U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF THE FEDERAL EMPLOYEES DENTAL 


AND VISION INSURANCE PROGRAM 


OPERATIONS AS ADMINISTERED BY 


VISION SERVICE PLAN 


RANCHO CORDOVA, CALIFORNIA 


Report No. IJ-OA-OO-I0-031 

Date: J a nua ry 2 5 , 20 1 1 

-CAUTlONThis audll rc:port lias been di$lribuled 10 Federal official~ woo IIfC responsible for the admimslllIlion of the audited program. This audit T<'pot1 

may ronmin propriet al)' data which is protected by der~llaw ( 18 U SC 19(5). Therefore, " hil.:: this audit rcpon is available under tile 

Frtel!om o flnformahon Act and made available 10 the public on the DIG I\cbpage. caution needs \0 be u~'TCised before relC35mg me reponlo 

the gennlll public as it may conta in proprietary information IIial was redacted from the publicly distrioolcd ~opy_ 
Office of the 

Inspector General 

UNITED STATES OFFICE OF PERSONN EL MANAGEMENT 


Washington . DC 20415 


AUDIT REPORT 


Audit of the Federal Employees Dental and Vision Insurance Program 

OPM-RFP-06-00060-6 

Vision Service Plan As Administrator 


Rancho Cordova, California 


REPORT NO. IJ-OA-OO-IO-031 DATE: 1 /25/2 0 1 1 


Michael R. Esser 

Assistant Inspector General 

for Audits 

cc-------------------___ --­ www.opm.go¥ ",,"' ''.usa/Otli.IOY 
EXECUTIVE SUMMARY 


Audit ofthc Federal Employees Dental and Vision Insurance Program 


OPM-RFP-06-00060-6 


Vision Sen'ice Plan As Administrator 


Rancbo Cordova, California 


REPORT NO. IJ-OA-OO-IO-031 DATE: 1/25/2011 

This report details the results of our audit of the Federal Employees Dental and Vision Insurance 

Program (FEDVIP) operations at Vision Service Plan (VSP) located in Rancho Cordova, 

California. VSP provides vision insurance benefits under the FEDV IP program. The audit 

covered the testing of application controls over claim benefit payments, and other tests of 

administrative expenses, premiums, cash management activities, fraud and abuse program 

compliance, compliance with the Contract's Health Insurance Portability and Accountabi lity Act 

(WPAA) requirements, subcontracts, and quality assurance compliance for contrac t years 2007 

and 2008. We identi fied six procedural fmdings pertaining to VSP's administrative expenses 

and one procedural finding regarding VSp·s policies and procedures for handling outstanding 

checks. Except for these findings, we detennined that the vision benefits were administered in 

accordance with Contract OPM-06-00060-6 (the Contract) and the FEDVIP regulations (5 CFR 

Part 894). Our audit issues are summarized below. 

CLA IM BENE FIT PA YMENTS 

The application controls over claim benefit payments were sufficient to ensure that claims were 

paid in accordance \"";th the Contract, as we ll as the applicable Federal regula tions. 

www.opm.1!I0Y 
ADMlNISTRATTVE EXPENSES 

• Unsupported Administrative Expenses Procedural 

We identiiied numerous transactions in 2007 and 2008 where VSP charged the FEDVIP for 

unsupp0l1ed administrative expenses. VSP did not provide sufficient documentation to show 

that these expenses were actual, necessary, and reasonable to administer benefits wlder 

FEDVIP, pursuant to Section K.9 (b) (1) of the Contract. 

• Unallowable Travel Expenses Procedural 

We identified 12 transactions in 2007 and 2008 where VSP charged the FEDVIP for 

unallowable travel expenses. 

• Costs Associated with Lobbving Activities Procedural 

We identified four transactions in 2007 where VSP charged the FEDVIP for potential 


lobbying expenses. These expenses were not necessary or reasonable expenses under 


Section K.9 (b) (1) ofthe Contract and are listed as unallowable expenses under FAR 


31.205-22. 


• Unnecessary Expenses Procedural 

We identified 51 transactions in 2008 where VSP charged the FEDVIP for meals at its home 

duty station. The e expenses were not necessary or reasonable expenses under Section K.9 

(b) ( I) of the Contract. 

