SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Weaknesses in the USACE Defense Base Act Insurance 

Program Led to as Much as $58.5 Million in Refunds Not 

Returned to the U.S. Government and Other Problems

July 28, 2011
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page i

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

July 28, 2011

Executive Departments and Agencies:

This report discusses the results of a performance audit of the U.S. Army Corps of Engineers (USACE) 

single insurer Defense Base Act (DBA) program. This report includes four recommendations to the 

Acting Commanding General of USACE to strengthen USACE’s contract for DBA insurance and address 

problems we identified with data provided by the current insurance provider. It also includes four 

recommendations to both the Acting Commanding General of USACE and the Commander, U.S. Central 

Command Joint Theater Support Contracting Command (C-JTSCC), to strengthen the DBA program and, 

where possible, recover refunds given to contractors for their DBA insurance costs. 

When preparing the final report, we considered comments from USACE and C-JTSCC, which are 

reproduced in appendices III and IV of this report, respectively. USACE and C-JTSCC concurred with our 

recommendations and noted actions they are taking to address them. 

A summary of this report is on page ii. This performance audit was conducted by the Office of the 

Special Inspector General for Afghanistan Reconstruction under the authority of Public Law No. 110-181, 

as amended; the Inspector General Act of 1978; and the Inspector General Reform Act of 2008. 

Herbert Richardson

Acting Special Inspector General 

for Afghanistan Reconstruction
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page i

List of Addressees

The Honorable Hilda L. Solis

Secretary of Labor

The Honorable Leon E. Panetta

Secretary of Defense

General James N. Mattis

Commander, U.S. Central Command

General John R. Allen

Commander, U.S. Forces – Afghanistan, and 

Commander, International Security Assistance Force

Rear Admiral Nicholas Kalathas

Commander, U.S. Central Command Joint Theater Support 

Contracting Command

Major General Merdith W.B. Temple

Acting Chief of Engineers and 

Acting Commanding General, U.S. Army Corps of 

Engineers
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page ii

SIGAR

Special Inspector General for Afghanistan Reconstruction

SIGAR Audit-11-15 July 2011

Weaknesses in the USACE Defense Base Act Insurance 

Program Led to as Much as $58.5 Million in Refunds Not 

Returned to the U.S. Government and Other Problems

What SIGAR Reviewed

The Defense Base Act (DBA) of 1941, as amended, requires federal government prime contractors and subcontractors 

to provide workers’ compensation insurance for their employees who work overseas. DBA insurance carriers provide 

disability and medical benefits to employees for work-related injuries and death benefits to eligible survivors for workrelated deaths. The U.S. government reimburses contractors for the cost of their DBA premiums. As of December 

2010, the number of DBA cases for Afghanistan totaled 10,600. Since 2005, the U.S. Army Corps of Engineers (USACE) 

has contracted with Continental Insurance Company (CNA) to serve as the single DBA provider for all USACE contracts. 

In 2008, U.S. Central Command Joint Theater Support Contracting Command (C-JTSCC) contracts were added to the 

USACE DBA program. CNA has collected approximately $225 million in premiums for these contracts. SIGAR initiated 

this audit to (1) determine the extent to which DBA premium rates were set at appropriate levels, (2) assess USACE and 

C-JTSCC’s internal controls for ensuring that prime contractors and subcontractors obtain insurance in compliance with 

the DBA, and (3) evaluate the process for billing and reimbursing contractors for their DBA costs. We conducted our 

work in Washington, D.C.; Winchester, VA; Chicago, IL; and Kabul and Kandahar, Afghanistan from February 2011 

through July 2011, in accordance with generally accepted government auditing standards. 

What SIGAR Found

SIGAR found that USACE agreed to higher premium rates than were called for based on CNA’s reported data and failed 

to exercise strong oversight of CNA’s performance under the contract. Under the USACE contract awarded in October 

2008, DBA premium rates for the option year beginning in October 2009 should have been based on CNA’s loss ratio 

(incurred losses divided by earned premiums). Although CNA reported a loss ratio of 5.2 percent, it requested and 

received higher rates than were indicated for that ratio, giving it $9.9 million more in premiums than it would have 

collected using the lower rates. USACE’s decision to approve these rates was permissible under the contract. However, 

USACE did not take oversight measures it could have to validate CNA’s loss data. For example, a contract requirement 

states that the rates will be contingent upon an audit by the Defense Contracting Audit Agency, but USACE never 

requested the audit. Our analysis of CNA’s data demonstrates that strong oversight was needed because some of 

CNA’s data were not complete, accurate, or current.

We also found that USACE and C-JTSCC’s internal controls failed to ensure that contractors obtained the correct amount 

of DBA insurance. First, although USACE and C-JTSCC direct prime contractors to require subcontractors to purchase 

DBA insurance, we identified some subcontractors that did not have DBA policies. Second, we found instances in which 

contracts were modified, but we found no documentation indicating that the contracting officer adjusted the amount 

of DBA insurance accordingly. Third, in cases where contractors’ DBA policies expired prior to the end of the contract 

period, we could not find documentation showing that the contractors renewed their policies. 

Finally, we determined that CNA’s process for billing and reimbursing contractors for DBA costs commingles funds in 

violation of U.S. funding restrictions and limits USACE and C-JTSCC oversight over actual costs. CNA’s broker agent 

issues one policy per contractor—often including multiple contracts—and, at the end of the year, applies credits from 

contracts that had overestimated labor costs to contracts with underestimated labor costs. If these contracts have 

different funding sources, this process can violate U.S. funding restrictions. Furthermore, contracting officers lack 

oversight over actual DBA costs. For example, we found that contractors may purchase less DBA coverage than 

indicated in their contracts and receive refunds, but contracting officers are unaware when this occurs. We identified 

refunds totaling $58.5 million since November 2005, at least some of which may be due USACE and C-JTSCC.

What SIGAR Recommends

SIGAR made four recommendations to the Acting Commanding General of USACE and four recommendations to both 

the Acting Commanding General of USACE and the Commander of C-JTSCC to strengthen the DBA insurance program 

and take steps to recover any refunds that may be due the U.S. government. USACE and C-JTSCC concurred with the 

recommendations and noted actions planned to address them.

For more information contact: SIGAR Public Affairs at (703) 602-8742 or PublicAffairs@sigar.mil
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page iii

TABLE OF CONTENTS

Background ...................................................................................................................................................2

USACE Agreed to Higher Premium Rates Than Stipulated under the Contract’s 

Definition of Loss Ratio and Failed to Exercise Strong Oversight of CNA’s 

Performance...........................................................................................................................................6

USACE and C-JTSCC’s Internal Controls Failed to Ensure That Prime Contractors 

and Subcontractors Purchased and Maintained the Correct Amount of DBA 

Insurance ..............................................................................................................................................16

Existing Process For Billing and Reimbursing Contractors for DBA Insurance Costs 

Violates the Purpose Statute and Limits USACE and C-JTSCC Oversight of 

Actual DBA Insurance Costs..................................................................................................................18

Conclusion...................................................................................................................................................23

Recommendations......................................................................................................................................23

Comments...................................................................................................................................................24

Appendix I: Scope and Methodology.........................................................................................................25

Appendix II: List of Selected Contractors and Contracts for Case Study Review.......................................26

Appendix III: Prior Audit Coverage of the DBA Insurance Program...........................................................28

Appendix IV: Comments from the U.S. Army Corps of Engineers .............................................................29

Appendix V: Comments from the U.S. Central Command Joint Theater Support 

Contracting Command .........................................................................................................................33

TABLES

Table 1: Contract Number W912HQ-09-D-0001 Option Year Premium Rates, by 

Labor Category and Loss Ratio ...............................................................................................................7

Table 2: Contract Number W912HQ-09-D-0001 Option Year Negotiated and 

Finalized Premium Rates........................................................................................................................8

Table 3: CNA Table Provided to USACE to Document the 57.7 Percent Loss Ratio...................................10

Table 4: Source of Funds and Audit Results for a Contractor’s 2008-2009 DBA 

Policy ....................................................................................................................................................20

Table I: List of Selected Contractors and Contracts for Case Study Review ..............................................26

FIGURES

Figure 1: DBA and WHCA Claims Process.....................................................................................................5

Figure 2: Process for Billing and Reimbursing Contractors for DBA Insurance...........................................19
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page iv

ACRONYMS

ALAE Allocated Loss Adjustment Expense

ASFF Afghanistan Security Forces Fund

C-JTSCC U.S. Central Command Joint Theater Support Contracting Command

CLIN Contract Line Item Number

CNA Continental Insurance Company

DBA Defense Base Act

IBNR Incurred But Not Reported

Labor Department of Labor

LDF Loss Development Factor

Rutherfoord Rutherfoord International, Inc.

SIGAR Special Inspector General for Afghanistan Reconstruction

USACE U.S. Army Corps of Engineers

WHCA War Hazards Compensation Act
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 1

Weaknesses in the USACE Defense Base Act Program Led to as Much as $58.5 

Million in Refunds Not Returned to the U.S. Government and Other Problems

The Defense Base Act (DBA) of 1941, as amended,1 requires federal government prime contractors and 

subcontractors to provide workers’ compensation insurance for their employees who work overseas, 

including in Afghanistan.

2

In 2005, the U.S. Army Corps of Engineers (USACE) began awarding a series of contracts to the 

Continental Insurance Company (CNA)

 DBA insurance carriers provide disability and medical benefits to employees 

for work-related injuries and death benefits to eligible survivors for work-related deaths. U.S. agencies 

reimburse contractors for the cost of their DBA insurance premiums. The U.S. Department of Labor 

(Labor) administers the DBA program and is responsible for ensuring that covered employees receive 

their benefits. Since the start of the conflicts in Iraq and Afghanistan, the size of the DBA program has 

grown exponentially. The number of DBA cases paid worldwide climbed from 309 in 2000 to 14,863 in 

2009. That year, DBA insurance providers paid over $242 million in DBA claims. According to Labor, the 

number of DBA cases for Afghanistan totaled 10,600, as of December 2010. 

3

Given the significant rise in DBA cases and the substantial cost to the U.S. government of reimbursing 

DBA premiums, we initiated an audit of the USACE DBA single insurer program. We chose to focus our 

audit on this program because USACE and C-JTSCC have together obligated more funds for 

reconstruction contracts in Afghanistan than any other U.S. government contracting entities. Our 

objectives were to (1) determine the extent to which DBA premium rates were set at appropriate levels; 

(2) assess USACE and C-JTSCC’s internal controls for ensuring that prime contractors and subcontractors 

obtain insurance in compliance with the DBA; and (3) evaluate the process for billing and reimbursing 

contractors for their DBA costs.

as the single DBA insurance provider for all USACE contracts

outside the United States. U.S. Central Command Joint Theater Support Contracting Command (CJTSCC) contracts were added to the USACE contract in 2008. As of March 2011, CNA had collected 

approximately $225 million in premiums under these contracts. 

To determine the extent to which DBA premium rates were set at appropriate levels, we analyzed 

reports that CNA provided to USACE under the terms of the contract and reviewed CNA’s case files for a 

sample of claims included in those reports. We also reviewed USACE’s price negotiation memoranda;

analyzed Labor data on our sample claims; interviewed officials from USACE, CNA, and Labor; and 

consulted experts from the insurance industry. To assess the controls in place for ensuring that prime 

contractors and subcontractors obtain DBA insurance, we selected nine of the largest dollar value 

 1 42 U.S.C. §§ 1651-1654 and 33 U.S.C. §§ 901-950. 2 The Secretary of Labor can waive the DBA requirement for certain persons who are covered under another workers’ 

compensation protection plan, such as in countries where the host nation government has an applicable protection plan.

3 CNA is headquartered in Chicago, IL and has offices throughout the U.S., Canada, and Europe. CNA is incorporated in Illinois. 

CNA is the thirteenth largest casualty insurance provider, with over $9 billion in revenue for 2010. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 2

contractors for USACE and C-JTSCC4

BACKGROUND 

and assessed these contractors’ DBA insurance policies. We also 

reviewed USACE and C-JTSCC’s documentation available on the contracts held with these companies 

and interviewed USACE and C-JTSCC contracting officials. To evaluate the processes for billing and 

reimbursing contractors for their DBA costs, we analyzed the end-of-year audits that our selected 

contractors conducted of their labor costs and DBA insurance premiums and reviewed the invoices 

documenting USACE and C-JTSCC payments to these contractors. We conducted our work in 

Washington, D.C.; Winchester, VA; Chicago, IL; Kabul, Afghanistan; and Kandahar, Afghanistan from 

February 2011 to July 2011, in accordance with generally accepted government auditing standards. See 

appendix I for a more detailed discussion of our scope and methodology.

