is available. These
During calendar year 2001, we selected 
11 campaigns and four federations for
urban areas to maximize the territory 
audit, based on a risk assessment that
covered where federal employees work 
considers such factors as the size of the 
campaign and amount of time since the 
last audit. We issued three final CFC 
while administrative expenses totaled 
federation audit reports during the cur- 
$19.4 million. rent reporting period, listed in Appendix VI. 

We have summarized the key results ob-
tained through these CFC federation
noted in some cases that national fed-
erations deduct administrative expenses
from the donations, then forward them
to their local affiliate. In turn, the local
affiliate deducts an administrative fee
before the remaining amount is finally
sent to the charities. Currently, federal
employees do not see this information
when making their pledges. 

Agency Contract Audits 
Our office conducts two types of agency
contract audits. We perform pre-award
contract audits to: (1) ensure that a bid-
ding contractor is capable of meeting
contractual requirements; (2) assess
whether estimated costs are realistic and
reasonable; and (3) determine if the
contract complies with all applicable
federal regulations. We also 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 pro-
visions 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 did
not issue any audit reports on agency
contracts. 
audits as follows: 
- One federation failed to request its 
IPA to verify the federation had
properly distributed funds to its
member charities. 
- One federation lacked internal con- 
trols over payments distributed by 
state-affiliated offices. 
- One federation was unable to pro- 
vide all of the audit documentation 
requested. 
In addition, during this reporting period 
we made several recommendations to 
OPM's Office of Combined Federal 
Campaign Operations (OCFCO), in- 
tended to improve OPM's campaign
Campaign 
oversight internal control procedures. 
Oversight 
The key recommendations made were:
Procedures 
- Develop agreed-upon procedures to 
Needed 
be used by IPAs in conducting all re-
quired CFC audits to more closely 
meet OCFCOs's program oversight 
needs. 
- Increase training for local federal 
coordinating committees (LFCC).
Note: An LFCC acts as the board of
is responsible for conducting the
campaign. We routinely find the
LFCCs not fully informed regarding
CFC regulations. 
- Disclose the full administrative costs 
for federations in the CFC brochure. 

OPM Internal Audits 
Our office is responsible for conducting audits, as well as evaluations 
and inspections, of the Office of Personnel Management's (OPM) pro- 
consolidated financial statements required under the Chief Financial 
Officers Act (CFO Act of 1990) and issuing an audit relating to the 
agency's annual performance report to Congress, the latter a require- 
ment of the Government and Performance Results Act of 1993 (GPRA). 
working together to provide recommen- 
dations for improving the economy and 
operations. We use a risk-based meth- 
To ensure that we achieve our goals, we 
spirit ensures that all parties involved 
mum benefit and that we will continu- 
The following pages contain descriptions 
Integrity Act of 1982 (FMFIA) com- 
Agency Performance Audits 
The performance audits described below
are divided into two categories: program
audits and economy and efficiency audits.
We conducted two program audits and
three economy and efficiency audits.
The two program audits related to our
agency's data prepared under the require-
ments of the Government Performance
and Results Act of 1993 (GPRA). The
three economy and efficiency audits were

in relationship to the Federal Employ-
ees. Life Insurance program; OPM's
compliance with Section 508 of the Re-
habilitation Act of 1973, as amended;
and OPM's compliance with elevator
inspections. 
Program audits. As defined by government
auditing standards, a program audit is
designed to determine: (1) the extent
to which the desired results or benefits
established by Congress or another fed-
eral authorizing body is being achieved;
(2) the effectiveness of agency programs,
activities or functions; and (3) agency
compliance with laws and regulations
pertaining to specific program areas.
Economy and efficiency audits. This
type of audit is performed primarily to
determine: (1) whether an in-house en-
tity is acquiring, protecting and using
its resources economically and efficiently,
including areas such as personnel, prop-
erty and space; (2) the causes of ineffi-
Oauditors and program evaluatorsur internal audits staff consists of
efficiency of our agency operations and
the internal controls governing these
odology to assess OPM's activities and
establish annual work agendas. The ob-
jective is to identify high impact areas
where the OIG can provide the best
possible benefit to the agency. 
carefully plan and conduct our activi-
ties involving audits or evaluations and
inspections in accordance with govern-
ment standards. We conscientiously in-
clude OPM program managers in every
step of the audit process to ensure that
we have met their needs, addressed
concerns and obtained feedback on
how we can improve the value of our
services. We believe this cooperative
with our activities will obtain the maxi-
ally improve our level of services. 
of our efforts in each of the primary
areas that our internal audits cover: 

n Agency performance audits. 
Agency consolidated financial state-
ments audits. 
(3) whether an entity has complied with 
laws and regulations on matters of 
economy and efficiency. 
Government Performance and 
Results Audits 
During this reporting period, we con- 
tinued to allocate resources to auditing 
the agency's documents relating to the 
Government Performance and Results 
Act of 1993 (P.L. 103-92). This legis- 
lation was enacted to improve govern- 
ment performance and accountability 
through better planning and reporting 
of agency results government-wide. 
GPRA, as it is more commonly called, 
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. 
Under the performance planning process, 
OPM program offices are responsible 
for developing indicators and goals for 
their program activities. Each program 
office submits performance information 
to OPM's strategic initiative coordinator. 
The strategic coordinator and OPM's 
budget office review the information 
and combine performance plan submis- 
sions from each program office into a 
single document that includes the agency's 
congressional budget justification and 
its annual performance plan. 