• Charges for Alcoholic Beverages Procedural 

We identified one transaction in 2008 where VSP charged the FEDVlP for alcoholic 

beverages. This expense was not a necessary or reasonable expense under Section K.9 (b) 

( I) ofthe Contract and is listed as an unallowable expense under FAR 31.205-51. 

• Charges for Gift Cards Procedural 

We identified two transactions in 2008 where VSP charged the FEDVlP for gift cards. These 

expenses were not necessary or reasonable expenses under Section K.9 (b) (I) ofthe 

Contract and are listed as unallowable expenses under FAR 31.205-13 (b). 

PREM1UMS 

The premium costs charged by VSP to the FEDVIP were in compliance with the terms of tbe 

Contract, as well as the applicable Federal regulations. 

11 
CASH MANAGEMENT ACTIVITIES 


• Outstanding Checks Policies and Procedures Procedural 

VSP's policy on outstanding checks inappropriately allows for an escheatment of unclaimed 

funds to the state instead of returning these funds to the FEDV1P, as required by the Contract. 

FRAUD AND ABUSE PROGRAM COMPLIANCE 

VSP ' s fraud and abuse policies and procedures were in compliance with the terms of the 

Contract, as well as the applicable Federal regulations. 

COMPLIANCE WITH THE CONTRACT'S HIPAA REOUIREMENTS 

VSP' s HlPAA policies and procedures were in compliance with the terms of the Contract. 

SUBCONTRACTS 

VSP ' s policies and procedures for administering subcontracts were in compliance with the terms 

of the Contract, as well as the applicable Federal regulations. 

OUALITY ASSURANCE COMPLIANCE 

VSP' s Quality Assurance program policies and procedures were in compliance with the terms of 

the Contract, as well as the applicable Federal regulations. 

111 
CONTENTS 


PAGE 

EXECUTIVE SUMMARy .. ...... ..... ... .. ................................................... .. .. ............... ..... i 


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


II. OBJECTIVES, SCOPE, AND METHODOLOGY .................. ...... ................................ 3 


IlL AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 8 


A. CLAIM BENEFIT PA YMENTS ................................. ......................................... 8 


B. ADMINISTRATIVE EXPENSES................... .. .... ................................................ 8 


1. Unsupported Administrative Expenses .. .......................................................... 8 


2. Unallowable Travel Expenses .. .. .. .. .......... .. ........................................ .............. 8 


3. Costs Associated with Lobbying Activiti es ..................... .......... ...................... 8 


4. Unnecessary Expenses .. ............... .......... .................... .. ......... ....................... .... 9 


5. Charges for Alcoholic Beverages .......... ... .. .. .... ...................... ..... .. .............. .. .. 9 


6. Charges for Gift Cards ............................................. .. ......................................9 


c. PREMruMS ...... .......... .... .......................................................... ............................ 10 


D. CASH MANAGEMENT ACnYITLES .. ............................................... .......... ... 1 0 


1. Outstanding Checks Policies and Procedures .................. ............... ................ 1 0 


E. FRAUD AND ABUSE PROGRAM COMPLLANCE ......................................... 11 


F. COMPLIANCE WITH THE CONTRACT'S HIP AA REOUIREMENTS ......... 11 


G. SUBCONTRACTS ......... .............................. .. ........................................ .. ............ 1 1 


H. QUALITY ASSURANCE COMPLlANCE ......................... ........... ..................... 1 I 


IV. 	 MAJOR CONTRIBUTORS TO THlS REPORT ..... .. ................................................... 12 


SCHEDULE A - Schedule of Contract Charges 


APPENDIX - VSP's response, dated October 21, 20 I 0, to the draft audit report. 

I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


This report details the results of our audit ofthe Federal Employees Dental and Vision lnsurance 

Program (FEDVIP) operations as administered by Vision Service Plan (VS P) in Rancho 

Cordova, California. The audit was performed by the Office ofPersonnel Management's (OPM) 

Office of the Inspector General (OIG), as established by the Inspector General Act of 1978. as 

amended. 