Due to the rising cost of DBA insurance, Congress directed the Secretary of Defense to adopt an 

acquisition strategy to help control costs. In response, the Department of Defense directed USACE in 

2005 to conduct a pilot program to determine if contracting with a single DBA insurance provider would 

help control costs. Under a single provider model, contractors must use the designated provider to 

obtain DBA insurance or forfeit the right to reimbursement for their DBA insurance premiums. 

Beginning in November 2005, USACE awarded two 1-year contracts to CNA to be the single insurance 

provider for the pilot program. At the conclusion of the program, USACE determined that the single 

provider model helped control costs by eliminating minimum premiums, which most insurance carriers 

charge and which can be too expensive for small contractors. However, the Under Secretary of Defense 

for Acquisition Technology and Logistics, who responded to Congress on behalf of the Department of 

Defense, reported that the pilot program did not deliver the expected cost savings and argued that the 

most cost effective option was for the government to self insure. In 2010, the Army Audit Agency issued 

an audit of USACE’s single insurance provider pilot program. Although it found that the program was 

conducive to providing more affordable coverage to and increasing participation of smaller contractors 

on USACE projects, it also recommended that the Army continue pursuing other methods, such as selfinsurance, for satisfying the requirements of the DBA.

5

 Despite these reports, USACE has continued to 

use the single provider model and has since awarded two DBA contracts to CNA, including the most 

recent contract awarded on April 1, 2011.

6

Under these contracts, CNA charges premiums based on labor costs and provides a single rate of 

insurance for each of four labor categories: services,

7 security,8 aviation,9 and construction.10

 4 These contractors were DynCorp International, Contrack International Inc., FCEC United Infrastructure Projects Joint Venture, 

Nimrah Construction Company, ECC International, LLC, RM Asia (H.K.) Ltd., Technologists, Inc., and Red Sea Engineers 

Constructors, Inc. We identified these contractors based on data provided by USACE and C-JTSCC.

For 

example, under the contract awarded in October 2008, the rate for a construction contract was $7.50

5 See Army Audit Agency Report A-2010-0152-ALL (31 August 2010). See appendix III for information on prior audit coverage of 

the DBA insurance program. 

6 Contract W912HQ-07-D-0001 was awarded March 20, 2007 and covered all USACE contracts outside the United States; 

contract W912HQ-09-D-0001 was awarded October 1, 2008 and covered all USACE and C-JTSCC contracts outside the United 

States; contract W912HQ-11-D-0004 was awarded March 31, 2011 and covers all USACE, C-JTSCC, and 408th Contracting 

Command contracts outside the United States. 7 The services category includes workers, such as information technology consultants, engineers, and administrative-type office 

workers who often work at American embassies. Security consultants can be included in this category if they are just assessing 

risk and not providing armed protection. 

8 This category includes personal security details and static or convoy personnel guarding property or personnel. 9 This category includes the pilot and crew of any aircraft, excluding ground personnel who provide maintenance or services 

and stay on the ground. 

10 This category includes workers providing construction services, such as carpentry, electrical work, plumbing, and operation 

and maintenance of heavy equipment. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 3

for every $100 paid to employees, and the rate for a service contract was $4 for every $100 paid to 

employees. The contracts guarantee the same rates on insurance for all contractors, regardless of safety 

records or claims reported. 

In the contract awarded to CNA in October 2008, USACE stated that the premium rates for the option 

year (beginning October 2009) would be based on CNA’s loss ratio. The contract defined loss ratio as 

incurred losses divided by earned premiums. For example, $25 in incurred losses against $100 in earned 

premiums would generate a loss ratio of 25 percent. The higher the ratio, the higher the premium rates 

that CNA could charge. The contract outlined five loss ratio tiers: below 50 percent, 50-60 percent, 60-

75 percent, 75-80 percent, and above 85 percent.

11

The contract also established reporting requirements for CNA related to the losses it experiences.

 Each tier had an established premium rate for each 

of the four labor categories.

12

In reporting the claim amount for each individual loss, CNA includes three main categories of costs: 

 

Specifically, the contract stated that CNA is required to submit a written semi-annual loss experience 

report including information on: name of the USACE contractor, name of the claimant, USACE contract 

number, policy number, nature and date of loss, and claim amount for each individual loss. The contract 

also required CNA to submit a written annual loss experience report containing this same information, 

but also showing total loss to date. 

• expenses, defined as costs associated with administering claims and policies in the normal 

cost of doing business; 

• net paid, defined as monies actually paid out for claims of medical bills or lost wages; and

• reserves, defined as funds held in reserve for the cost of claims that may be or are expected 

to be paid in the future.

CNA has submitted its loss reports on a quarterly, and sometimes monthly, basis. 

CNA uses a broker agent company, Rutherfoord International, Inc. (Rutherfoord), to help administer the 

DBA program. Rutherfoord is responsible for issuing the policies and billing the contractors for the cost 

of their DBA premiums. Contractors are required to obtain DBA insurance after USACE or C-JTSCC

awards them a contract but prior to beginning work. The contractor estimates the labor costs needed to 

complete the terms of the contract and submits its estimates to Rutherfoord for coverage. Rutherfoord 

then determines which labor category the contract falls under, bills the contractor for the cost of 

coverage, and either issues a new policy or amends the contractor’s existing policy. Once the contractor 

pays Rutherfoord, Rutherfoord provides an invoice, as well as a copy of the new policy or policy 

amendment to the contractor verifying that DBA insurance was obtained for the specific contract. 

Rutherfoord also provides notice to the contracting officer for that specific contract as proof of 

insurance. Once the contracting officer receives this notification, he or she issues a notice to proceed, 

allowing the contractor to commence work.13

Although CNA is responsible for paying benefits to injured workers whose employers hold DBA 

insurance policies with CNA, it can also receive reimbursement for the cost of compensating workers 

under certain circumstances. Under the War Hazards Compensation Act (WHCA),

 

14

 11 The contract did not stipulate premium rates for any of the labor categories for a loss ratio between 81 and 84 percent.

the U.S. government 

12 In addition, the contract also established a reporting requirement related to the premiums CNA collects under the program. 13 There are additional requirements that the contractor must satisfy before the notice to proceed is issued that do not relate to 

DBA insurance. 14 42 U.S.C. § 1701 et seq.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 4

reimburses insurance carriers for DBA benefits paid if the injury or death is caused by a war-risk hazard

(e.g., shrapnel wounds from an improvised explosive device), provided that the insurance carrier did not 

charge its customer a war-risk hazard premium. In addition to disability and death payments, war-risk 

hazard benefits include funeral and burial expenses, medical expenses, and reasonable costs necessary 

to process the claims. If an insurance carrier believes it has a claim that qualifies for WHCA 

reimbursement, it files an application with Labor, which adjudicates the case. Certain criteria must be 

met before Labor will accept an approved WHCA claim for direct payment. Specifically, if the claimant is 

living, Labor requires that the annual cost of the claim has become relatively stable so that it can 

accurately assess the costs associated with the claim. If the claimant has died, the survivor benefits are 

typically commuted (paid in full) or a regular bi-weekly compensation amount is set. If approved, Labor 

reimburses the insurance carrier for any allocable costs associated with the WHCA claim, plus an 

additional 15 percent of unallocable costs. When a claimant lives overseas, Labor continues to use the 

insurance carrier to administer the claim. Figure 1 demonstrates the typical process by which DBA and 

WHCA claims are filed, adjudicated, and reimbursed.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 5

Figure 1: DBA and WHCA Claims Process

Injury or death occurs

CNA processes/administers the claim. 

CNA begins paying benefits within 10 

days.

Company files claim Worker files claim

If injury/death is 

caused by a war 

risk

CNA files for WHCA reimbursement 

with Labor CNA is responsible for paying benefits

CNA pays one 

lump settlement to 

beneficiary

If injury/death is 

caused by a 

covered activity

CNA pays regular 

payments to 

beneficiary

CNA continues paying benefits and 

files for reimbursement with Labor on 

a yearly basis

If case is approved 

and claimant lives 

outside the U.S.

Claim reaches 

stability of 

payments

If case is approved 

and claimant lives 

inside the U.S.

Labor assumes responsibility for 

paying benefits

Labor reimburses all costs 

experienced to date plus 15%

Source: SIGAR analysis of the DBA, the WHCA, and information provided by CNA and Labor.

The October 2008 contract included a reporting requirement for WHCA claims. Specifically, the contract 

required CNA to submit a quarterly, semi-annual, and annual war hazard report to the contracting 

officer including a detailed report of each war hazard claim, a statistical report of all claims and Labor 

reimbursement approvals, denials, and amounts, and information on Labor direct payments of war 

hazard benefits to beneficiaries. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 6

USACE AGREED TO HIGHER PREMIUM RATES THAN STIPULATED UNDER THE CONTRACT’S DEFINITION 

OF LOSS RATIO AND FAILED TO EXERCISE STRONG OVERSIGHT OF CNA’S PERFORMANCE

USACE agreed to higher premium rates than were called for based on CNA’s loss ratio and did not 

exercise strong oversight of CNA’s performance under the contract. In July 2009, CNA reported a loss 

ratio of 5.2 percent for the base year of the October 2008 contract. However, during negotiations with 

USACE, CNA officials argued that their loss ratio was actually 57.7 percent based on a standard insurance 

industry definition of loss ratio. They, therefore, requested that their DBA rates for the option year be 

set at the above 50 percent loss ratio tier.

15

Although this negotiation process and outcome was permissible because the selection of the rates was 

to be based on final agreement by the government and the insurance carrier, we found that USACE did 

not take all of the oversight measures it could to verify CNA’s loss figures. For example, when USACE 

awarded the new rates for the option year, it added a requirement to the contract modification stating 

that the rates were contingent upon agreement to an audit by the Defense Contract Audit Agency

(DCAA)

 The USACE contracting officer disagreed with CNA’s 

position, but ultimately approved higher rates than would have been set for a 5.2 percent loss ratio 

because they fell within the range of appropriate rates set through open market research. These rates 

have given CNA $9.9 million more in premiums than it would have collected had the contract definition 

of loss ratio been used. 

16

Our analysis of CNA’s loss figures and claims files demonstrates that such oversight was needed because 

the data CNA provided to USACE during contract negotiations raise questions about the validity of the 

stated 57.7 percent loss ratio. In addition, we found that some data provided to CNA through its 

quarterly loss reports were not complete, accurate, or current. For example, significant reserve 

adjustments in the claims files were not reflected in the quarterly loss reports in a timely manner. CNA’s 

most recent loss and premium data also call into question some of CNA’s assertions regarding its overall 

loss experience. 

and the findings of that audit. However, according to USACE officials, the contracting officer 

never requested the DCAA audit; as a result, the contracting officer lost an opportunity to verify CNA’s 

reported loss experience. 

Despite a Loss Ratio of 5.2 Percent, USACE Agreed to DBA Rates above the 50 Percent Tier 

USACE price negotiation memoranda indicate that, although CNA’s loss ratio fell significantly below 50 

percent for the base year of the contract awarded in October 2008, USACE ultimately agreed to set 

premium rates above the 50 percent tier. Table 1 shows the premium rates that, according to the terms 

of the contract, CNA could charge for each labor category in the option year, depending on its reported 

loss ratio. 

 15 Negotiations began in August 2009 and concluded at the end of September 2009. 16DCAA performs contract audits for the Department of Defense and provides accounting and financial advisory services 

regarding contracts and subcontracts to all Department of Defense components responsible for procurement and contract 

administration. These services are provided in connection with negotiation, administration, and settlement of contracts and 

subcontracts to ensure taxpayer dollars are spent on fair and reasonable contract prices.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 7

Table 1: Contract Number W912HQ-09-D-0001 Option Year Premium Rates, by Labor Category and 

Loss Ratio 

Labor 

Category

Loss Ratio of

Less than 50%

Loss Ratio of

50-60%

Loss Ratio of

60-75%

Loss Ratio of

75-80%

Loss Ratio

Greater than 85%

Service $3.00 per $100 of 

employee 

remuneration

$3.40 per $100 of 

employee 

remuneration

$4.00 per $100 of 

employee 

remuneration

$4.60 per $100 of 

employee 

remuneration

$6.00 per $100 of 

employee 

remuneration

Construction $5.625 per $100 of 

employee 

remuneration

$6.375 per $100 of 

employee 

remuneration

$7.50 per $100 of 

employee 

remuneration

$8.625 per $100 

of employee 

remuneration

$11.25 per $100 

of employee 

remuneration

Aviation $15.00 per $100 of 

employee 

remuneration

$17.00 per $100 of 

employee 

remuneration

$20.00 per $100 

of employee 

remuneration

$23.00 per $100 

of employee 

remuneration

$30.00 per $100 

of employee 

remuneration

Security $9.375 per $100 of 

employee 

remuneration

$10.625 per $100 of 

employee 

remuneration

$12.50 per $100 

of employee 

remuneration

$14.375 per $100 

of employee 

remuneration

$18.75 per $100 

of employee 

remuneration

Source: Contract number W912HQ-09-D-0001, awarded to CNA, Inc. October 1, 2008. 