OPM program offices are also respon- 
sible for measuring their performance 
in achieving the goals and indicators set 
forth in the annual performance plan. 
In an October 1998 congressional request, 
the Inspector General community was 
asked to include in future semiannual 
reports to Congress a summary of re- 
portable actions under GPRA resulting 
from OIG audit activities. Accordingly, 
the two audits below describe our activi- 
ties and corresponding results. 
Audit of OPM's FY 2003 
Annual Performance Plan 
Report No. 4A-OD-00-02-030 
February 26, 2002 
As referenced in the preceding GPRA- 
related audits introduction, agencies 
government-wide are required to provide 
an annual performance plan along with 
their respective budgetary submissions 
for each fiscal year. In that report, each 
agency must detail its achievements un- 
der its annual performance plan. 
The objectives of our reviews were to 
determine if OPM's FY 2003 annual 
performance plan (APP): 
- Integrated the APP with budgetary 
information. 
- Addressed current management chal- 
lenges and presidential initiatives. 
- Included measurable goals and 
indicators. 
We found the agency's FY 2003 perfor- 
mance plan improved from the previous 
year. OPM's FY 2003 annual performance 
plan continues to provide program goals 
that support OPM's general goals and 
objectives discussed in OPM's FY 2000- 
2005 strategic plan. Our audit focused 
on 12 out of 25 agency strategic objec- 
tives and related goals and indicators. 
The 12 strategic objectives included 27 
goals from the following eight key pro- 
gram offices: 
- Office of Executive Management 
Resources 
- Employment Service 
- Office of Merit Systems Oversight 
and Effectiveness 

- Retirement and Insurance Service 
- Investigations Service 
- Office of Workforce Relations 
- Office of Chief Information Officer 
- Workforce Compensation and Per- 
formance Service 
Areas needing improvement include the 
references of goals or indicators that 
address each of the presidential initia- 
tives and management challenges. 
Eighty-two percent of the indicators we 
reviewed were measurable. OPM should 
improve its performance indicators by 
including definitions, target values, base- 
line data and other more detailed infor- 
mation. This additional information 
will more adequately show the progress 
toward achieving an indicator or goal 
and the government-wide impact of 
OPM's efforts. 

OPM's FY 2001 Performance Results 
Internal Controls 
Report No. 4A-CF-00-02-053 
March 29, 2002 
On the preceding page in the introduc- 
tory material pertaining to GPRA-related 
audits, we mention that agencies 
government-wide are required to pro- 
vide an annual performance report. In 
that report, each agency must detail its 
achievement of goals and indicators. 
Using the above criteria, our objectives 
for this audit were to: 
n Verify and validate performance 
data for selected FY 2001 GPRA 
performance indicators in OPM's 
performance report. 
The U.S. General Accounting Office's 
report, Selected Approaches for Verifica- 
tion and Validation of Agency Performance 
Information (GAO/GGD-99-139), de- 
fines verification and validation as follows: 
- Verification is the assessment of data 
completeness, accuracy, consistency, 
timeliness and related quality control 
practices. 
- Validation is the assessment of whether 
data are appropriate for the perfor- 
mance measure. 
Our agency submitted its second annual 
performance plan to Congress with its 
FY 2001 budget request. We focused on 
ten major program offices by selecting 
33 program goals and 73 performance 
measures to verify and validate. 
Specifically, we selected goals and per- 
formance measures from the following 
OPM program offices: 
- Office of Executive Management 
Resources 
- Employment Service 
- Office of Merit Systems Oversight 
and Effectiveness 
- Retirement and Insurance Service 
- Office of the Chief Financial Of- 
ficer 
- Office of Human Resources and 
Equal Employment Opportunity 
- Office of Communications 
- Office of Contracting and Adminis- 
tration Services 
- Office of Chief Information Officer 
- Workforce Compensation and Per- 
formance Service 
Our reviews found that OPM needs to 
improve controls over the performance 
reporting process by: 
- Establishing policies and procedures 
for obtaining and compiling perform- 
ance data. 
- Providing better oversight and moni- 
toring of performance data by OPM 
managers. 
- Using specific time frames (cutoff con- 
trols) to coincide with performance 
data. 
- Correlating results to pertinent 
measures. 
Our office is encouraged that OPM man- 
agement has been responsive to our 
findings and has begun taking steps to 
implement improvements cited in our 
audit recommendations. 