BACKGROUND 

FEDERAL EMPLOYEES DENTAL and VISION PROGRAM 

TIle Federal Employee Dental and Vision Benefits Enhancement Act of2004, Public Law 108­

496, 118 Statute 400 I, was signed into law on December 23 , 2004. This law established a dental 

benefits and vision benefits program for Federal employees, annuitants, and their eligible family 

members. The following 10 FEDVlP carriers all signed contracts with OPM to provide dental 

and vision insurance services for a term of 7 years: 

Dental 

• 	 Aellla Life Insurance Company; 

• 	 Government Employees Hospital Association, Inc.; 

• 	 Metropolitan Life Insurance Company; 

• 	 United Concordia Companies, Inc. ; 

• 	 Group Health, lnc.; 

• 	 CompBenefits; and 

• 	 Triple-S Salud, Inc. 

Vision 

• 	 BlueCross BlueShield Association; 

• 	 United HealthCare (formerly Spectera. Inc.); and 

• 	 Vision Service Plan 

The duties and responsibilities of insurance carriers participating in the FEDVIP program include 

the following: 

I. 	 To provide payments or benefits to an eligible individual ifsuch individual is entitled 

thereto under the terms ofthe contract; 

2. 	 With respect to disputes regarding clainls for payments or benefits LInder the terms of the 

contract ­

a. 	 to establish internal procedures designed to expeditiously resolve such disputes; 

b. 	 to establish, for disputes not resolved tlu'ough procedures mentioned above, 

procedures for one or more alternative means of dispute resolution involving 

independent third-party review under appropriate circumstances by entities 

mutually acceptable to OPM and the carrier; 
3. 	 To make available to each individual eligible to enroll in a vision benefits plan, 

infonnation on services and benefits to enable the individual to make an informed 

decision about electing coverage; 

4. 	 To maintain accounting records that contain such information and reports as OPM may 

requue; 

5. 	 To furnish such reasonable reports as OPM determines to be necessary to enable it to 

carry out its functions; and 

6. 	 To permit OPM and representatives ofthe Governrnent Accountability Office to examine 

such records of the carrier as may be necessary to carry out the purposes of the Contract. 

VSP 

VSP administers vision benefits under the FEDVIP. Contract number OPM-06-00060-6 

between OPM and VSP was awarded on August 29, 2006. Incorporated by reference into this 

contract are Solicitation OPM-RFP-06-00060 and Amendments 00 1, 002, and 003. 

VSP provides vision insurance benefits to Federal employees, annuitants, and their eligible 

family members. The Contract between OPM and VSP is for a seven year period, starting 

December 31 , 2006, and ending December 31, 2013 , with tbe option to renew the Contract. 

This was our first audit ofVSP's program operations as it relates to the FEDVIP program. 

2 

II. OBJECTIVES, SCOPE, AND METHODOLOGY 


OBJECTIVES 


The objectives of our audit ofVSP, relating to the FED VIP, were to detennine compliance with 

Contract OPM-06-00060-6 (the Contract) and FEDVlP regulations (5 CFR Part 894). Our 

specific audit objectives for this audit were as follows : 

Claim Benefit Payments 

• 	 To gain an understanding ofVSP's claims processing system. 

• 	 To determine whether VSP has appropriate controls/edits in place to prevent the 

payment of unallowable claims. 

• 	 To determine whether VSP has a program in place to protect enrollees and its claims 

system from instances of fraud and abuse. 

• 	 To determine whether VSP has proper application controls in place over its claim 

processing and check-writing systems to help ensure that FEDVIP-related 

transactions are valid, properly authorized, and completely and accurately processed. 

Administrative Expenses 

• 	 To determine if administrative expenses incurred for the FEDVIP program by VSP 

and reported to OPM as part of the premium determination were actual, necessary, 

reasonable, and allocable to the progranl. 

Premiums 

• 	 To determine whether the FEDVlP premiwn cost and its relative components are 

derived from amounts that are allowable, allocable, and reasonable to the program. 

• 	 To reconcile the premiums transferred from Benefeds to the premiums collected by 

VSP. 

• 	 To detemune ifFEDVlP premiums were appropriately collected and used to pay for 

FEDVIP claims. 

Cash Management Activities 

• 	 To detennine if the FED VIP funds are held and invested in all interest-bearing bank 

account separate from VSP's other lines of business; if these funds are held until they 

are used to pay claims: and if the amolmt claimed for investment income is accurate. 

• 	 To detennine ifVSP/FEDVIP has adequate outstanding check procedures in place, 

and to determine if it currently has any checks that have been outstanding for more 

than two years. 