Note: The contract did not stipulate premium rates for any of the labor categories for a loss ratio between 81-84 percent.

In September 2009, CNA’s loss ratio (case incurred losses divided by earned premiums) was 5.2 percent. 

However, CNA stated that its loss ratio was actually 57.7 percent because CNA actuaries had included a 

52.5 percent provision for losses known as “Incurred But Not Reported” (IBNR). IBNR refers primarily to 

two categories of losses—(1) claims that have occurred, but not yet been reported to CNA and (2) future 

development on known claims.17

USACE rejected the proposal to include IBNR stating that “the use of IBNR has no basis in our current 

contract and the amounts used for the additional loss attribution is without factual support.” USACE 

added that “even if the government were to allow consideration of an IBNR component in the loss ratio 

calculation (which is not dealt with in the contract’s definition of loss ratio), using an amount that is 

almost 10 times the true reported losses does not even comport with [CNA’s] reported differences 

between reported losses and subsequent figures when reviewed after the fact.” In addition to concerns 

about CNA’s inclusion of IBNR, USACE contracting officials questioned whether CNA was including cases 

that would be eligible for reimbursement under the WHCA. Specifically, USACE stated that cases eligible 

under this act “should not be included in the loss ratio calculation.” 

 To illustrate their point, CNA officials explained that the total incurred 

claims for the period of September 30, 2007 – September 30, 2008 were initially $3.7 million. However, 

1 year later, the total incurred claims for this same period were $7.3 million. CNA attributed this 

increase to IBNR. According to CNA, it is standard commercial insurance industry practice to include 

IBNR in the calculation of the total incurred losses associated with a particular set of claims. Therefore, 

CNA officials argued that the rates should be set at the 50-60 percent loss ratio tier. 

The final premium rates USACE agreed to fell within differing amounts for the various tiers and labor 

categories. Table 2 shows the premium rates that would have been charged for a loss ratio of below 50 

percent, according to the terms of the October 2008 contract; the rates that CNA proposed in an August 

2009 email to USACE; the rates that CNA proposed at the price negotiation meeting in September 2009; 

 17 The other categories of IBNR are estimates for reopened claims and claims in transit. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 8

USACE’s counter proposal that same month; and the final rates agreed to in September 2009 for the 

option year. 

Table 2: Contract Number W912HQ-09-D-0001 Option Year Negotiated and Finalized Premium Rates 

Category Contract Rate 

for a Below 

50 Percent 

Loss Ratio, 

October 2008

CNA Email 

Proposal, 

August 2009

CNA Initial 

Proposal at Price 

Negotiation 

Meeting, 

September 2009

USACE Counter 

Proposal, 

September 2009

Final Agreed 

Upon Rates, 

September 

2009

Service $3.00 per 

$100 of 

employee 

remuneration

$3.40 per $100 

of employee 

remuneration

$6.00 per $100 of 

employee 

remuneration

$3.20 per $100 

of employee 

remuneration

$4.00 per $100 

of employee 

remuneration

Construction $5.625 per 

$100 of 

employee 

remuneration

$6.375 per $100 

of employee 

remuneration

$6.00 per $100 of 

employee 

remuneration

$6.00 per $100 

of employee 

remuneration

$6.00 per $100 

of employee 

remuneration

Aviation $15.00 per 

$100 of 

employee 

remuneration

$17.00 per $100 

of employee 

remuneration

$17.00 per $100 

of employee 

remuneration

$16.00 per $100 

of employee 

remuneration

$17.00 per $100 

of employee 

remuneration

Security $9.375 per 

$100 of 

employee 

remuneration

$10.625 per 

$100 of 

employee 

remuneration

$9.00 per $100 of 

employee 

remuneration

$9.00 per $100 

of employee 

remuneration

$10.00 per $100 

of employee 

remuneration

Source: Contract Number W912HQ-09-D-0001. 

As shown in the table, CNA ultimately got higher premium rates for each labor category than it would 

have received under the terms of the contract for its loss ratio. Had premium rates been set at the 

amount called for under the terms of the contract for the less than 50 percent loss ratio, CNA would 

have collected $9.9 million less in premiums since September 2009.

18

When we asked USACE officials why they agreed to these rates, they responded that the contracting 

officer had not used the loss ratio to set rates. Instead, the contracting officer relied on open-market 

research, which showed that open-market rates for this type of insurance were either equal to or higher 

than the premium rates agreed to. USACE’s decision to negotiate with CNA regarding its rates was 

allowed under the contract, which states that selection of the appropriate fixed rate will be based upon 

final agreement by the government and the insurance carrier. 

 18 We calculated this figure by analyzing CNA’s premium collection report to identify premium amounts collected after the 

negotiation period in September 2009. Specifically, we determined the total labor cost for each policy listed in the report and 

then applied the rate called for under the terms of the contract for the applicable labor category. For example, if a contractor 

had a service policy and had paid a premium of $400, we determined that the total labor cost was $1,000 (because the 

negotiated service rate was $4.00 per $100 of employee remuneration.) We then applied the rate of $3.00 per $100 of 

employee remuneration to the total labor cost, revealing a $100 difference. We performed this calculation on all premiums 

collected after September 2009 to determine a total of $9.9 million. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 9

USACE Did Not Take Advantage of Oversight Measures Available

Despite agreeing to higher premium rates, USACE did not implement all oversight measures available 

under the terms of the contract or maintain copies of all loss reports filed by CNA. We identified several 

specific problems. 

• The October 2008 contract states that the government reserves the right to obtain the services 

of expert consultation to analyze the loss history data submitted by the insurance carrier. 

However, we were unable to find any evidence that USACE did so. In addition, when USACE 

modified the 2008 contract to award the new rates for the option year, it added language 

stating that the rates were contingent upon agreement to a DCAA audit and the resultant 

findings of that audit. However, USACE officials informed us that the contracting officer never 

requested the audit. By failing to consult outside experts or request the DCAA audit, USACE lost 

an opportunity to verify CNA’s loss data, a particularly important step given the decision to 

approve higher premium rates. 

• Although the October 2008 contract required specific reporting on WHCA claims, USACE did not 

hold CNA responsible for fully meeting this requirement. The contract states that the insurance 

carrier will report regularly on WHCA claims by providing a detailed report for each war hazard 

claim and an overall report for all claims showing Labor reimbursement approvals, denials, and 

amounts. However, USACE agreed that CNA could fulfill this reporting requirement by simply

adding a column to the loss reports called “War Hazard” and indicating “Y(es)” or “N(o)” for 

each claim. In September 2009, CNA added another column to its quarterly loss reports called 

“War Hazard Recoveries” to show amounts received from Labor for cases approved for WHCA 

reimbursement. However, these additional data did not provide all of the information called for 

under the contract. We also found that the contracting officer did not maintain copies of each 

of the quarterly loss reports that CNA submitted. The USACE contracting officer told us that she 

did not maintain copies of the reports because they are cumulative. In other words, a loss 

report from December 2009 will include all cases from the September 2009 report. However, 

without loss reports from each quarter or detailed information on WHCA cases, USACE could 

not track the development of claims over time or assess the impact of WHCA on USACE’s loss 

history, important pieces of information for assessing CNA’s experienced losses under the 

contract.

CNA’s Data Were Not Always Complete, Accurate, or Current

By analyzing the data CNA submitted to USACE, some of its contract files, WHCA data from Labor, and 

option year negotiation documentation, we determined that CNA’s submissions to USACE were not

always complete, accurate, or current. In addition, at least one statement made by CNA officials during 

option year negotiations was not supported by the data. Finally, some trends in CNA’s reserve data, as 

well as its most recent loss and premium reports, raise questions about actual loss experience. 

CNA’s 57.7 Percent Loss Ratio Was Not Supported 

The 2008 contract states that, for purposes of establishing the option year rates, the insurance carrier 

(CNA) shall provide to USACE “data that clearly reflects the cumulative loss history.” However, we found 

that the data that CNA submitted to USACE under this reporting requirement did not do so. For 

example, consistent with CNA officials’ statements that they considered IBNR when calculating their loss 

ratio, the data included “loss development factors (LDF).” According to CNA, these factors are 

commonly used in the insurance industry to arrive at the ultimate value that can be expected for a claim 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 10

because of loss development and IBNR. For example, an LDF of 1.5 means that for every $1 of current 

claims, the ultimate payout will be $1.50. However, CNA did not provide any information showing 

USACE how these factors were developed. For accident year 2008,19

In addition, although CNA provided USACE a table (see table 3) showing an overall 57.7 percent loss 

ratio, it is not evident from the information provided in the table how the 57.7 percent figure was 

calculated. One problem with the table is that it is not apparent how the different lines of data in the 

table relate to one another and why. For example, we were able to determine that the “selected” 

amount is a weighted average

the LDF increased CNA’s total 

incurred losses, as reported in the table, from about $10 million to about $19 million. 

20 of “Ultimate (based upon Paid Losses) and “Ultimate (based upon 

Incurred Losses).” However, the weighted average is calculated differently each year, generally (but not 

always) giving greater weight to the latter category for more recent accident years than for older 

accident years. We identified other inconsistencies in the table. For example, we found that, although 

the “Ultimate (based upon Incurred Losses)” is generally calculated as “Total Incurred & [Allocated Loss 

Adjustment Expense] ALAE”21 multiplied by the “Incurred LDF,” it was calculated differently for accident 

year 2007. We could find no evidence that CNA explained why the calculation differed for that year. 

Similarly, although the “Incurred Loss & ALAE Ratio” was calculated the same way for accident years 

2005, 2006, 2007, 2008, 2002-2008, and 2009, CNA calculated it differently for accident years 2002-

2009. Had CNA calculated it consistently, the “Incurred Loss & ALAE Ratio” in the final column would 

have been 98.24 percent, instead of 161.8 percent. This difference may be significant because the 

overall loss ratio of 57.7 percent appears based, in part, on this figure. Finally, the table is difficult to 

interpret because it relies, in large part, on percentages and percentages of percentages instead of raw 

numbers, further limiting USACE’s ability to clearly understand how the 57.7 percent figure was 

developed. 

 19An accident year is equivalent to the calendar year. 

20 An average giving weights to different numbers in proportion to their importance. 21 According to CNA, ALAE refers to expenses that are assignable or allocable to specific claims. Fees paid to outside attorneys, 

experts, and investigators used to defend claims are examples of ALAE. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 10

Source: CNA. a

Accident Year. 