OPM's Travel Card Program Internal Controls 
Report No. 4A-CF-00-01-102 
November 15, 2001 
The Government Travel Charge Card 
Program was created by the General 
Services Administration as a government- 
wide travel payment and expense con- 
trol system. Under the Travel and Trans- 
portation Reform Act of 1998, federal 
employees are required to use a govern- 
ment contractor-issued travel charge 
card for official travel expenses unless 
an exemption has been granted. Bank 
of America is currently under contract 
to provide travel charge card services to 

OPM and OPM employees. 
Responsibility for OPM's travel card pro- 
gram resides with the Office of Chief 
Financial Officer (OCFO). OCFO is re- 
sponsible for administering and manag- 
ing the travel card program at OPM and 
serves as the intermediary between the 
cardholder, the bank and OPM program 
management. Program managers, in 
turn, have responsibility for monitoring 
employee travel card use within their 
respective program areas. 
Our audit was designed to review what 
internal controls were in place regard- 
ing OPM's travel card program. The 
specific objectives of this audit were to 
understand and analyze specific con- 
trols over: 
- Travel card uses on individually 
billed accounts. 
- Travel card balance payments for 
individually billed accounts. 
This audit covered the time frame be- 
tween June 2000 and June 2001. We 
noted that the travel card program in- 
cluded over 1,467 individual OPM 
employee cardholders as of July 2001. 
We reviewed the travel transaction file 
maintained by the Office of the Chief 
Financial Officer and determined that 
during this period charge card activity 
reflected over 23,600 transactions, 
totaling over $3.7 million. 
Identified below are specific internal 
control issues affecting the travel card 
program that we recommended be ad- 
dressed and improvements made by: 
- Establishing written policies and pro- 
cedures relating to the travel card 
program. 
- Increasing the number of OCFO and 
program management travel card 
activity reviews. 
- Improving system edits in the travel 
management system to prevent du- 
plicate payments. 
Additional comments concerning these 
three internal control issues appear below. 

Travel Card Program Policies 
and Procedures 
There are no policies and procedures for 
the OPM travel card program. Written 
policies and procedures are needed to 
provide guidance and to ensure consis- 
tency for the administration of the travel 
card program. We recommended that 
OCFO develop and implement written 
procedures to administer and monitor 
the travel card program at OPM. OPM 
concurred with the finding and recom- 
mendation. 
Travel Card Program Management 
Travel card cancellations. OPM does not 
maintain a current listing of cardholders 
as required by section 32 of the SmartPay 
Master Contract. This section was de- 
signed to ensure that travel cards issued 
to OPM employees who have since left 

the agency are cancelled timely. 
During our audit, we noted 46 termi- 
nated employees who still had active 
cards. Two of the 46 employees had 
used their travel cards after the termi- 
nation date. However, all charges were 
paid in full. We recommended that the 
CFO office deactivate the active card 
status of the 46 people we identified as 
terminated OPM employees. 
To ensure that the travel cards for all 
employees separated from OPM will be 
cancelled more timely, we also recom- 
mended that OCFO promptly recover 
travel cards issued previously to OPM 
employees upon their separation from 
the agency, and periodically compare 
the active cardholder file to personnel 
files showing employees who have re- 
signed or otherwise departed from the 
agency. 
Charge card reports. OPM's travel card 
contractor, Bank of America, has a Web- 
based application program called EAGLS 
(Electronic Accounting Government 
Ledger System) set up to help manage 
our agency's travel card activity. It is 
capable of producing numerous reports 
that could be beneficial in account 
analysis. However, we noted that OPM 
routinely only uses EAGLS to produce 
one report, a delinquency report. 
As of June 17, 2001, 125 OPM card- 
holders had past due balances, totaling 
$94,311. These particular accounts were 
past due, ranging from one to 180 days. 
In addition, on August 8, 2001, a delin- 
quency amount of $101,818, charged 
collectively by 48 cardholders, was writ- 
ten off as uncollectible. 
Outside of a delinquency, we concluded 
that any individual who has been mis- 
using the travel card could continue to 
do so and not be detected unless a de- 
linquency problem arose. We, there- 
fore, recommended that OPM's various 
program offices be given appropriate 
access to EAGLS, so that they can take 
advantage of the various reports that can 
be generated from EAGLS. This will 
permit these offices to monitor and 
perform periodic reviews of travel card 
use and more readily identify employee 
misuse or abuse of the travel card. 

OPM's Compliance with Leave Without 
Pay Regulations 
Report No. 4A-CF-00-02-051 
March 27, 2001 
We reviewed OPM's compliance with 
Leave Without Pay (LWOP) regulations 
contained in the U.S. Code of Federal 
Regulations, specifically 5 CFR 531, 
870 and 890. In accordance with those 
regulations, we focused our review on 
payroll and personnel documentation 
for transactions occurring between 
January 1, 2000 and June 30, 2001, to 
determine if OPM had: 
- Delayed within-grade increases for 
employees with LWOP status as re- 
quired in Part 531. 
- Cancelled life insurance coverage for 
employees in LWOP status for twelve 
consecutive months as required in 
Part 870. 
- Cancelled health insurance coverage 
for employees in LWOP status for 
twelve consecutive months as re- 
quired in Part 890. 
Our audit resulted in the following 
findings: 
- A part-time employee was charged 
in the payroll system with more 
LWOP time than he was scheduled 
to work. 
Had this employee remained at 
OPM and the error not corrected, 
the long-term effect would have 
been a delay in the employee's 
within-grade increase for more 
pay periods than required by 
regulation. 
- OPM did not cancel in a timely man- 
ner life insurance benefits for an em- 
ployee who was in LWOP status for 
twelve consecutive months. 
These life insurance benefits were 
retroactively cancelled three years 
after the effective date when the 
employee voluntarily retired. 
- OPM did not cancel health insurance 
benefits for an employee in LWOP 
status for twelve consecutive months. 
Based on payroll records, the em- 
ployee was still covered by health 
benefits when she left the agency 
24 weeks after the coverage should 
have been cancelled. 
Based on our recommendations, our 
agency's Office of Human Resources 
and EEO (Equal Employment Oppor- 
tunity) and Office of the Chief Finan- 
cial Officer are developing a method to 
monitor the payroll system to ensure that 
situations described in the preceding bul- 
lets do not occur in the future. 