Fraud and Abuse Program Compliance 

• 	 To detemline how VSP prevents instances of and protects its FEDVIP vision 

subscribers from fraud and abuse. 

• 	 To detennine if the fraud and abuse policies and procedures implemented and 

followed by VSP were sufficient to meet the Contract requirements. 

3 

Compliance with the Contntct's Health Insurance Purtability and Accountabilit)' Act 

(HIPAA) Requirements 

• 	 To determine ifVSP's H1PAA policies and procedures are sufficient to meet tbe 

Contract requirements. 

Subcontracts 

• 	 To determi ne ifVSP adheres to the subcontracti ng provisions stipulated within the 

Contract. 

• 	 To deternline ifthere are any subcontracts where FEDVIP costs exceeded the Federa l 

regulation threshold ($550,000) and did not receive OPM approval. 

• 	 To determine ifOPM's contracting office approved any significant changes to the 

original subcontract 

Quality Assurance 

• 	 To determine if VSP has a quality assurance program in place that meets the 

requirements of the Contract 

SCOPE 

We conducted this performance audit in accordance with gene rally accepted government 

auditing standards. Those standards require that we plan and perform the audit to obtain 

suffic ient, appropriate evidence to provide a reasonable basis [or our findings and conclusions 

based on the audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on the audit objectives. 

The audit covered the testing of application controls over claim benefit payments, and other tests 

of administrative expenses. premiums. cash management activities, fraud and abuse program 

compliance. compliance with the Contract's HillAA requirements. subcontracts, and quality 

assurance compliance for contract years 2007 and 2008. We performed our field\.vork from 

March 8 to March 25, 201 0, at VSP's offices in Rancho Cordova, California. Additi onal audit 

work was completed in our Washington, D.C. and Cranberry, Pennsylvania officcs after the onsite visit. 

We reviewed the VSP/FEDVIP premium reports for the years under review and found that VSP 

collected premium payments or approximatel y $13.8 mi llion and $26.5 million in 2007 and 2008 

respectivel y. Vision claim payments during the same period a.mowlted to approximate ly l1li 

million and i lli on. 

In planning and conducting our audit, we obtained an understanding ofVSPIFEDVIP's internal 

control structure to help determine the nature. timing, and extent of our auditing procedures. 

This was determined to be the most effective approach to select areas of audit. For those areas 

selected, we primarily relied on substantive tests oftransactions and not tests of controls. Based 

on our testing, we did not identify any significant matters in volving VSPIFEDV rp·s internal 

control structure and its operation. However. since our audit would not necessarily disclose all 

significant matters in the internal control structure, we do not express an opinion on 

VSP/FEDVIP's system of internal controls tak.en as a whole. 

4 

In conducting our audit, we relied to varying degrees on computer-generated data provided by 

VSPlFEDV IP. Due to time constraints. we did no! verify the reliability of the data generated by 

the various information systems involved. However, while utilizing the computer-generated data 

during audit testing, nothing came to our attention to cause us to doubt its reliability. We believe 

that the data was sufficient to achjeve the audit objectives. 

We also conducted tests to determine whether VSP/FEDVIP had complied with the Contract, the 

applicabl e procurement regulations (i.e., Federal Acquisition Regulations), and the laws and 

regulations governing the Program. The results of our tests indicate that. with respect to the 

items tested, VSPfFEDVIP complied with all provisions of the Contract and the federal 

procurement regulations, except ror the seven procedural findings explained in detail in the 

"Audit Findings and Recom.mcndations" section of this report. 

METHODOLOGY 

To achieve our objectives related to claim benefit payments. we: 

• 	 Interviewed personnel to obtain an wlderstanding of VS P's cl aims processing system. 

• 	 Perfonned application testing and reviewed the results to detennine ir claims were 

processed properl y. Specifically. we created 21 test claims which were submitted into 

the VSP test claim processing system. The test claims were manually entered by VSP 

claims processors and each edit was reviewed by our auditors. 

To test and detennine ir administrative expenses incurred by VSP for the FEDVIP program and 

reported to OPM as part of the premium determination were actual. necessary. reasonable, and 

allocable to the program, wejudgmeOla!Jy selected a sample of administrati ve expenses under 

the cost centers titled: Marketing, Enterprise Info Services, Client Services, Customer Services. 