The table also indicated use of some data or information starting in 2002. This use of data prior to 2005 

appears to contradict the contract requirement that the loss ratio will be cumulative from the inception 

of the program for each loss ratio calculation used to determine the rate for the next period. As noted 

Table 3: CNA Table Provided to USACE to Document the 57.7 Percent Loss Ratio

Actual

AYa

2005

Actual

AY

2006

Actual

AY

2007

Actual

AY

2008

Total

AY 2002 -

AY 2008

Actual

AY

2009

Total

AY 2002 -

AY 2009

Written Premium (000's) 20 15,785 19,592 28,718 64,115 32,681 96,796

Earned Premium (000's) 10 7,901 17,497 23,925 49,333 22,529 71,862

Paid Losses & ALAE 

(000's) 15 11,422 17,861 2,075 31,372 176 31,549

Total Incurred & ALAE 

(000's) 15 21,286 35,884 9,584 66,768 3,834 70,603

Paid LDF 1.03 1.55 2.48 5.10 8.50

Incurred LDF 1.03 1.26 1.75 2.03 3.78

Ultimate (based upon 

Paid Losses) 15 17,646 32,392 10,582 60,636 1,500 62,136

Ultimate (based upon 

Incurred Losses) 15 26,820 55,567 19,431 101,833 14,475 116,309

Selected 15 22,692 48,267 16,484 87,458 12,529 99,987

Paid Loss & ALAE Ratio 143.9% 144.6% 102.1% 8.7% 63.6% 0.8% 86.5%

Incurred Loss & ALAE 

Ratio 143.9% 269.4% 205.1% 40.1% 135.3% 17.0% 161.8%

Gross Ultimate Incurred 

Loss & ALAE 148.7% 287.2% 275.9% 68.9% 177.3% 55.6% 139.1%

War Hazard Incurred & 

ALAE (000's) 14,225 31,781 5,417 51,423 1,353 52,776

% War Hazard 0.668 0.886 0.565 0.770 0.353 0.748

Selected % War Hazard 0.535 0.709 0.452 0.616 0.282 0.598

Selected War Hazard 

Ultimate Incurred 153.5% 195.5% 31.2% 109.2% 15.7% 83.2%

Ultimate Incurred Loss & 

ALAE (net of Recoveries) 148.7% 133.7% 80.4% 37.7% 68.1% 39.9% 55.9%

Earned Premium at 

Current Rate Levels 9 7,172 18,462 26,915 52,559 22,529 75,088

Indicated Weights 0.0% 9.6% 24.6% 35.8% 30.0% 100.0%

Selected Weights 0.0% 10.0% 25.0% 32.5% 32.5% 100.0%

Ultimate Incurred Loss & 

ALAE (net of Recoveries) 163.8% 147.2% 76.2% 33.6% 66.2% 39.9% 57.7%
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 11

earlier in this report, CNA began providing DBA insurance to USACE in 2005. Therefore, any data or 

assumptions from 2002 would be 3 years outside the timeframe for calculating the loss ratio. 

The way in which claims that may qualify for WHCA reimbursement are reflected in the table is also 

unclear. As noted earlier, USACE contracting officials cautioned CNA during option year negotiations 

that cases eligible under the WHCA “should not be included in the loss ratio calculation.” CNA officials 

responded that it takes several years for Labor to determine if claims are reimbursable under the WHCA 

and, until that time, CNA is responsible for paying the claim and setting aside reserves. They added that 

Labor had denied claims that, in CNA’s opinion, should have qualified for WHCA reimbursement. We 

confirmed that CNA took some steps to remove WHCA cases from its overall loss ratio calculation. 

However, CNA’s methodology for doing so and the extent to which these cases were removed from the 

overall calculation is unclear. First, CNA officials confirmed that the table shows that, for accident years 

2002-2009, 59 percent of its forecasted ultimate incurred losses will be recovered as WHCA from 

Labor.22

Finally, we found that CNA did not provide a clear explanation of how the 5.2 percent loss ratio related 

to the 57.7 percent loss ratio. In communications with USACE, CNA stated that the 57.7 percent loss 

ratio was the sum of the 5.2 percent case incurred loss ratio and a 52.5 percent provision for IBNR. 

However, when we asked CNA officials where the 5.2 percent figure is reflected in the table showing the 

57.7 percent loss ratio, they responded that the 5.2 percent figure would not appear in the table 

because it was calculated on a contract period basis, while the table was based on an accident year 

basis. They added that the 5.2 percent would be imbedded within the non-War Hazard portion of “Total 

Incurred and Allocated Loss Adjustment Expenses” for portions of accident year 2008 and accident year 

2009. This explanation raises questions about why the two figures were calculated using different time 

periods and assumptions, and whether the relationship between the two figures is as direct as indicated 

in contract negotiation documents. CNA’s statement also calls into question whether it followed the 

contract requirement that the loss ratio be cumulative from the inception of the program if the 5.2 

percent loss ratio only covers portions of the 2008 and 2009 accident years. 

 The table’s formulas reveal that this percentage is the result of multiplying the percentage of 

cases identified as WHCA cases by 80 percent, but it is not clear how CNA developed the 80 percent 

figure. Second, although CNA applies the LDF to all claims (both WHCA and non-WHCA) in developing its 

overall loss ratio, it is not clear whether CNA also applies the factor when it removes a portion of the 

claims because of anticipated WHCA reimbursement. Third, CNA officials have indicated to us that it 

includes a “small contingency” (8 percent) in IBNR for claims that are initially identified by CNA as WHCA 

but ultimately are not accepted for WHCA reimbursement by Labor. However, this 8 percent figure 

does not appear anywhere in the table, and we found no evidence that CNA informed USACE of the 8 

percent provision.

Statements made by CNA officials regarding the 52.5 percent IBNR figure during option year 

negotiations also raise questions about the reliability of the overall reported loss ratio. For example, 

when advocating for the inclusion of IBNR in the definition of loss ratio, a CNA official stated that 

because the pilot program started in 2005, CNA had several years of experience providing DBA 

insurance that showed that a good percentage of DBA claims are reported well after the expiration of a 

contract year. However, CNA’s data only support this assertion for the first year of the program (2005-

2006). Specifically, roughly 72 percent of the 2005-2006 claims were reported after that year ended. In 

comparison, only 17 percent of the 2006-2007 claims and 15 percent of the 2007-2008 claims were 

reported after those contract years ended.

 22 This factor is shown in the “Selected % War Hazard” row of the table. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 12

CNA’s Reserve Adjustments Were Not Reported in a Timely Manner

We reviewed a selection of CNA’s case files and found delays in reporting reserve adjustments to USACE. 

As noted earlier in this report, CNA provides quarterly loss reports to USACE in compliance with the 

2008 contract. These reports provide claim-level data. To verify the losses reported to USACE in these 

reports, we selected 20 individual claims representing $29 million of the $137 million in reported losses, 

as of the end of fiscal year 2010.23

Our analysis shows that CNA failed to report some of the most significant reserve increases to USACE in 

a timely manner. For example, in the case of one claimant, the claims file indicated an approved reserve 

amount of $1.3 million in December 2009, but the reserve amount reported to USACE was less than 

$25,000 until March 2010, when the reserve increased to $1.2 million. In another case, CNA approved 

an increase of the reserve amount to $1.8 million in November 2009, but did not report the increased 

reserve amount until March 2010. CNA officials told us that delays may occur because reserve 

adjustments are approved after the closing date for downloading information from CNA’s claims system 

into its financial system, which generates the quarterly report. However, in these cases, we determined 

that the reserve amounts were approved prior to the closing date for the December 2009 quarterly 

report. Furthermore, when we questioned a CNA official about these cases, he informed us that they 

were not reflected in CNA’s claims system until 1 to 3 months after they had been approved.

 We then reviewed the claims files provided by CNA at its 

headquarters in Chicago, IL, to compare the total reserves documented in CNA’s files with the reserves 

included in CNA’s quarterly reports to USACE.

24

CNA’s Quarterly Reports Reflected Losses for Claims Approved for WHCA Reimbursement

 

We found that CNA continued to include cases in its quarterly loss reports after they had been approved 

for WHCA reimbursement and even increased reserves in some cases. For example, for one claim, CNA 

filed for a WHCA reimbursement of $150,437.64 on April 2, 2009. Labor approved the claim and, on 

September 3, 2009, paid CNA $150,939.18. Two months later, CNA increased the reserves for the claim 

to $1,850,359. According to the claims file, CNA decided to commute the claim (pay the beneficiaries a 

one-time lump sum payment) and in November 2009 estimated the total commutation at $1.8 million. 

CNA officials told us that the reserve amount was also increased because of a change in Labor’s 

processes. In late 2009, Labor determined that insurance carriers would be required to pay and 

administer foreign national WHCA claims. Prior to that time, Labor had been responsible for doing so. 

Therefore, CNA increased the amount because that was its best estimate of the ultimate amount that 

would eventually be paid on the claim. However, because the claim had been accepted for WHCA 

reimbursement, CNA knew that it would receive reimbursement for the commuted amount from Labor 

and showed the net loss to CNA in its claims file as $0. Labor officials confirmed that, once a claimant is 

approved for WHCA reimbursement, it is “literally guaranteed” that the insurance carrier will receive the 

commutation amount. 

When we raised this issue with CNA officials, they stated that we “should have no concerns regarding 

the inclusion or timing of the removal of WHCA claims from CNA’s incurred losses” because “CNA does 

 23 This was not a random sample, and the results of our analysis cannot be generalized 24 When we asked this official why a reserve amount would be changed in the claims file in December but not added to the 

system until March, he indicated that this was not normal practice, but that CNA likes to avoid adding new large reserves at the 

end of a calendar year because it can “throw off the numbers” and “causes concern.” Notably, CNA is required to report the 

reserve amounts held for DBA claims at the end of each calendar year to Labor and to purchase a security deposit for the total 

amount of DBA reserves. Failing to report the higher reserve amounts would lower the security deposit that CNA is required to 

purchase.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 13

not include War Hazard claims in its calculation of losses, nor did CNA consider War Hazard losses when 

developing rates for any DBA contracts with USACE.” However, as indicated above, the extent to which 

CNA removes WHCA cases from its loss ratio is unclear, and CNA has not provided clear information to 

USACE regarding its methods for doing so. 

In the contract issued on April 1, 2011, USACE specified that CNA’s “incurred claims shall exclude those 

claims identified for reimbursement under WHCA.” However, it does not specify who identifies the 

claims for reimbursement, at what point these claims are to be removed, how much time CNA has to 

remove them, or if this requirement applies to claims being administered for claimants who live abroad. 

CNA’s Quarterly Loss Reports Did Not Fully Reflect War Hazard Recoveries 

As described earlier, CNA included a column labeled “War Hazard Recoveries” in its quarterly loss 

reports to reflect WHCA reimbursements received from Labor. We found that, except for one claim, the 

amounts in this category were consistently less than the actual WHCA reimbursements that CNA 

received. For example, for one claim, CNA received a WHCA reimbursement of $6,567.06 on August 31, 

2010. CNA’s loss report dated September 13, 2010, showed that it had received $0 in WHCA 

reimbursements for this claim.25

In other cases, CNA indicated that the reason for the difference between the actual reimbursement and 

the reported amount was the 15 percent administrative fee that CNA retained from Labor for handling 

the claim.

 

26 For example, on September 3, 2009, CNA received a $150,939.18 WHCA reimbursement for 

one claimant. The amount shown in the “War Hazard Recoveries” category for this claim in September 

2009, December 2009, March 2010, June 2010, and September 2010, however, was $131, 251.46. 

When we first interviewed CNA officials about the War Hazard Recoveries column, they indicated that it 

was meant to reflect all funds recovered from Labor for each WHCA-approved claim. However, when 

we alerted them to the fact that the column did not reflect the full reimbursed amount, they stated that 

the column actually “includes all indemnity and medical costs incurred by CNA in connection with a 

particular claim” and “does not include the 15 percent administrative fee paid to CNA.” CNA also stated 

that it removes the 15 percent fee because the lower amount (the total reimbursement minus the 

administrative fee) accurately depicts the losses for the claims. However, we noted that CNA did not 

decrease the amount of expenses27

 25 We confirmed that the closing date for the September 2010 quarterly report was well after CNA received the WHCA 

reimbursement. 

shown for the claims in its quarterly loss reports, despite receiving 

the 15 percent fee. This analysis raises questions about how fully and accurately CNA reflected its losses 

for WHCA cases to USACE. 

26 By Labor regulation, an insurance carrier “may receive reimbursement of unallocated claims expense in an amount of 15 

percent of the sum of the reimbursable payments made under the Defense Base Act or other workers’ compensation law.” 20 

C.F.R. § 104 (c).

27 As noted earlier in this report, the expense column in the quarterly loss report refers to costs associated with administering 

claims and policies in the normal cost of doing business. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 14

CNA Reserved about Twice as Much as it Actually Paid for Closed Claims

Our analysis of CNA’s quarterly loss reports also indicates that, for DBA cases that had closed at the time 

of option year negotiations, CNA had reported reserving about twice as much as it had actually paid for 

these cases. Reserve amounts comprise a significant portion of CNA’s total reported losses. For 

example, at the conclusion of 2010, CNA reported $137 million in losses since the inception of the 

USACE DBA program. Of this $137 million, $90 million (or 66 percent) were funds held in reserve.

To assess the extent to which reserves represented an actual loss for CNA at the time of negotiations, 

we reviewed CNA’s quarterly loss reports through September 2009,28 identified each claim that had 

been closed and the maximum that CNA had reported reserving for each claim, and compared that 

amount to what was actually paid when the claim closed. Through this analysis, we determined that, for 

the 333 DBA cases that had closed by that date, CNA had reported total reserves as high as $4.3 million. 