OPM's Consolidated Financial Statements Audits 
As we have described in previous semi- 
annual reports, our agency contracts with 
an independent public accounting (IPA) 
firm, KMPG LLP to perform OPM's 
consolidated financial statements audits 
annually under the requirements of the 
Chief Financial Officers. Act of 1990 
(CFO Act). 
The CFO Act was enacted as a result of 

a 
congressional finding that the agencies 
and departments of the federal govern- 
ment were in great need of fundamental 
reform in financial management require- 
ments and practices. All evidence at the 
time pointed to financial management 
systems government-wide being obsolete, 
inefficient and unable to provide com- 
plete, consistent, reliable or timely infor- 
mation. 
In performing these audits, KPMG, as 
our designated IPA, is responsible for 
providing audit reports that contain 
the following determinations: 
- Fairness (the absence of material mis- 
statements) of OPM's consolidated 
financial statements and their con- 
formance with generally accepted 
accounting principles. 
- OPM management's internal controls 
over financial reporting. 
- OPM management's compliance 
with laws and regulations. 

Our office monitors KPMG's performance 
during these audits to ensure that all 
work is conducted in accordance with 
the contract and in compliance with 
government auditing standards and 
other authoritative references pertain- 
ing to OPM's financial statements. Spe- 
cifically, we are involved in the planning, 
performance and reporting phases of 
the audit through participation in key 
meetings and review of KPMG's work 
papers and reports. 
This particular audit covered OPM's 
retirement, health and life insurance 
benefits programs, and its revolving 
fund (RF) and salaries and expense 
(S&E) accounts for fiscal years 2001 
and 2000. The RF programs provide a 
variety of human resource-related ser- 
vices to other federal agencies, such as 
pre-employment testing, security inves- 
tigations and employee training. The 
S&E accounts are the resources pro- 
vided to and used by OPM to cover the 
costs to administer the agency. 
This is the second year that our agency 
has issued consolidated financial state- 
ments, and the first year that compara- 
tive financial statements have been pre- 
sented. In prior years, OPM prepared 
separate financial statements for each 
benefits program, its revolving fund, and 
salaries and expense accounts. 
Based on our monitoring efforts, we 
concurred with the IPA's reports on the 
consolidated financial statements, inter- 
nal controls and compliance with laws 
and regulations. A summary relating to 
the audit report we issued on KPMG's 
work follows. 

OPM's FY 2001 & FY 2000 Consolidated 
Financial Statements 
Report No. 4A-CF-00-01-101 
February 8, 2002 
Under a contract monitored by our of- 
fice, the international accounting firm 
of KPMG LLP (KPMG) performed 
audits of OPM's FY 2001 and FY 2000 
consolidated financial statements. KPMG's 
audit covered the retirement, health 
and life insurance 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 fed- 
eral civilian employees, annuitants and 
their respective dependents, and operate 
under the following names: 
- Civil Service Retirement System 
- Federal Employees Retirement System 
- Federal Employees Health Benefits 
Program (FEHBP) 
- Federal Employees. Group Life 
Insurance program 
These programs are administered by 
OPM's Retirement and Insurance Service 
(RIS). 
Consolidated & Benefits Programs 
Financial Statements 
KPMG determined that the consolidated 
fiscal years 2001 and 2000 financial state- 
ments and the individual statements of 
the three programs that govern the 
health, life, and retirement benefits of 
federal employees and retirees were pre- 
sented fairly in all material respects and 
were prepared in conformance with gen- 
erally accepted accounting principles. 
KPMG noted six reportable conditions 
in the internal control environments of 
the benefits programs and the RF and 
S&E accounts during fiscal year 2001. 
Five of these conditions existed in the 
prior year and remain uncorrected. Re- 
portable conditions are defined as items 
that if left uncorrected could jeopardize 
the agency's ability to record, process, 
summarize and report financial data ac- 
curately, although they would not result 
in material misstatements to the consoli- 
dated financial statements. If the items 
would result in material misstatements, 
then they are defined as material weak- 
nesses. 
Table 1 on the next page includes report- 
able conditions that KPMG identified 
during its audit work on the financial 
statements for FYs 2001 and 2000. This 
is the second time since the CFO Act was 
implemented that none of the reportable 
conditions was considered to be a ma- 
terial weakness in the agency's internal 
controls over financial reporting. 
Specifically, KPMG reported the follow- 
ing conditions that needed improving: 
- Controls over program administra- 
tion for community-rated health 
carriers under the FEHBP. 
- Quality control over annual finan- 
cial statement preparation [Retirement 
and Insurance Service and Office of 
the Chief Financial Officer (OCFO)]. 
- Budgetary accounting structure of 
OCFO.* 
* Note: Budgetary accounts are included 
in two financial statements: the 
statement of budgetary resources 
and statement of financing. Without 
a set of general ledger accounts to 
summarize budgetary activity that 
requires debits and credits to balance, 
the risk of reporting inaccurate bud- 
getary figures exists. 
- Account analysis and other significant 
reconciliation procedures of OCFO. 
- Implementing documented policies 
and procedures of OCFO. 
- Electronic data processing (EDP) gen- 
eral control environment of OPM: 
Service continuity relating to in- 
formation resource protection and 
unplanned service interruption 
Software development and change 
controls 
Access controls 
Entity-wide information security 
program 
System software controls 
KPMG reported no instances of non- 
compliance that are required to be 
reported under government auditing 
standards or Office of Management 
and Budget Bulletin No. 01-02, Audit 
Requirements for Federal Financial 
Statements, except for the following 
areas where OPM's financial manage- 
ment systems did not substantially 
comply with the requirements of the 
Federal Financial Managers. Improve- 
ment Act: 
- Federal financial management system 
requirements. 
- Standard general ledger at the trans- 
action level (RF and S&E only). 
The following table lists the internal 
control weaknesses reported for FYs 
2001 and 2000 and the programs to 
which they apply. 