Claim Services, CPS. and Sales. The sample was based on one or more of the following: 

• 	 hjghest monthly expense of the year, 

• 	 nomenclature, 

• 	 unusual charges, and 

• consistently high charges for the year. 

Specifically, the sample included: 

• 	 266 transactions (from contract year 2007) totaling $653.053 out ofa universe or 

• 	

-.

-

140 transactions (rrom contract year 2008) totaling $690,847 out of a universe or 

The universal transac .tion totals ror both samples was too voluminous to record. 

To detennine if FEDVlP premiums were appropriately collected and paid, we: 

• 	 Reviewed the " Request for Proposal" agreements bet\veen OPM and VSPfFEDV[P to 

determine the components of the premiums. 

• 	 Obtained an overview of the premium process and how the premium rates are calculated. 

• 	 Compared the FEDVIP premiums reported on the VSP bank: statements to VSP's report 

of actual monthly premiums received for 2007 and 2008. 

• 	 Judgmentally selected the first four deposits posted to the VSP system in January 2008. 

These were chosen because we felt they were dated far back enough that we would be 

5 

able to trace all the premiums earned to these amowJts [through earlier discussions with 

VSP. we realized due to retroactivity that these amounts could be for premiums earned in 

2007 and/or 2008]. This sample amounted to $1,246,863 out ofa lmiverse of 

$40,272,984. 

To achieve our objectives related to cash management activities, we: 

• 	 Reviewed the VSPIFEDVlP bank statements and procedures related to accounting for 

FED VIP premiums to detemline whether the FEDVTP funds were mainta ined separately 

from VSP's other lines of business. 

• 	 Reviewed the VSP high and standard option utilization reports to determine ifinteresl 

was earned and used to pay claims. 

• 	 Reviewed the VSP/FEDVIP outstanding checks policies and procedures and outstanding 

checks reports to determine if the policies were reasonable and if there were any checks 

outstanding for more than two years. 

• 	 Obtained an overview ofVSP's investment policy and process to determine if the policy 

was reasonable. 

To achieve our fraud and abuse objectives, we interviewed VSP personnel and reviewed VSP's 

intemal fraud policies and procedures and other information to gain an understanding of their 

fraud and abuse program and to determine compliance with the Contract requirements. 

To determine ifVSP's HIPAA policies and procedures were sufficient to meet the Contract 

requirements, we reviewed VSP' s responses to our HIP AA questionnaire and it's intemal 

HIPAA policies and procedures. 

To achieve our objectives related to subcontracts, we: 

• 	 Obtained a listing of subcontracts requested for approval from OPM and VSP. 

• 	 Determined whether any subcontract's costs exceeding $550.000 received appropriate 

approval. 

• 	 Reviewed the costs charged to the FED VIP program, for all qualifying subcontracts, to 

determine if they were allowable, allocable and reasonable. 

To achieve our objective related to quality assurance, we obtained and reviewed the policies and 

procedures fo r VSP's Quality Assurance Program. 

Because the samples we selected and reviewed in performing the audit were not statistically 

based, the results could not be projected to the universe since it is unlikely that the results are 

representative of the universe taken as a whole. 

We used the FEDVIP contract, the Federal Acquisition Regulations, and the laws and regulations 

governing VSPIFEDVIP to determine whether VSp·s application controls over claim benefit 

payments, and procedures covering administrative expenses, premiums, cash management 

activities. fraud and abuse progranl compliance, compliance with the Contract's HJPAA 

requirements. subcontracts, and quality assurance compliance for contract years 2007 and 2008 

were in compliance with the terms of the Contract and applicable regulations. 

6 

The initial results of our audit were discussed with VSP during an exit conference at the end of 

our on-site work. In addition, a draft report dated September 22. 2010 was provided to VSP for 

review and comment. VSP's comments to the draft repOli were considered in preparing the final 

report and are included as an Appendix to tlUs report. 

7 

In. AUDIT FIN DINGS AND RECOMMENDATIONS 

A. CLAIM BENEFIT PAYMENTS 


The application controls over claim benefit payments were sufficient to ensure that claims were 

paid in accordance with the Contract, as well as the applicable Federal regulations. 