However, the total amount that CNA had actually paid out for these cases was $2 million, less than half 

the amount that had been held in reserve. We also determined that the reserve amount was higher 

than the actual paid amount in most of the closed cases, rather than just for a few large cases. 

Specifically, of 28229

CNA officials also told us that claim reserves are initially set as a rough estimate. As the actuaries and 

claims adjusters get more information about what types of injuries occurred and how much time and 

lost wages will be incurred, reserve amounts become more accurate. Therefore, CNA’s internal 

standard is for the reserve amount to be 95 percent adequate 12 months after it learns of the claim. In 

other words, 1 year after a claim is reported to CNA, the company aims to have reserves in place that 

are 95 percent of the total amount that is ultimately paid when the case is closed. We asked CNA to 

provide an analysis of its cases under the USACE DBA single insurance program using this standard to 

measure reserve adequacy. CNA provided this analysis for calendar years 2009 and 2010, as well as the 

first quarter of 2011. CNA’s analysis demonstrated that it had missed its 95 percent target by a wide 

margin. Specifically, its reserves for 2009 were 316.8 percent of the final paid amounts for cases closed 

that year, and its reserves for 2010 were 139.7 percent of the paid amounts for cases closed in that 

year. When we raised concerns about the results of this analysis with CNA officials, they stated that the 

95 percent tool is just one of many benchmarks that CNA uses to track the development and resolution 

of claims. They also stated that the tool has a number of limitations. For example, it does not capture 

claims that open and close within 12 months and considers closed claims only, which means that the 

sample size is too small to provide statistically meaningful results. 

closed claims, 237 (or 84 percent) ultimately closed out for less than their reported 

reserves. Only 45 cases closed out for more than their reported reserves. When we shared this data 

analysis with CNA, it stated that a significant difference in reserves and paid amounts is not, by itself, an 

indication of a problem and without reviewing the actual claims files it is impossible to determine why 

CNA was ultimately able to close out those cases for less than the maximum amount reserved. 

Because of the complexity of the data, we consulted experts in the insurance industry with specialized 

knowledge of workman’s compensation insurance. One expert stated that, in his experience, while it is 

not necessarily uncommon for insurance carriers to reserve more than they actually pay out, the data 

trends we observed raised some questions about how CNA was calculating reserves. Other experts 

 28We chose this point in time because this was when CNA and USACE were negotiating premium rates for the option year. Our 

data analysis does not include loss reports for 2006 and 2007 because CNA was unable to provide all quarterly reports for those 

years, due to a change in accounting systems. However, because the quarterly loss reports are cumulative, the absence of 2006 

and 2007 quarterly reports did not impact our analysis. 29 In conducting this analysis, we excluded the 51 closed claims that had never had a paid or reserved amount associated with 

them. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 15

stated that more robust analysis of claims data would be needed before making a judgment as to the 

adequacy of the carrier’s reserves. 

We also conferred with an expert in risk management, insurance, and actuarial science.30 He 

determined that, although the increase in CNA’s reserves over time was typical, the degree to which 

reserves increased was surprising and could not be easily explained. For instance, in September 2009, 

CNA reported reserves of $6.8 million for 58 claims reported during the 2005-2006 contract year. One 

year later, CNA increased its reserves to $11 million for the same 58 claims. According to the expert, 

this type of increase on the same claims 3 years after they were reported was striking. According to 

CNA officials, roughly 90 percent of these reserves were for WHCA cases,

31

According to some of the experts we consulted, insurance carriers are often required to have an 

independent actuary review of reserve adequacy. However, because the USACE DBA program is a small 

portion of CNA’s business, CNA did not have an independent review of reserve adequacy for the 

reserves under this contract.

and CNA does not include 

WHCA cases when calculating its loss ratio. However, as noted above, the extent to which CNA excludes 

WHCA cases from its loss ratio analysis is unclear. Furthermore, CNA has included WHCA cases in its 

quarterly loss reports. 

32

CNA’s Recent Loss Data Raise Additional Questions 

 

CNA’s most recent quarterly loss data and premiums collected data raise additional questions about 

CNA’s assertions regarding its overall loss experience. We analyzed CNA’s March 2011 premiums 

collected report33 and determined that, from November 2005 through September 2009, CNA collected a 

total of about $114 million in premiums. We also analyzed CNA’s quarterly loss data and determined 

that CNA’s total incurred losses for non-WHCA cases34

 30To protect individuals' privacy and to ensure an independent and unbiased opinion, we redacted the information, removing 

names and other identifying information about claimants, their employers, the insurance

for this same time period were approximately 

$42 million, as of March 2011, yielding a loss ratio of 37 percent. This figure is significant because it 

provides the clearest and most current picture available of CNA’s actual loss experience for the claims 

discussed during the option year negotiations. For CNA to realize the above 50 percent loss ratio that it 

asserted in September 2009, it will need to experience at least another $15 million in losses on these 

same claims. While additional losses are likely because of continued claim development through IBNR, 

the likelihood that they will increase this much is questionable. Furthermore, over half of the $42 

million in losses that CNA is currently reporting for these claims are reserves. Unless these reserves are 

fully paid out when the claims close, CNA will have to incur even more than $15 million in additional 

losses for these claims to reach the 50 percent loss ratio. 

company, and the contracting government agency.

31 CNA also stated that the reserve amounts for these WHCA cases increased because of a change in Labor’s policy for handling 

war hazard claimants and beneficiaries who live outside the United States. 

32 After reviewing an excerpt of this draft report, CNA retained an expert who determined that, in his experience, CNA reserving 

practices were actuarially sound and commercially reasonable. 

33The March 2011 premiums collected and quarterly loss reports were the most recent reports we obtained. 

34 We selected non-WHCA cases because of CNA’s statements that these cases are not included in its loss calculations. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 16

USACE AND C-JTSCC’S INTERNAL CONTROLS FAILED TO ENSURE THAT PRIME CONTRACTORS 

AND SUBCONTRACTORS PURCHASED AND MAINTAINED THE CORRECT AMOUNT OF DBA 

INSURANCE 

Although USACE and C-JTSCC have some controls in place to ensure that both prime contractors and 

subcontractors purchase DBA insurance, our review of 121 contract actions and their associated files 

found that these controls are not sufficient. In general, the USACE and C-JTSCC contract files that we 

reviewed were missing some key components, such as contract modifications or invoices, needed to 

determine whether DBA insurance was appropriately purchased and maintained. However, based on 

the components we could review, existing controls appeared insufficient. First, although USACE and 

C-JTSCC direct prime contractors to require their subcontractors to purchase DBA insurance, we 

identified subcontractors that did not have DBA insurance policies. Second, we found instances in which 

significant contract modifications occurred, but we found no documentation indicating that the 

contracting officer took action to adjust the amount of DBA insurance accordingly. Finally, in cases 

where contractors’ policies expired prior to the end of the contract period, we did not find 

documentation in the case files showing proof that the contractors had renewed their insurance 

policies. 

Contract Files Were Missing Some Key Components

We generally found insufficient documentation to determine what was spent for DBA insurance, how 

much coverage was required, and whether policies were in place for the period of performance. We 

reviewed 46 USACE and 8 C-JTSCC contract files35

We provided a list of items that were missing from each of the contract files in our sample to USACE and 

C-JTSCC. Although USACE and C-JTSCC officials indicated that they would be able to locate these items 

by reviewing their electronic systems, they provided only a few of the requested items. 

during the course of this audit. We also reviewed files 

for an additional 67 task orders issued under indefinite quantity indefinite delivery contracts, for a total 

of 121 contract actions. We could not always find the documentation needed to fully analyze these 

contract actions. For example, we were unable to find a “notice to proceed” in 97 of the 121 contract

files. If the date on the notice to proceed is earlier than the date on the insurance policy, it is an 

indication that work could have begun under the contract without DBA insurance in place. Additionally, 

invoicing data were uniformly not included in the contract files. We found almost no information 

regarding payment from USACE and C-JTSCC to the contractors for DBA insurance. USACE personnel 

stated that Engineer Form 93 is used to track payments made from the USACE finance center to 

contractors. We requested these forms for the contracts in our sample. However, only a few of the 

contracts in our sample had these forms that specifically identified an invoiced amount for DBA. 

In 2010, a USACE internal review office issued a Material Weakness Report, which found that the

Afghanistan Engineer District-North36

 35 We selected the five largest contractors based on total dollar value of reconstruction contracts as identified by SIGAR report 

11-4 for both USACE and CCC. We then requested the two most recent completed policy years from Rutherfoord for those 

contractors and compiled a list of the 54 contracts identified on those policies. Kabuljan was originally identified for a case 

study, but was dropped due to having no obligations. 

contract office had weaknesses in its administrative processes, 

contract documentation, and records of contract actions and financial transactions. For example, 

prescribed checklists were not always completed and required copies of both basic contract and 

contract amendments were sometimes missing from files. 

36USACE Afghanistan Engineer District-North provides program management and oversight of construction in Afghanistan. 

Several of the contracts in our sample were located with the Afghanistan Engineer District-North contract office. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 17

Subcontractors Did Not Consistently Purchase DBA Insurance

Although the DBA requires subcontractors under U.S. government contracts to purchase DBA insurance, 

we found some instances in which this had not occurred. Consistent with the requirements set forth in 

the DBA, the Federal Acquisition Regulation directs contracting officers to insert, in all subcontracts to

which DBA applies, a clause requiring subcontractors to provide DBA insurance.

37 In our review of the 

121 contract actions,

38

To test whether subcontractors purchased DBA insurance, we identified 24 subcontractors that had 

performed work under two contracts in our sample—contracts with a company to build Afghan National 

Army garrisons at locations in Afghanistan. We then requested that Rutherfoord provide 

documentation of these 24 subcontractors’ DBA policies. Rutherfoord located insurance policies for 20

of the 24 subcontractors and confirmed to us that the remaining 4 subcontractors did not hold DBA 

insurance with CNA, USACE and C-JTSCC’s sole insurance provider. In addition, of the remaining 20 

subcontractors, 7 did not purchase insurance for all contracts for which they were identified as 

subcontractors, and 4 had policies that did not cover either of the contracts we identified. Altogether, 

only 9 of the 24 subcontractors had DBA coverage for all of their contracts that we reviewed as part of 

this analysis. 

we found that only 41 correctly included this clause. 

USACE Contracting Officers Did Not Adjust DBA Insurance to Account for Significant Changes 

in the Scope of Work on Contracts

Although modifications to contracts can significantly alter total labor costs associated with that contract, 

for the 121 contract actions we reviewed, we found instances where contracting officers did not take 

action to ensure that the amount of DBA insurance was adjusted accordingly. For example, on contract 

W917PM-08-C-0076, awarded for the design, partial site-adaptation, and construction of new facilities 

for the Afghan National Army, the DBA Contract Line Item Number (CLIN) was established as a firmfixed-price cost.

39

Additionally, Contract W917PM-08-C-0059, which was awarded for the design, site-adaptation, and 

construction of a new garrison for the Afghan National Army in Nimroz, Afghanistan, had an 

administrative modification that de-scoped work for construction of a portion of security wall. 

However, we could find no adjustment made to lower the cost of DBA insurance. Since at least some 

labor costs would have been associated with the security wall construction, we determined that it would 

have been appropriate for the contracting officer to recover some of the funds initially agreed to under 

the contract to cover DBA costs. 

 During the course of performing this contract, USACE issued a procurement 

modification to provide an asphalt road and increased the value of the contract by over $624,000. 

However, no adjustment was made to the DBA CLIN to increase its value, which may have resulted in 

workers not being covered for this portion of work. 

 37 See Federal Acquisition Regulation 52.228-3. 38 When reviewing indefinite quantity indefinite delivery contracts we reviewed, when possible, the base contract and the 

issued task orders to determine if the appropriate actions had been taken. 