Table 1: FYs 2001 & 2000 Internal Control Weaknesses 
Health Life Salaries 
Retirement Benefits Insurance Revolving & Expense 
Issues Program 
OPM's FMFIA Compliance 
Efforts 
- Revenues and expenditures applicable 
to agency operations are properly 
recorded and accounted. 
As part of our office's auditing respon- 
sibilities, we reviewed OPM's Federal 
Note: This revenues and expenditures 
review is performed to ensure the 
Managers. Financial Integrity Act of 
reliability of the agency's financial 
1982 (FMFIA) reporting process for 
and statistical reports and an accu- 
calendar year 2001. As required under 
rate accounting of all assets. 
Compared these same weakness and 
nonconformance issues referenced 
in the FMFIA report to our other 
performance and program audit work. 
OPM reported no material weaknesses 
and two material nonconformances as 
of December 31, 2001. A nonconform- 
ance is defined as a situation in which 
an agency's accounting system does not 
conform to the principles, standards and 
related requirements prescribed by the 
U.S. Comptroller General, U.S. General 
Accounting Office. OPM also reported 
that four weaknesses and one noncon- 
formance included in the prior year's 
report were corrected, subject to audit 
validation. 
In our opinion, the results of both our 
work and KPMG LLP's support the over- 
all conclusion reached by OPM manage- 
ment. The change in material weaknesses 
reported from the prior calendar year 
FMFIA report to none for this year's re- 
port are due to improvements in agency 
internal controls as well as the continuing 
effectiveness of several compensating 
controls. 
While we fully agreed with the noted 
conclusions in the FMFIA report, we 
want to emphasize that the correction 
of the prior year material weaknesses 
is still subject to audit validation. In some 
cases, the correction is based on tempo- 
rary compensating controls in place until 
permanent controls can be implemented. 
These temporary controls allow the agency 
to achieve minimal levels of control until 
the necessary resources people, money, 
technology can be achieved under future 
agency funding priorities. 

Investigative Activities 
The Office of Personnel Management (OPM) administers benefits from 
its trust funds for all federal civilian employees and annuitants 
participating in the federal government's retirement, health and life insurance 
programs. These trust fund programs cover approximately nine million 
current and retired civilian employees, including eligible family 
members, and disburse about $69 billion annually. While we investigate 
potential fraud involving these trust funds. 
As a result of this office's investigative activities, 
we realized a significant 
number of judicial and administrative 
successes during this reporting period, 
including monetary recoveries totaling 
$4,019,851. 
Overall, we opened 19 investigations and 
closed 32 during the reporting period, 
with 80 still in progress at the end of 
the period. Our investigations also led 
to 14 arrests and 19 convictions during 
the period. For a more complete statis- 
tical summary of our office's investigative 
activity in this reporting period, refer to 
Table 1 on page 40 of this section, along 
with the OIG's productivity indicators 
listed at the beginning of this report. 
As mentioned in the shadow box above, 
most of our case work relates to the 
federal health, life and retirement trust 
fund programs our agency administers 
on behalf of millions of federal employ- 
ees, retirees, their spouses and depen- 
dents. Our office aggressively pursues 
individuals and corporate entities seek- 
ing to defraud these trust funds upon 
which these federal employees, retirees, 
their spouses and dependents rely. 
Over the years, our OIG has worked a 
number of annuity fraud cases involving 
the Civil Service Retirement and Dis- 
ability trust fund. This trust fund cov- 
ers all civilian federal employees who 
contributed to the Civil Service Retire- 
ment System (CSRS) and/or the newer 
Federal Employees Retirement System 
(FERS). FERS was established by Con- 
gress in 1983. At that time, federal em- 
ployees were given the opportunity to 
remain in CSRS or switch to the new 
program. All new federal government 
employees hired on or after January 1, 
1984, were automatically placed in the 
FERS retirement program. 
With CSRS being the older of the two 
systems, more people have retired un- 
der this system, creating more opportu- 
nity for annuity fraud under it than FERS. 
Our office long ago assumed a proactive 
stance in identifying individual cases 
upon which to base investigations of 
this nature. 
We identify fraud in this area by routinely 
reviewing CSRS annuity records for 