B. ADMINISTRATIVE EXPENSES 	 Procedural 

The Contract between VSP and aPM limits the total amoun t of premium dollars th<lt can be 

allocated to pay program administrati ve expenses percent of gross premiums received. 

However, in contract years 2007 and 2008, VS P actually incurred administr ative expenses 

related to the FEDVIP iotaJing _ percent and . percent of gross premiums received, 

because ofthe Contract tenns, VSP paid percen . 

of the 2007 incurred administrative expenses and rcent • 

of the 2008 incurred administrati ve expenses out of corporate funds. 

As part of our audit, we sampled and tested 266 and 140 administrative expense transactions in 

2007 and 2008. respectively. to determine whether the expenses charged to lhe FEDVIP were 

actual, necessary, reasonable, and allocable program costs, in accordance with the Contract and 

program regulations. The results of these revi ews showed VSP did include unsupportable, as 

well as unallowable. expenses in its administrative costs charged to the FEDVIP. 

We identified the following unsupported and unallowable expenses during our review o f 

administrative costs: 

I. 	Unsupported Administrative Expenses Procedural 

We identi fied numerous transactions in 2007 and 2008, totaling $534.292, where VSP 

could not provide sufficicnt documentati on to show that the related expenses were actual, 

necessary, allocable, and reasonable to adminjster bencfits under the FEDVIP. pursuant 

to Section K.9 (b) ( I) ofthe Contract. 

2. 	 Unallowable Travel Expenses Procedural 

We identified 12 transactions in 2007 and 2008. totaling $6,60 I ,where VSP charged the 

FEDVlP for unallowable travel ex penses. including hotel fees in excess ofthe Federal 

per diem rate and the applicable tax on the unallowable lodging costs. 

3. 	 Costs Associated with Lobb)'ing Activities Procedural 

We identified four transactions in 2007 where VSP chargcd the FEDVIP for lobbying 

expenses. These expenses, totaling $18,463, were not necessary or reasonable expenses 

under Section K.9 (b) (1) ofthe Contract and are listed as unallowable expenses under 

FAR 31.205-22. 

8 

4. 	 Unnecessary Expenses Procedural 

We identified 51 transactions in 2008 where VSP charged the FEDVIP for meals at its 

home duty stati on. These expenses, totaling $1 ,677, were not necessary or reasonable 

expenses under Section K.9 (b) (1) of the Contract. 

5. 	 Cha rges for Alcoholic Bcvcrages P rocedural 

We identified one transaction in 2008 where VSP charged the FEDVIP for alcoholic 

beverages. This expense, totaling S157, was not a necessary or reasonable expense under 

Section K.9 (b) (1 ) of the Contract and is listed as an unallowable expense under FAR 

31.205-51. 

6. 	 Charges for Gift Cards P roccdural 

We identified two transactions in 2008 where VSP charged the FEDVIP for gift cards. 

These expenses, totaling $150. were not necessary or reasonable expenses under Section 

K.9 (b) (1) of the Contract and are listed as unallowable expenses under FAR 31.205-13 

(b). 

Section K.9 (b) (1) of the Contract (Accounting and Allowable Costs) states, "The aJ10wabJe 

costs chargeable to the contract for a fiscal year will be the aClual, necessary, reasonable. and 

allocable amounts incurred with proper justifi cation and accounting support, determined in 

accordance with Subpan 31.2 of the Federal Acquisition Regulation .... " 

Additionally, Contract section 1.20, regarding Contractor Records Retention, states that the 

Carrier will retain and make available aU records that support the annual statement of operations 

for a period ofsix years after the end of the year to which the records relate. 

FurthemlOre, FAR 31.205A6 limits the amolLnt of travel costs that can be charged by contractor 

personnel on official company business. It stales that these costs are allowable only to the extent 

that they do not exceed, on a daily basis, tllC maximum per diem rates in effect at the time of 

travel as set forth in the Federal Travel Regulatiolls prescribed by the General Services 

Administration. 

VSP's identification of these unsupported and unallowable administrative expenses as 

chargeable costs against the FEDVIP results in an inappropriate use of subscriber premium 

dollars that could have been used to fund more needed program services. 

vsp Comments: 

As stated above, VSP incurred more in administrative expense in each year than the . percent 

it was allowed to charge against the Program. Consequently, it contends that even if the 

identified unsupported or unallowable expenses were excluded from the chargeable costs to the 

Program, it would still have sufficient allowable costs exceeding the . percent cap that could 

replace the unallowable expenses. Therefore. VSP argues that no amounts are due back to the 

FEDVlP for these unallowable costs. 