39 Firm-fixed-price contracts provide for a price that is not subject to any adjustment on the basis of the contractor’s cost 

experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all 

costs and resulting profit or loss. Firm-fixed-price contracts require the contractor to deliver services within an agreed-upon 

schedule and cost to the United States.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 18

Contracting Officers Did Not Obtain Proof of Insurance Renewal for Contract Periods that 

Exceeded the Policy Year

Although the DBA requires that contractors maintain insurance for the life of the contract, we identified 

some contract files that did not include proof that contractors had renewed their insurance policies

when necessary. Because most of the contracts in our sample had performance periods spanning more 

than 1 policy year, the contractors were required to renew their policies to ensure continued coverage 

of those contracts. However, we found no instances where the contractors submitted updated policy 

information. While we determined that the contractors often maintained the coverage, we also 

determined that the contracting officers’ lack of oversight over contractors’ renewals is an internal 

control weakness. If a contractor failed to renew its policy, the workers on that contract would be 

uninsured. Although the DBA provides for payments to these uninsured workers through the “Section 

44 Special Fund,”40

EXISTING PROCESS FOR BILLING AND REIMBURSING CONTRACTORS FOR DBA INSURANCE 

COSTS VIOLATES THE PURPOSE STATUTE AND LIMITS USACE AND C-JTSCC OVERSIGHT OF 

ACTUAL DBA INSURANCE COSTS 

Labor officials said that these cases are often complicated and it can take several 

years for the workers to receive any payments or benefits. 

The current process for billing and reimbursing contractors for DBA costs commingles funds in violation 

of the Purpose Statute41 and limits USACE and C-JTSCC oversight over actual DBA insurance costs. 

Under the Purpose Statute, one funding source cannot be used to cover the expenses of another. 

However, Rutherfoord, CNA’s broker agent, issues one policy for multiple contracts and, at end of the 

year, applies credits from contracts that had overestimated labor costs to contracts with 

underestimated labor costs. If these contracts have different funding sources, this process violates the 

Purpose Statute and may also violate the Anti-Deficiency Act.42

Furthermore, contracting officers lack oversight over actual DBA costs. We found instances in which 

contractors did not purchase as much DBA insurance as indicated in their contract CLINs. We also 

determined that USACE and C-JTSCC have not recovered refunds for DBA insurance that should be due 

them. If a contractor, in total, overestimated its labor costs more than it underestimated them, 

Rutherfoord issues a refund to the contractor for the difference. We identified five contractors in our 

sample that received a total of $259,319 in refunds. Although not all of these refunds are due USACE or 

C-JTSCC, some are. Data also indicate that the total amount of refunds potentially due the U.S. 

government for the USACE DBA program could be significantly larger because CNA has refunded at least 

$58.5 million to contractors since the start of the pilot program in 2005.

 

The Process for Billing Contractors Commingles Funds in Violation of the Purpose Statute

We found that the process for billing contractors for their DBA insurance costs violates U.S. funding 

restrictions, particularly the Purpose Statute. Rutherfoord’s current practice is to issue one policy for 

DBA insurance to each contractor for the term of one policy year that covers all of that contractor’s 

contracts with USACE and C-JTSCC. As a result, individual policies can cover multiple contracts awarded 

 40 Uninsured employers subject themselves to fine, imprisonment, civil liability and naming of the corporate officers for 

personal liability. If the employer cannot pay, DBA provides for potential payment of liability from the “Section 44 Special 

Fund.” This fund is financed primarily by insurers and self-insured employers under the Longshore and Harbor Workers’ 

Compensation Act and its extensions. See 33 U.S.C. 944. 41 31 U.S.C. § 1301(a). 42 31 U.S.C. §§ 1341(a), 1342, and 1517(a).
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 19

at different times, with different funding types and different periods of performance. According to 

Rutherfoord officials, at the conclusion of each policy period, the contractors are required to submit

self-administered audits to adjust or determine what the actual costs of labor were under all covered 

contracts and the extent to which the insurance premiums paid over the course of the year covered 

those costs.43

Figure 2: Process for Billing and Reimbursing Contractors for DBA Insurance

 This audit process involves a totaling of all contract premiums for each policy and can 

result in either an additional premium payment or a refund. If the initial estimates are more than the 

actual labor costs, Rutherfoord gives the contractor a refund; if the estimates are lower, Rutherfoord 

charges the contractor an additional premium. Figure 2 illustrates the process for billing and reimbursing 

contractors. 

USACE/CCC 

awards contract

Contractor submits 

labor estimates to 

Rutherfoord

Rutherfoord issues 

policy and bills 

contractor

Contractor pays 

Rutherfoord

Rutherfoord issues 

invoice to 

contractor, which 

serves as proof of 

insurance

Contracting Officer 

issues Notice to 

Proceed for work 

to begin

Insurance policy 

period ends

Contractor 

conducts a self 

audit or CNA 

conducts an audit

Rutherfoord 

refunds contractor

Rutherfoord bills 

for additional 

premium

Source: SIGAR analysis of information provided by USACE, Rutherfoord, and CNA.

Under this process, one source of funds can be used to pay the DBA premium costs of contracts that 

have been funded through a different source, therefore violating the Purpose Statute, which requires 

that funds be used only for the purposes for which they were appropriated.44

 43 CNA retains the right to audit contractors’ labor records to verify DBA insurance costs, but does not always exercise this 

option. 

 For example, we reviewed 

one contractor’s DBA insurance policy for the period September 1, 2008-September 1, 2009, which 

initially covered five contracts. We determined that the source of funds for those contracts was the 

Afghanistan Security Forces Fund (ASFF), which is used to train and equip the Afghanistan National 

Security Forces. The contractor added a non-ASFF funded contract to the policy during the policy year. 

We determined that this contract was awarded for work in Iraq; therefore, ASFF funds should not have 

been used to fund this contract. At the end of the policy period, the contractor conducted the required 

44 Comptroller General Opinion B-213137, 63 Comp. Gen. 422 (1984) states that, "It is a basic premise in appropriations law 

that expenses which are not necessary to carry out the purposes of a particular appropriation may not be funded from that 

source.” See also Comp. Gen. No. B- 240365.2 (March 14, 1996); Comp. Gen. No. B-213137 (June 22, 1984); and Comp. Gen. 

No. B-120676(October 25, 1954). 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 20

self-audit and found that two of the contracts had overestimated labor costs including the one awarded 

for work in Iraq, while the other four had underestimated labor costs. Rutherfoord applied the credit 

for the two over-estimated contracts to the four under-estimated contracts and then provided a 

reimbursement of $60,858 to the contractor. Table 4 shows the initial estimates and final audited 

amounts for each of the six contracts. 

Table 4: Source of Funds and Audit Results for a Contractor’s 2008-2009 DBA Policy

Contract Number Source of Funds Initial Estimate Self-Audit Premium 

Difference

W917PM-07-D-0014 ASFF $147,190 $1,030 $146,880

W917PM-08-C-0009 ASFF $20,330 $42,713 -$22,383

W917PM-07-C-0076 ASFF $105,125 $220,865 -$115,740

W917PM-08-C-0033 ASFF $76,125 $101,276 -$ 25,151

W917PM-08-C-0070 ASFF $101,500 $135,034 -$33,534

W91GY0-09-D-0001 Non-ASFF (place 

of performance 

Iraq)

$448,267 $337,481 $110,786

Total $899,257 $838,399 $60,858

Source: SIGAR analysis of the contractor’s DBA policy and documents for September 1, 2008-September 1, 2009.

This analysis indicates that non-ASFF funds were used to cover the DBA costs incurred on ASFF 

contracts, which is a violation of the Purpose Statute. 

In March 2011, we formally notified USACE that the DBA billing processes could be a violation of 

U.S. funding restrictions. In our letter detailing this concern, we stated that USACE should consider 

developing internal controls for any future contracts awarded for providing DBA insurance to prevent 

the possible commingling of funds. Specifically, we suggested that requiring insurance providers to issue

one policy per contract or requiring insurance providers to issue one policy per funding source could be 

effective ways to address this potential problem. However, on April 1, 2011, USACE awarded a new 

contract to CNA that failed to address the problem of commingling funds. USACE contracting officials

later told us that drafting one policy for multiple contracts was standard industry practice and that 

requiring one policy per contract could place too great an administrative burden on the insurance 

carrier. CNA officials we spoke with also indicated that it would be difficult for them to create one policy 

for each contract. However, USACE officials did not take any steps to address the problem of 

commingling funds. For example, another way to avoid commingling funds would be to allow insurance 

carriers to continue issuing one policy for multiple contracts, but require them to invoice the costs of 

each contract separately and ensure that the contracting officer receives an invoice for each contract. 

Currently, contracting officers only receive invoices based on the contractors’ initial estimates of labor 

costs.

Commingling of funds can also result in an Anti-Deficiency Act violation. Under the Anti-Deficiency Act, 

it is unlawful for a U.S. government employee to make or authorize an expenditure from, or create or 

authorize an obligation under, any appropriation or fund in excess of the amount available in the 

appropriation or fund.45

 4531 U.S.C. § 1341 (a)(1)(A). 

 If the current billing practice has constituted a violation of the Anti-Deficiency 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 21

Act, USACE is required to report to the President and Congress all relevant facts and a statement of 

actions taken and transmit a copy of each report to the Comptroller General.46

USACE and C-JTSCC Officers Failed to Ensure Contractors Accurately Billed for DBA Insurance 

 

Because contracting officers lack oversight over how much contractors are billed for DBA insurance and 

how much they are reimbursed, USACE and C-JTSCC have been unable to ensure that contractors 

accurately billed the U.S. government for DBA insurance. We determined that, in some cases, 

contractors did not purchase as much DBA insurance as indicated in their contract CLINs. In addition, 

we found that, although 5 of the 9 contractors in our sample received $259,319 in refunds for the cost 

of their DBA insurance premiums, the U.S. government has not recovered any of these refunds. Since 

2005, the total amount of refunds due USACE and C-JTSCC under the DBA program may be as much as 

$58.5 million. 

Contractors Did Not Consistently Purchase the Contracted Amount of DBA Insurance 

Contracting officers lack oversight over the complete DBA billing process and therefore cannot 

determine if contractors purchase the correct amount of DBA insurance. When bidding on USACE or 

C-JTSCC contracts, contractors estimate labor costs and Rutherfoord applies the applicable rate to 

determine the estimated cost for DBA. As of October 2008, these estimated costs have been included in 

the contracts as a separate CLIN. Although the contracting officer receives proof of insurance and the 

initial payment based on the estimates from the contractors, current processes do not allow the 

contracting officer to see how much the contractor ultimately paid for DBA insurance. For example, for 

one contract, the contractor had negotiated a price of $39,108.97 for DBA insurance with USACE. 

However, the contractor estimated to Rutherfoord that it would only need to purchase $25,212 in 

premiums for that task order. Furthermore, at the end of the policy period, the contractor had only 

incurred a cost of $16,160 for premiums on that same task order and received a credit toward premiums 

on other contracts of $9,062. We reviewed invoice data provided by USACE to determine what was 

actually paid to the contractor for DBA and determined that it received the full amount of the CLIN for 

that task order of $39,108.97 from USACE, indicating that USACE ultimately paid over $39,000 for DBA 

coverage of only about $16,000.47

Contracting Officers Were Unaware of Refunds 

 We were not able to determine the total amount that USACE and 

C-JTSCC could have overpaid for DBA insurance due to this problem because that would have required

analyzing every contract under the DBA program since 2005, including any contract modifications, as 

well as the corresponding DBA insurance policies and government invoices. However, it is possible that 

the contracting officers’ lack of oversight over what contractors pay to CNA for coverage has 

represented a substantial loss for the U.S. government.

Rutherfoord officials stated that, because contracting officers reimburse contractors based on the initial 

estimated cost of DBA insurance and do not see the end-of year audits, the contracting officers are also 

not aware if contractors receive a refund. As discussed previously, each contractor submits a selfadministered audit at the end of each policy year. If, in total, the contractor overestimated its labor 

costs more than it underestimated them, the contractor receives a refund for the difference. The extent 

to which the U.S. government has a right to obtain the refund depends on how the original contract was 

written, as detailed below. 

 46 See 31 U.S.C. §§ 1341, 1517(a) and Section 145 of Office of Management and Budget Circular A-11. 47 We were not able to obtain a copy of the official contract because the contract file was lost by USACE. Subsequently, we 

were unable to determine if USACE could recover any of these funds from the contractor. As explained later in this report, the 

way in which contracts are written determines whether the U.S. government can recover any funds for DBA insurance costs. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 22

• For some contracts (particularly contracts dated before October 2008), DBA insurance was not 

shown as a separate CLIN, and contractors were explicitly instructed not to show a specific 

amount for DBA insurance in their bids. Instead, we learned from Rutherfoord officials that 

contractors purchased the amount of insurance they estimated necessary based on their labor 

costs and requested reimbursement from the contracting officer for the amount that they were 

billed by CNA based on these estimates. For these contracts, the U.S. government should

receive any refunds. 