anything that might present an irregu- 
larity of some type, including excessive 
age. We receive additional information 
from our agency's Retirement and In- 
surance Service (RIS) through the com- 
puter matches it performs using OPM's 
annuity rolls and the Social Security 
Administration's death records. These 
computer matches have proven very help- 
ful to OPM, since many CSRS annuitants 
or those receiving CSRS's survivor bene- 
fits are also eligible for Social Security 
benefits. RIS also provides our office 
other annuity records data in support 
of our investigative activities. 
Other useful tools to help our office in 
its efforts to uncover and expose fraud 
programs has been our health care 
fraud hotline and our retirement and 
special investigations hotline, along 
with mailed-in complaints. Formal 
complaints and calls we receive on 
these hotlines totaled 429 during this 
reporting period. Additional informa- 
tion, including specific activity break- 
downs for each hotline, can be found 
on later in this section. 
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 DOJ's health-care fraud 
working groups. We work actively with 
the various U.S. Attorney's 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. 
In addition to our responsibility to de- 
tect and investigate fraud perpetrated 
against the trust funds, this office con- 
ducts investigations of serious criminal 
violations and misconduct by OPM em- 
ployees. These cases may involve the 
theft or misuse of government funds 
and property. 
On the following pages, we have pro- 
vided narratives relating to health care 
and retirement fund fraud investigations 
we conducted or concluded during the 
reporting period. These illustrate not only 
the various types of fraud we encounter 
in our investigations, but what penalties 
and sanctions face those involved in 
wrongdoing affecting OPM programs. 
 
Health Care-Related Fraud and Abuse 
Our OIG special agents also work closely 
with the various health insurance carriers 
participating in the Federal Employees 
Health Benefits Program (FEHBP). This 
cooperative effort provides an effective 
means for reporting instances of possible 
fraud by FEHBP health care providers 
and subscribers. Our investigators, of 
course, continue to have a close work- 
ing relationship with our OIG auditors 
on fraud issues that may arise during the 
course of FEHBP health carrier audits. 
The following narratives describe five 
of the cases we concluded in the area of 
health care fraud during this reporting 
period. 

In December of 2000, we received a re- 
ferral from Mail Handlers Benefits Plan 
(Mail Handlers), a federal health insur- 
ance employee organization that partici- 
pates in the FEHBP, reporting that a 
pharmacy in Wilkes-Barre, Pennsylvania, 
had been waiving the required copay- 
ment on the purchase of injectable phar- 
maceuticals being dispensed to one of 
the plan's enrollees. 
After conducting our investigation, we 
determined that the owner of this phar- 
macy, who also was a pharmacist, was 
maximizing his profits by submitting 
hard copy claims to this plan to avoid 
using the Mail Handlers plan's online 
prescription service that automatically 
factored in copays to the pharmacy. 
Following our consultations with the 
U.S. Attorney's office with jurisdiction 
over this area of Pennsylvania and with 
the plan, the pharmacy owner signed 
an agreement on February 12, 2002, to 
reimburse the FEHBP plan $225,144 
for the overpayment he received. 

Texas Physician Indicted for 
Health Care Fraud 
In August 2001, our office, the FBI, the 
Texas Rangers, and the state of Texas 
Medicaid fraud control unit began an 
investigation of a Midland, Texas phy- 
sician who was purportedly engaged in 
fraudulently billing federal and state 
health insurance programs as well as 
private insurance companies. Specifi- 
cally, these programs included the Fed- 
eral Employees Health Benefits Program, 
Medicare, and the federally funded but 
state-administered Medicaid program. 
This investigation provided sufficient 
evidence to obtain search warrants for 
the physician's office, his residence, and 
places of business unrelated to his medical 
practice. These warrants were executed 
in early November 2001. While the 
primary reason for performing these 
searches was related to the alleged bill- 
ing fraud, federal and state law enforce- 
ment officers discovered 5.7 grams of 
cocaine at his residence. Consequently, 
on November 5, 2001, he was arrested 
on one count of illegal possession of a 
controlled substance, and one count of 
distributing illegal controlled substances 
to a juvenile. 
On December 19, 2001, this doctor was 
indicted for health care fraud by a fed- 
eral grand jury in Midland, Texas, for: 
(1) billing these health care programs 
and insurance companies for medical 
services never rendered; and (2) chang- 
ing treatment codes to reflect high-end 
services not performed. Both practices 
resulted in substantially larger reimburse- 
ments to this doctor from these various 
health insurance programs and private 
insurance companies than he otherwise 
should have received. 
Potential loss to these health insurance 
programs and private insurance compa- 
nies has been calculated at over one mil- 
lion dollars. Of this amount, the loss to 
the Federal Employees Health Benefits 
Program, administered by our agency, 
was estimated to exceed $240,000. 
A trial date has been set for May 16, 
2002. The outcome of the trial relating 
to the health care fraud will be reported 
in a future semiannual report. 
Durable Medical Equipment 
Company Owner Guilty of 