9 

OIG Comments: 

We agree that no amounts are due to the FEDVIP for these unsupported and unallowable 

expenses for the reasons stated above. However, we strongly encourage VSP to implement the 

needed controls over program admi nistration costs to ensure that unallowable program costs are 

properly identified and excluded as potential allowable FED VIP costs for all open and future 

year's contracts. 

Recommendation 1 

We recommend that VSP develop better internal controls which require the review of all 

administrative expenses charged to a cost center under its FEDvIP aecOlUlt. These charges 

should be properly documented and the records supporting these expenses must be maintained 

for a period of six years after the end of the year to which the records rel ate. 

Recommendation 2 

We recommend that the program office review the estimated administrative expenses at the time 

of each year's rate proposal to ensure that unallowable costs are not included as part of the 

allowable costs charged to the FED VIP. 

C.PREMIUMS 

The premium costs charged by vSP to the FEDVIP were in compliance with the terms of the 

Contract, as well as the applicable Federal regulations. 

D. CASH MANAGEMENT ACTIVITIES 

1. Outstanding Checks Policies and Procedures Procedural 

Our review of vSP's cash management activities identified a vSP policy that was not in 

compliance with the terms of the Contract and the applicable federal regulations. 

Specifically, vSP's policy on outstanding checks inappropriately allows for an escheatment 

of unclaimed funds to the state instead ofretuming these funds to the FEDvIP. 

Following the guidance OPM issued to the carriers on November 3. 2006. all payment checks 

outstanding after two years of issuance shall be voided. The amounts ofthese checks shall 

be credited to a designated account no later than the 25th month after issuance. In addition. 

the Contract (Section C.l .C Enabling Legislation) states that OPM has the authority to 

preempt individual State dental and vision benefit and procedural mandates, and contractors 

must be aware of and be prepared to comply with its requirements and OPM's implementing 

regulations and administrative guidance. 

VSP stated that they do not track FEDvlP check payments separately and all outstanding 

checks fall under the applicable states' unclaimed property regulations. If a check remains 

outstanding for one year, then the amount will be transferred to an unclaimed property 

10 

account and all information regarding the payment, including the client information, will be 

recorded in this file. VSP' s policy follows each state's requirement for outstanding check 

monies to be esc heated to the state. 

We recommend that VSP modiry its policy on how to handle outstanding checks so that it 

credi ts the funds back to the FEDVIP instead of transferring the funds to each state's 

unclaimed property account. For contract years 2007 and 2008. oW' review showed that no 

FED VIP monies had been escheated to the states. 

VSP Comments: 

VSP agrees with this fmding. 

Recommendation 3 

We recommend that VSP modiry its policy on outstanding checks so that it agrees "vith the 

guidance provided by OPM's ProgIanl Office and provide a copy ofthe revised policy to 

OPM ' s Program Office. 

E. FRAUD AND ABUSE PROGRAM COMPLLANCE 

VSP's fraud and abuse policies and procedures were in compl iance with the temlS of the 

Contract, as well as the applicable Federal regulations . 

.11'. COMPLIANCE WITH THE CONTRACT'S mPAA REQUIREMENTS 

VSP's H1PAA policies and procedW'es were in compliance with the telms of the Contract. 

G. SUBCONTRACTS 

VSP' s policies and procedures for administering subcontracts were in compliance with the terms 

of the Contract, as well as the applicable Federal regulations. 

H. QUALITY ASSURANCE COMPLIANCE 

VSP' s Quality Assurance program policies and procedures were in compliance with the terms of 

the Contract, as well as the applicable Federal regulations. 