• For other contracts, DBA insurance was shown as a firm-fixed-price CLIN. For these contracts, 

the contractor bid a specific amount for DBA insurance, which was ultimately incorporated into 

the contract award. In general, the government does not receive any refunds for these 

contracts because the contractor is owed the exact amount shown in the contract. If the 

contractor overestimated labor costs, the contractor keeps the difference. If the contractor 

underestimated labor costs, the contractor pays the cost of the difference out of pocket. 

• Although contracts with firm-fixed-price CLINs typically mean that the U.S. government does not 

receive the refund, we identified several contracts with firm-fixed-price DBA CLINs that also 

included language indicating that the U.S. government should be reimbursed. For example, we 

identified one contract with a firm-fixed-price DBA CLIN that stated that “the contractor will be 

reimbursed for the cost of the DBA insurance” and that the CLIN “is not a profit line item.” For 

this type of contract, the U.S. government should receive any refunds. 

• In October 2009, USACE issued a procurement instruction letter48 requiring that DBA insurance 

be a cost reimbursable49

Out of the 9 contractors we reviewed, 5 contractors received refunds for DBA during specific policy 

periods.

CLIN. For these contracts, the contractor should receive

reimbursement only for the actual cost of DBA insurance. Therefore, the U.S. government 

should receive any refunds for these contracts. 

50

Our data indicate that the amount of refunds potentially due USACE and C-JTSCC from contractors could 

be significantly larger than the roughly $259,000 we identified for our sample of nine contractors. We 

analyzed CNA’s report of premiums it has collected since the start of the pilot program in 2005 and 

found that, as of March 2011, CNA had refunded a total of $58.5 million to contractors. As a result, if 

none of the refunds are returned to the U.S. government, USACE and C-JTSCC will have paid nearly 

For these contracts, we determined that the contractors received a total of $259,319 in 

refunds and that none of these funds had been returned to the U.S. government. Because of the 

problems with incomplete contract files discussed earlier, we could not independently determine how 

much of the $259,319 should be returned to the U.S. government. However, our analysis indicates that 

at least some of this money should be returned to USACE and C-JTSCC. For example, one contractor 

received a credit of $110,786 for a specific contract. Because this contract did not include a separate 

CLIN for DBA insurance, this amount should have been returned to USACE. Instead, it was applied to 

other contracts on the policy with underestimated labor costs and contributed to the overall refund of 

$60,858 given to the contractor for policy year 2008. USACE and C-JTSCC officials confirmed that they 

have not received refunds for any of the contracts in our sample. 

 48 USACE Procurement Instruction Letter 2010-01. 49 Cost-reimbursement contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. 

These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the 

contractor may not exceed (except at its own risk) without the approval of the contracting officer. Federal Acquisition 

Regulation Subpart 16.3.

50 SIGAR initially selected policy periods for 2008-2009 and 2009-2010. However, for some of the contractors we selected, they 

had yet to submit an audit for the policy periods we reviewed and we were unable to do a complete case study review of these 

specific contracts. See appendix II for a list of the selected contracts by contractor that SIGAR reviewed.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 23

$283.5 million for DBA coverage that should have cost $225 million. Although it is unlikely that all of the 

$58.5 million in refunds are due the U.S. government, our analysis indicates that a substantial portion 

should be. As described above, the extent to which the government can recover refunds depends on 

how the applicable contract is written. Specifically, if the contract has a firm-fixed-price CLIN for DBA 

insurance, the government will not be able to recover the refund unless there was specific language in 

the contract indicating otherwise. However, the practice of including a separate firm-fixed-price CLIN in 

contracts was only in effect from October 2008 to October 2009, just 1 year out of the almost 6 year 

program. 

CONCLUSION

DBA was enacted to ensure that individuals working abroad for the U.S. government have workers’

compensation insurance should they get injured or killed on the job. Because contractors are 

reimbursed for their DBA costs, the program also makes it easier for smaller contractors to afford the 

costs associated with federal contracting. For these reasons, DBA insurance is particularly important in 

Afghanistan, which has a hostile working environment and where many subcontractors, particularly 

Afghan companies, are limited in size and resources. However, we identified significant problems with 

the DBA single insurer program, as implemented by USACE. Specifically, we found that USACE agreed to 

higher premium rates than were provided for under the contract’s definition of loss ratio and, in making 

that decision, USACE paid $9.9 million in premiums more than it needed to. We also found that some 

subcontractors in Afghanistan did not purchase DBA insurance. Furthermore, we determined that 

contracting officers have not always adjusted the amount of DBA insurance when significant 

modifications were made to contracts or ensured that contractors renewed their DBA insurance policies 

when necessary. These weaknesses increase the risk that workers in Afghanistan will not have the 

coverage they are entitled to under the DBA. Finally, we found that the process for billing and 

reimbursing contractors commingles funds in violation of the Purpose Statute and fails to ensure that 

the U.S. government receives any refunds that it is owed, which could total as much as $58.5 million. 

Because many of the problems we identified are a result of interaction with a third party—the insurance 

carrier and its broker agent—our findings suggest that consideration of the self-insurance option may be 

warranted. 

RECOMMENDATIONS

To strengthen USACE’s DBA single insurance contract and address the problems with CNA’s data that we 

identified through this audit, we recommend that the Acting Commanding General, USACE:

1. Modify the current contract with CNA to require that an invoice be provided for each 

contract showing the final amount paid for DBA insurance for that contract. This action 

should address the problem associated with the Purpose Statute violation we identified.

2. Determine whether the Purpose Statute violation we identified also constitutes an AntiDeficiency Act violation and, if so, follow the reporting requirements set forth in the Act and 

in Office of Management and Budget guidance. 

3. Modify the current contract with CNA to clarify and make explicit the requirement that 

incurred losses exclude claims identified for reimbursement under WHCA. Specifically, it 

should stipulate who identifies the claims for reimbursement, when they are to be removed 

from the loss report, how much time CNA has to remove them, and how cases with 

claimants outside the United States should be handled. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 24

4. Modify the current contract with CNA to require an independent actuary review of reserve 

adequacy particular to the claims covered under the contract with USACE and to submit the 

review to USACE on an annual basis. 

To strengthen the DBA insurance program and take steps to recover any refunds that may be due the 

U.S. government, we recommend that both the Acting Commanding General, USACE, and the 

Commander, C-JTSCC:

5. Issue guidance to contracting officers to strengthen their oversight of DBA insurance. This 

guidance should remind contracting officers of the importance of adjusting the DBA CLIN 

when contract modifications significantly affect the amount of labor needed to perform the 

contract and should require contracting officers to receive the final invoice from the 

insurance carrier for each contract before reimbursing the contractor.

6. Take steps to remind subcontractors of the requirement to and importance of purchasing 

DBA insurance. These steps could include, for example, a memo issued to prime contractors 

to be shared with all subcontractors or a training session for prime contractors and 

subcontractors on DBA insurance policies and procedures.

7. Determine how much of the $58.5 million in refunded premiums is recoverable by USACE 

and C-JTSCC. 

8. Take immediate action to recover these funds determined to be recoverable by USACE and 

C-JTSCC. 

COMMENTS

USACE and C-JTSCC provided written comments on a draft of this report. These comments are 

reproduced in appendices IV and V, respectively. Labor provided technical comments, which we have 

incorporated as appropriate. In addition, we provided CNA an opportunity to review and comment on 

the sections of the report directly related to the company. We met with CNA officials to discuss their 

comments and took them into consideration when finalizing the report. 

In its comments, USACE concurred with all eight recommendations and identified steps to implement 

them. For example, in response to the fourth recommendation, USACE stated that it will modify the 

current contract with CNA to incorporate a requirement for an independent actuary annual review of 

reserve adequacy relative to DBA claims under the USACE DBA contract. USACE also identified specific 

timeframes for completing actions responsive to our recommendations. For example, it stated that it 

will make every effort to complete recovery of any funds due the U.S. government no later than 18 

months from the date of issuance of this report. 

In its comments, C-JTSCC concurred with all four recommendations directed to it, noting that it would 

work with USACE where necessary. For example, C-JTSCC stated that it will work with USACE to 

determine the most effective way to identify all C-JTSCC contractors who have received refunds, obtain 

records of these refunds, and take action to get the money back. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 25

APPENDIX I: SCOPE AND METHODOLOGY

This report provides the results of the Office of the Special Inspector General for Afghanistan 

Reconstruction’s (SIGAR) review of the U.S. Army Corps of Engineers (USACE) single insurance provider 

Defense Base Act (DBA) program. This report is one in a series of SIGAR performance audits focused on 

reconstruction contract outcomes, costs, and oversight.

To assess the price reasonableness of the contracted premium rates with CNA, we analyzed CNA’s loss 

and premium reports and reviewed all four contracts awarded to CNA under this program, including 

contract documentation such as price negotiation memoranda. In total we collected and analyzed 15 

loss run reports submitted from 2006 through 2010. To determine if the data in these reports were 

reported accurately, we selected 20 open claims with the largest reserve amounts. We then reviewed 

the corresponding claims files as provided by CNA to determine if the amounts reported to USACE were 

supported by documentation in the files. We also reviewed these claims cases to determine if they had 

been approved for War Hazards Compensation Act reimbursement and obtained and analyzed data 

from the Department of Labor (Labor) on additional WHCA claims filed by CNA. Finally, we interviewed 

officials from USACE, Labor, and CNA, as well as individuals with expertise in workers’ compensation 

insurance. 

To determine how the USACE DBA process works for tracking funds, we analyzed the billing procedures 

of CNA and its broker agent, Rutherfoord International. We also analyzed how DBA was incorporated 

into USACE and C-JTSCC contracts by conducting case study reviews. For these reviews, we selected 

nine of the largest contractors, based on dollar value, for USACE and C-JTSCC.

51

Because our analysis indicated that refunds had been issued to the contractors that were not returned 

to USACE or C-JTSCC, we reviewed the CNA report of premiums collected to identify refunds. We then 

totaled all the refunds given since the inception of the program. 

 We analyzed copies of 

these contractors’ DBA policies and determined that 54 contracts and 67 task orders issued under 10 

indefinite quantity indefinite delivery contracts were covered by these contractor policies. We did not 

count the base indefinite quantity indefinite delivery contracts in our sample due to the fact that these 

types of contracts do not have obligated funds associated with them until a task order is issued (see 

appendix II for list of contracts and contractors reviewed in our sample). We then reviewed the 

corresponding contract files to determine how DBA was billed, if coverage was purchased and 

maintained for the life of the contract, and if the funds were tracked appropriately. As noted in this 

report, a significant portion of the documentation that we needed to conduct a thorough analysis of 

these files was missing. 

We conducted work in Kabul and Kandahar, Afghanistan, as well as Arlington, VA; Washington D.C.; and 

Chicago, IL, from February 2011 to July 2011 in accordance with generally accepted government auditing 

standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. 

We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on 

our audit objectives. The audit was conducted by the Office of the Special Inspector General for 

Afghanistan Reconstruction under the authority of Public Law No. 110-181, as amended, the Inspector 

General Act of 1978, and the Inspector General Reform Act of 2008.