Mail Fraud 
Our office has been conducting an on- 
going investigation involving another 
Midland, Texas case in cooperation 
with the state of Texas Medicaid fraud 
control unit, the FBI, and the Govern- 
ment Employees Hospital Association 
(GEHA). It came to our attention in 
June 1997 that the owner of a durable 
medical equipment (DME) company in 
Midland had been involved in health 
care fraud activities for an extended 
period of time. 
This investigation was initiated based on 
a referral from GEHA, a fee-for-service 
plan based in Kansas City, Missouri, 
that participates in the FEHBP. We sub- 
sequently learned that the owner of this 
company created fraudulent documen- 
tation to support the sale and rental of 
expensive medical equipment rather than 
the less expensive equipment actually 
acquired by the DME company's cus- 
tomers. This resulted in a larger reimburse- 
ment to the company than it otherwise 
should have received. 
After being interviewed by an investiga- 
tor from our office and other law enforce- 
ment agents, he agreed to plead guilty 
to a mail fraud charge inasmuch as the 
fraudulent claims and the supporting 
documentation had been sent through 
the U.S. mail. He also agreed to make 
restitution in the amount of $2.6 million 
to the federal and state health insurance 
programs he had defrauded. Of this 
amount, $100,000 was earmarked for 
the FEHBP trust fund for its losses. 
APWU Cited in Improper 
Administrative Payments 
& Kickbacks 
In October 1998, our OIG initiated an 
investigation involving the American 
Postal Workers Union Health Plan 
(APWU) and the National Health Ser- 
vices, Inc. (NHS) of Louisville, Kentucky, 
and United Payors & United Providers, 
Inc. (UP&UP) of Rockville, Maryland, 
after a false claim lawsuit was filed in U.S. 
District Court in Baltimore, Maryland. 
The lawsuit alleged that, from 1993 
through 1997, APWU, also located in 
Rockville, Maryland, contracted with 
the National Health Services, Inc., and 
United Payors & United Providers, Inc., 
to assist APWU in reducing claims ex- 
penses required under its Federal Em- 
ployees Health Benefits Program 
(FEHBP) contract administered by our 
agency. It was further alleged that these 
cost containment contracts were inflated 
with kickbacks that NHS and UP&UP 
paid APWU. 
Through the extensive work our OIG 
investigative and audit staffs performed 
during this investigation, and with the 
assistance of the U.S. Attorney's office 
for the District of Maryland, we were 
able to substantiate these allegations. 
Our work resulted in a settlement 
agreement. 
On February 12, 2002, our office re- 
ceived the final settlement agreement 
made between OPM, the Department 
of Justice, APWU, NHS and UP&UP. 
After the settlement, UP&UP and NHS 
were acquired in March 2000 by BCE 
Emergis, a Canadian corporation. 
The final agreement called for APWU, 
NHS and UP&UP to reimburse the 
federal government $2,193,000 to re- 
solve allegations that they submitted 
false claims to the FEHBP. Under the 
terms of the settlement agreement, 
APWU will return $1,243,000, with the 
remaining $950,000 paid by NHS and 
UP&UP. The FEHBP trust fund will 
receive $908,000 of the $2,193,000 
settlement amount. 
Norfolk Chiropractor 
Obtains Illegal Reimbursements 
for Services 
In November 1999, the FBI requested 
assistance in investigating allegations of 
health care fraud involving a chiroprac- 
tor clinic in Chesapeake, Virginia, and 
its owner, Michael J. Concessi, a Nor- 
folk, Virginia chiropractor. 
In addition to the FBI, we were joined in 
our investigation by Trigon Blue Cross 
and Blue Shield (Trigon BCBS) and the 
U.S. Defense Criminal Investigative 
Service. Our investigation revealed 
that Dr. Concessi, who owned and op- 
erated the Healthwise Medical and Re- 
habilitation Center, had engaged in a 
fraudulent billing scheme over a period 
of several years. 
Specifically, Mr. Concessi had been suc- 
cessful in getting a medical doctor and 
a doctor of osteopathy to submit medi- 
cal claims for services as if they had per- 
formed them when, in fact, these services 
had been rendered by Mr. Concessi. As 
a chiropractor, Mr. Concessi was not 
entitled to receive reimbursement for 
these services. This scheme was used 
in billing Trigon BCBS, an FEHBP- 
participating BCBS insurance carrier, as 
well as TRICARE/CHAMPUS, the fed- 
eral health insurance program that pro- 
vides health benefits to our active and 
retired military personnel, their spouses 
and eligible dependents. 