II 

IV. MAJOR CONTRffiUTORS TO THIS REPORT 

Special Audits Group 

Auditor-In-Charge 

Auditor 

Auditor 

. Senior Team Leader 

12 

2007 2008 Total

Revenue 

Premi ums ceeived:~(C~:als hl;; l~h:e7~9 7'ti7TI Total H 

F:xpcnscs 

540.272,984 

Claim l3enefits Paid 


Total E'xp<,ns<:sL_ 


Vision Sen-icc Plan, us Administrator of the Fcderal Employees Dental ano Vision Insurance Program 


Rancho Cordova, California 


Schcdule of Contract Charges 


Contract Years 2007-2008 


-
APPENDIX 


October21,2010 

Office of Personnel Management 

Office of the General 

Attentio[]: 

I 900 E M"">l, 


Washington, DC 20415-1 IDO 


RE: Report No. lJ-OA-OO-IO-031 

Dear Ms .• " 

Thank you for providing VSP Vision Care with the draft audit report, lJ-OA-OO-1 0-031 dated September 

22,2010, detailing the Office ofPcrsonnei Management (OPM) findings. We highly vaJue the FEDVlP 

contract and believe the audit results continue to demonstrate our commitment to service excellence. We 

were very pleased to see that our compliance, policies and controls all received favorable ralings. This is 

very consistent with comments from the FEDVIP Audit team during their visit, as well as other very large 

clients who perform such reviews of our backroom operations. 

We appreciate the opportunity to address the administrative expenses and cash management activities 

exceptions noted in the report. We are committed to full transparency and believe the administrative 

expense concern noted in the report may be a misunderstanding ofhow the FEDVIP contract is rated or a 

mistake in understanding ollr cost center structure. It is important to note that we have 110t charged the 

expenses identified in the report to the government, nor at anytime did we co·mingle funds to pay claims. 

Below we have outlined information [hat wc hope will bring clarity to this concern. We would welcome 

the opportunity to provide additional background or insight, if needed. If we need to modi fy aspects of 

our accounting structure for the FEDvlP contract to better align with the aPM expectations. we would bc 

happy to discuss your recommendations. 

The FEDVJP contrnct is a fully insured contract and all payments to VSP arc produced by the set per 

member/per month fcc including a fixed _ administrative fee. The FED VIP rates are based solely on 

utilization and a tlat . administrative fee und not the expenses contained in the 2007 and 2008 budget to 

actual reports. 

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AI'PENDIX 


Office of Personnel Management 

Office 

Page 2 

Below is a summary regarding our expenses rdalcd to administration of FEDVIP in 2007 and 2008. 

Please note: Our acluui allowable expenses far exceed the. administrative expense charged to FEDVIP. 

Incurred 

Non·chargcable I 

Allowed 

Projected . Administrative Expense· 

Allowed 

Allowed Expense as % of Gross Premium 

·Prior /0 underwriting alld enroJling FEDV/J> members, VSP notified OPM thai Ollr underwritten rilles 

included . ofpremiums projected as administrative expense. Premiums paid by FED VIP members 

ineluded only lhe _ adminiSfrative €.\pense projected by VSP. 

Prt:mlUms charged to FEDVIP members included . ro rprojected admini strati ve expense in both 2007 

and 2008. In 2007, VSP's allowed expenses were _10 of premiums, and in 2008 they were " ;" of 

premiUlns. In both 2007 and 2008, FEDVTP members actually bencfitted from those di fferences. Their 

premi ums reflected the lower . projected administrative expenses. Even ifnon-chargeable ex penses arc 

subtracted fi'om incurred expenses, allowed expenses sti ll exceeded the . projected administrative 

expenses that were a . component of gross premIUms charged to FEDVll' members. 
APPENDIX 


Otlicc of Personnel Management 

Office of the Insp.'oto, G;wemi 

Attention: 

October 21, 

Page 3 

B. Cash Management 

1. OulStanding Check Pmccdu."cs 

VSP agrees that payments for the btmcfit of FED VIP enrollees will not be escheated to the statcs. There 

was no unclaimed property cscheated related to the FEDVIP contract, so there is no amount that VSP IS 

required to repay. 

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Officc orPcrsonncl Management 

Oflicc 

Page 4 

Thank you again ror providing VSP, Vision Care the opportunity 10 address the results ofthe March 2010 

audit. We hope the infonnation provided in this letter, as well as the supponing expense information 

provided under separate cover, fully addresses your concerns. We would appreciate the opportunity to 

provide additional information or discussion should there be any concern regarding administrative 

expenses prior to the tinal report. If there you have any questions, please let me know. 

VSP, Vision Care 

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