 51 These contractors were identified based on data provided by USACE and C-JTSCC. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 26

APPENDIX II: LIST OF SELECTED CONTRACTORS AND CONTRACTS FOR CASE STUDY REVIEW

Table I: List of Selected Contractors and Contracts for Case 

Study Review

Contractor Contract Number 

DynCorp W917PM-08-C-0009 

W917PM-08-C-0076 

W917PM-08-C-0033 

W917PM-08-C-0070 

W917PM-07-D-0014 

W91GY0-09-D-0001

Contrack International W912ER-08-C-0042 

W912ER-06-D-0006 

W912ER-07-C-0006 

W912ER-07-C-0016

W917PM-07-D-0018 

W912ER-04-D-0003 

W912ER-09-C-0014 

W912ER-09-C-0018 

W912ER-09-C-0050 

W912ER-09-C-0051 

W912ER-06-C-0003 

W917PM-04-C-0007 

W917PM-05-C-0011 

W912ER-05-C-0020 

W912ER-03-D-0003 

FCEC UI W917PM-08-C-0027 

W917PM-08-C-0057 

W917PM-08-C-0059 

W917PM-08-C-0045

W917PM-07-D-0019 

W917PM-07-D-0012 

W917PM-09-C-0061 

W917PM-06-C-0040 

W917PM-04-D-0004 

W917PM-09-C-0084 

W917PM-09-C-0099 

W917PM-09-C-0090 

W917PM-06-C-0041
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 27

Contractor Contract Number 

W917PM-06-C-0044

W917PM-09-P-0330

W917PM-07-D-0004 

W912GB-06-C-0028

W917PM-09-C-0098

W5J9LE-10-D-0005

W5J9LE-10-D-0005

W5J9LE-10-D-0014

W5J9LE-10-C-0013

W5J9JE-10-C-0015

W5J9JE-10-C-0017

Red Sea Construction Company W91B4M-09-C-7340 

Nimrah Construction Company W91B4M-09-C-7045

W91B4M-09-C-7174

W91B4M-09-C-7197 

W91B4M-09-C-7244 

W5K9UR-10-C-7036

ECC International W917PM-07-D-0015 

W5J9LE-10-D-0002

W5J9LE-10-D-0004

W5J9LE-10-D-0019

W912ER-09-C-0117 

RM Asia W91B4M-08-C-0009

Technologists, Inc. W917PM-07-D-0016 

W917PM-07-D-0006 

W917PM-07-D-0021 

W917PM-07-D-0008 

W917PM-08-C-0069

W917PM-08-D-0006 

W917PM-07-D-0015 

W917PM-06-C-0051

KBY Bozdemir Joint Venture W91B4L-09-C-0124

Source: SIGAR
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 28

APPENDIX III: PRIOR AUDIT COVERAGE OF THE DBA INSURANCE PROGRAM

The following audit reports provide additional information on the DBA insurance program.

Department of Labor-Office of Inspector General, 03-11-001-04-430, OWCP Needs To Improve Its 

Monitoring and Managing of Defense Base Act Claims, Mar 30, 2011.

U.S. Army Audit Agency, A-2010-0152-ALL, Pilot Program for Defense Base Act Insurance, Aug 31, 2010.

U.S. Army Audit Agency (Acquisition, Logistics, and Technology), A-2007-0204-ALL, Audit of Defense Base 

Act Insurance for the Logistics Civil Augmentation Program, Audit of Logistics Civil Augmentation 

Program Operations in Support of Operation Iraqi Freedom, Sep 28, 2007.

U.S. Army Audit Agency (Acquisition, Logistics, and Technology), A-2010-0075-ALL, Audit of Defense Base 

Act Insurance, Audit of Contracting Operations, U.S. Army Contracting Command Southwest Asia-Kuwait, 

Mar 23, 2010.

United States Government Accountability Office, GAO-08-772T, Defense Contracting: Progress Made in 

Implementing Defense Base Act Requirements, but Complete Information on Costs Is Lacking, May 15, 

2008.

Department of Labor-Office of Inspector General, 03-11-001-04-430, OWCP Needs To Improve Its 

Monitoring and Managing of Defense Base Act Claims, Mar 23, 2011.

U.S. Army Audit Agency, A-2010-0152-ALL, Pilot Program for Defense Base Act Insurance, Aug 31, 2010. 

U.S. Army Audit Agency (Office of the Deputy Auditor General, Acquisition and Logistics Audits), A-2007-

0204-ALL, Audit of Defense Base Act Insurance for the Logistics Civil Augmentation Program, Audit of 

Logistics Civil Augmentation Program Operations in Support of Operation Iraqi Freedom, Sep 28, 2007.

U.S. Army Audit Agency (Office of the Deputy Auditor General, Acquisition and Logistics Audits), A-2010-

0075-ALL, Audit of Defense Base Act Insurance, Audit of Contracting Operations, U.S. Army Contracting 

Command Southwest Asia-Kuwait, Mar 23, 2010.

United States Government Accountability Office, GAO-08-772T, Defense Contracting: Progress Made in 

Implementing Defense Base Act Requirements, but Complete Information on Costs Is Lacking, May 15, 

2008.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 29

APPENDIX IV: COMMENTS FROM THE U.S. ARMY CORPS OF ENGINEERS

See SIGAR

comment 1.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 30

ENCLOSURE

Headquarters

U.S. Army Corps of Engineers

Response to Draft SIGAR Audit-11-16

RECOMMENDATIONS

Recommendation 1: It is understood that this recommendation will be withdrawn by SIGAR, 

otherwise please advise and USACE will respond accordingly.

Recommendation 2: Modify the current contract with CNA to require that an invoice be 

provided for each contract showing the final amount paid for DBA insurance for that contract. 

This action should address the problem associated with the Purpose Statute violation we 

identified. 

USACE Response: Concur. USACE will work with CNA to develop a method to meet the intent of 

this recommendation of individually identifying the final amount paid for Defense Base Act Insurance 

on a contract by contract basis. The generation of individual invoices, rather than one invoice per 

policy, is not expected to be feasible based on the cost of CNA’s administration of multiple invoices 

per policy and the fact that this is contrary to commercial practice of a single invoice per policy per 

contractor. However, based on preliminary discussions with CNA it appears possible that a means to 

identify the final amount paid for DBA Insurance on a contract by contract basis will be realized. 

Incorporation of the new CNA process for identification of the final amount paid for DBA insurance on 

an individual contract basis will be completed through a modification to the USACE DBA contract on 

or before 30 November 2011.

Recommendation 3: Determine whether the Purpose Statute violation we identified also 

constitutes an Anti-Deficiency Act violation and, if so, follow the reporting requirements set 

forth in the Act and in Office of Management and Budget guidance. 

USACE Response: Concur. If indeed a Purpose Statute violation has occurred, based on the 

USACE review of the information provided by SIGAR, then USACE will determine whether or not an 

Anti-Deficiency Act violation has occurred. If an ADA violation has occurred, proper reporting of the 

ADA violation will be made by USACE to the appropriate parties. This determination will be 

completed as soon as possible but not later than 30 November 2011.

Recommendation 4: Modify the current contract with CNA to clarify and make explicit the 

requirement that incurred losses exclude claims identified for reimbursement under WHCA. 

Specifically, it should stipulate who identifies the
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 31

claims for reimbursement, when they are to be removed from the loss report, how much time 

CNA has to remove them, and how cases with claimants outside the United States should be 

handled. 

USACE Response: Concur. USACE will implement recommended clarifications. USACE will 

incorporate the new War Hazard Compensation Act process by modification to the USACE DBA 

contract on or before 30 November 2011.

Recommendation 5: Modify the current contract with CNA to require an independent actuary 

review of reserve adequacy particular to the claims covered under the contract with USACE 

and to submit the review to USACE on an annual basis. 

USACE Response: Concur USACE will modify the current contract with CNA to incorporate a 

requirement for an independent actuary annual review of reserve adequacy relative to DBA claims 

under the USACE DBA contract. Modification of the USACE DBA contract to incorporate an 

independent actuary’s annual review will be completed on or before 30 November 2011.

Recommendation 6: Issue guidance to Contracting Officers to strengthen their oversight of 

DBA insurance. This guidance should remind Contracting Officers of the importance of 

adjusting the DBA CLIN when contract modifications significantly affect the amount of labor 

needed to perform the contract and should require Contracting Officers to receive the final 

invoice from the insurance carrier for each contract before reimbursing the contractor. 

USACE Response: Concur. USACE will issue a Procurement Instruction Letter (PIL) that will 

include specific direction to Contracting Officers regarding the need to adjust the DBA CLIN when 

changes in contract scope significantly impact the amount of labor required to deliver the 

requirements of the contract and will require Contracting Officers to receive the final invoiced amount 

for each contract prior to reimbursing the contractor for the DBA CLIN. This PIL will be shared with CJTCCC to assist in development of C-JTCCC policy guidance and will be issued by USACE on or 

before 30 November 2011. Additionally, the Principal Assistant Responsible for Contracting 

Winchester DBA Subject Matter Expert will update DBA Enterprise Training to cover changes in 

contract scope and adjustment of the DBA CLIN on or before 30 November 2011 and will share this 

training guidance with C-JTCCC.

Recommendation 7: Take steps to remind subcontractors of the requirement to and 

importance of purchasing DBA insurance. These steps could include, for example, a memo 

issued to prime contractors to be shared with all subcontractors or a training session for 

prime contractors and subcontractors on DBA insurance policies and procedures. 

USACE Response: Concur. The Principal Assistant Responsible for Contracting DBA Subject 

Matter Expert will develop a letter that will be provided to USACE prime
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 32

contractors subject to Defense Base Act Insurance that they will issue to their subcontractors. This 

letter will include DBA Enterprise Training Slides for use by Contracting Officers and contractors to 

inform all concerned on DBA insurance policies and procedures. USACE Guidance to Contracting 

Officers using DBA will be updated to include a template of the letter and a web address through 

which to access referenced DBA Training slides. USACE Guidance to Contracting Officers using 

DBA will be updated on or before 30 November 2011.

Recommendation 8: Examine all available contract and invoice records covered under the 

USACE DBA single insurance provider program to determine how much of the $54 million in 

refunded money is recoverable by USACE and C-JTSCC. 

USACE Response: Concur. USACE will examine available contract and invoice records to 

determine how much of refunded money is due the U.S. Government and is recoverable. USACE will 

explore the availability of the assistance of the Defense Contract Audit Agency with the examination 

of records. Records examination will begin no later than 30 November 2011 and is projected for 

completion no later than 12 months from the date of issuance of the SIGAR Final Report. 

Recommendation 9: Take immediate action to recover these funds determined to be 

recoverable by USACE and C-JTSCC.

USACE Response: Concur. Upon completion of the examination of available contract and invoice 

records, USACE will take immediate action to recover funds determined to be recoverable and due 

the U.S. Government. Actions to respond to this recommendation will commence upon the 

completion of the examination of available individual contracts and invoices. At this time it is unknown 

when recovery of funds will be completed. USACE will make every effort to complete recovery of any 

funds due the U.S. Government no later than 18 months from the date of issuance of the SIGAR Final 

Report. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 33

APPENDIX V: COMMENTS FROM THE U.S. CENTRAL COMMAND JOINT THEATER SUPPORT 

CONTRACTING COMMAND

See SIGAR

Comment 1.
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 34
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 35
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 36

The following is a SIGAR comment on USACE’s letter dated July 26, 2011 and C-JTSCC’s letter dated 

July 17, 2011:

1. The draft report issued to USACE and C-JTSCC for their review and comment was numbered 

SIGAR Audit-11-16. The report number has been changed to SIGAR Audit-11-15. 
SIGAR Audit-11-15 Contract Performance and Oversight / Defense Base Act Insurance Page 37

(This report was conducted under the audit project code SIGAR-033A).
SIGAR’s Mission The mission of the Special Inspector General for 

Afghanistan Reconstruction (SIGAR) is to enhance 

oversight of programs for the reconstruction of 

Afghanistan by conducting independent and objective 

audits, inspections, and investigations on the use of 

taxpayer dollars and related funds. SIGAR works to 

provide accurate and balanced information, evaluations, 

analysis, and recommendations to help the U.S. Congress, 

U.S. agencies, and other decision-makers to make 

informed oversight, policy, and funding decisions to:

• improve effectiveness of the overall reconstruction 

strategy and its component programs;

• improve management and accountability over funds 

administered by U.S. and Afghan agencies and their 

contractors;

• improve contracting and contract management 

processes;

• prevent fraud, waste, and abuse; and

• advance U.S. interests in reconstructing 

Afghanistan.

Obtaining Copies of SIGAR 

Reports and Testimonies

To obtain copies of SIGAR documents at no cost, go to 

SIGAR’s Web site (www.sigar.mil). SIGAR posts all 

released reports, testimonies, and correspondence on its 

Web site.

To Report Fraud, Waste, and 

Abuse in Afghanistan 

Reconstruction Programs

To help prevent fraud, waste, and abuse by reporting 

allegations of fraud, waste, abuse, mismanagement, and 

reprisal contact SIGAR’s hotline:

• Web: www.sigar.mil/fraud

• Email: hotline@sigar.mil

• Phone Afghanistan: +93 (0) 700-10-7300

• Phone DSN Afghanistan 318-237-2575

• Phone International: +1-866-329-8893

• Phone DSN International: 312-664-0378

• U.S. fax: +1-703-604-0983

Public Affairs Public Affairs Officer

• Phone: 703-602-8742 

• Email: PublicAffairs@sigar.mil

• Mail: SIGAR Public Affairs

400 Army Navy Drive

Arlington, VA 22202