On March 1, 2001, Mr. Concessi and 
the Healthwise Medical Rehabilitation 
Center were indicted by a federal grand 
jury in Norfolk, Virginia, on multiple 
counts of health care fraud and making 
false statements. Several months later, on 
August 24, 2001, both were convicted 
on 24 counts relating to the above 
charges. Sentencing took place on 
November 19, 2001. 
Mr. Concessi received a term of 30 
months imprisonment, a $25,000 fine, 
three years of supervised release, and 
was ordered to pay full restitution to 
Trigon Blue Cross Blue Shield under 
its FEHBP contract in the amount of 
$35,994.69 and $51,384.53 to TRICARE/ 
CHAMPUS. Healthwise Medical Re- 
habilitation Center was fined an addi- 
tional $158,000 and received three 
years. probation. 
Based on these convictions, Mr. Concessi 
and Healthwise Medical and Rehabili- 
tation Center, along with Concessi Chi- 
ropractic Center in Norfolk, were sus- 
pended and debarred from the Federal 
Employees Health Benefits Program 
under the FEHBP administrative sanc- 
tions program. This program is admin- 
istered by our OIG through a delegation 
of authority from the OPM Director. 
For a more detailed discussion of the 
program, please refer to an article in 
our Statutory and Regulatory Review 
section on pages 3-5. 
Retirement Fraud and 
Special Investigations 
As previously stated, in accordance with 
our mission to prevent and detect fraud, 
OIG special agents routinely review 
CSRS annuity records for indications 
of unusual circumstances. For example, 
using excessive annuitant age as an in- 
dication of potential fraud, our investi-
gators attempt to contact the annuitants 
and determine if they are alive and still 
receiving their benefits. In addition, we 
receive inquiries from OPM program 
offices, other federal agencies and pri- 
vate citizens that prompt us to investi- 
gate cases of potential retirement fraud 
or alleged misconduct by OPM employ- 
ees and contractors. 
Below are the summaries of two cases 
we completed during this reporting pe- 
riod that illustrate the type of vigilance 
necessary to combat federal annuity 
fraud. 

CSRS Annuitant's Daughter Involved in Annuity Fraud 
Our office's involvement in a joint in- 
vestigation with the U.S. Secret Service, 
the IRS Criminal Investigations Division, 
and the Office of Inspector General at 
the Social Security Administration has 
yielded a conviction and prison sen- 
tence for the daughter of a deceased 
Civil Service Retirement System (CSRS) 
annuitant found guilty last year on charges 
of mail and wire fraud and tax evasion 
by a jury in Pittsburgh, Pennsylvania. 
In addition, the court ordered the 
daughter to pay restitution to the 
federal government in connection with 
these charges for taking federal benefit 
payments totaling $369,000 intended 
for her deceased mother. 
In February 1999, OPM's Office of Re- 
tirement and Insurance Service referred 
this case to our office for investigation. 
Our investigation disclosed that, follow- 
ing her mother's death in 1983, the 
daughter Amaryllis E. Corbett, a resident 
of Allegheny County, Pennsylvania, mis- 
appropriated widow's insurance benefits 
from the Social Security Administration 
as well as CSRS retirement benefits from 
our agency. 

Table 1: Investigative Highlights 
Judicial Actions: 
Arrests total 14 
Indictments total 14 
Convictions total 19 
Administrative Actions total 0 
Judicial Recoveries: 
Fines, Penalties, Restitutions and Settlements total $3,690,880 
Administrative Recoveries: 
Settlements and Restitutions total $328,971 
Total Funds Recovered total $4,019,851 
Includes suspensions, reprimands, demotions, resignations, removals, and reassignments. 

On July 24, 2001, Mr. Smith was indicted 
for theft of government funds. Subsequent
to that date, on December 7, 2001, in
U.S. District Court, in Alexandria,
The successful conclusion to one of our 
Virginia, Mr. Smith pleaded guilty to 
annuity fraud cases was a direct result 
He received a sentence to serve one year
and one day in a federal penitentiary. 
He also was ordered to pay restitution 
in the amount of $328,801 to the CSRS 
retirement trust fund. 

The information we receive on our OIG
reporting period included 10 telephone
calls, 70 letters, 7 agency referrals,
8 walk-ins, and 15 complaints initiated
FEHBP health care fraud, retirement by the OIG, for a total of 110. Our ad- ministrative monetary recoveries resulting
from retirement and special investigation
complaints totaled $1,236,742.
The Health Care Fraud hotline and com- 
plaint activity for this reporting period 
involved 175 telephone calls and 144 
letters, for a total of 319. During this 
period, the administrative monetary 
recoveries pertaining to health care fraud 
complaints totaled $2,454,138. 
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. 
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 65 such 
complaints associated with agency in- 
quiries during this reporting period. 
Another example of an OIG-initiated 
complaint occurs when we review the 
agency's 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. 
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. 

Appendices available upon request.