a

GAO

United States General Accounting Office

Report to Congressional Requesters

October 2002 MILITARY 

TREATMENT 

FACILITIES

Internal Control 

Activities Need 

Improvement

GAO-03-168

Page i GAO-03-168 MTF Internal Controls

Contents

Letter 1

Results in Brief 3

Background 4

Internal Controls Not Effectively Implemented 5

Conclusions 21

Recommendations for Executive Action 21

Agency Comments and Our Evaluation 22

Appendixes

Appendix I: Scope and Methodology 25

Appendix II: Financial and Operational Information at Selected MTFs 

(Unaudited) 29

Appendix III: Results of Personal Property Existence Testing 30

Appendix IV: Comments from the Department of Defense 31

GAO Comments 38

Appendix V: GAO Contact and Staff Acknowledgments 39

GAO Contact 39

Acknowledgments 39

Tables Table 1: Results of Third Party Billing Selections by MTF and 

Workload Type 9

Table 2: Third Party Billing Timeliness for Selected Transactions 10

Table 3: Fiscal Year 2001 Financial and Operational Information at 

Selected MTFs (Unaudited) 29

Table 4: Error Rates for Personal Property 30

Abbreviations

DMLSS Defense Medical Logistics Standard Support

DOD Department of Defense

IG Inspector General

JWOD Javits-Wagner-O’Day Act

MTF military treatment facility

SSA Social Security Administration
Page 1 GAO-03-168 MTF Internal Controls

United States General Accounting Office

Washington, D.C. 20548

A

October 25, 2002 Letr

The Honorable Dennis J. Kucinich

Ranking Minority Member

Subcommittee on National Security, Veterans Affairs 

and International Relations

Committee on Government Reform

House of Representatives

The Honorable Janice D. Schakowsky

Ranking Minority Member

Subcommittee on Government Efficiency, Financial Management

and Intergovernmental Relations

Committee on Government Reform

House of Representatives

The $24 billion Military Health System provides health care to over 8 

million eligible beneficiaries. Although the Congress has provided sizeable 

increases in funding for health care over the past few years, the 

Department of Defense (DOD) has needed supplemental appropriations for 

6 of the last 8 fiscal years from 1994 to 2001 because its costs were higher 

than expected. The growing budgetary pressure increases the risk of not 

achieving the mission of the organization. 

DOD’s military treatment facilities (MTF) represent over half of DOD’s 

health care expenditures. Because budgetary pressures sometimes result in 

agencies reducing key oversight and control activities, you requested that 

we review key internal controls at selected MTFs in order to determine 

whether the internal control activities were effectively implemented.

The Comptroller General’s five standards of internal control help 

management to cope with evolving demands and priorities, achieve 

effective and efficient program results, and are essential for proper 

stewardship and accountability of government resources. These standards 

include (1) the existence of a positive and supportive control environment, 

(2) an assessment of the risks the agency faces from both external and 

internal sources, (3) an assessment of the quality of performance over time, 

(4) relevant, reliable, and timely communications among managers and 

others relating to both internal and external events, and (5) control 

activities, which are the policies, procedures, techniques, and mechanisms 

that help ensure that management’s directives to mitigate risk are carried 
Page 2 GAO-03-168 MTF Internal Controls

out. This report summarizes the results of our tests of selected internal 

control activities.

DOD’s MTFs are the focus of its health care delivery. Using a case study 

approach, this report focuses on some targeted key internal control 

activities that relate to the overall effectiveness and efficiency of the 

facilities in providing health care services at one large, diverse medical 

facility from each of the three services.1

 These key internal control 

activities were in the areas of

• restricting access to care to only those who are eligible;

• identifying patients with third party insurance, and the accuracy and 

timeliness of the billing and collection process for third party insurance;

• monitoring and analyzing the types and levels of expired drugs turned in 

for credit or disposal;

• managing personal property accountability; and

• using government purchase cards. 

Our objective was to determine whether the targeted internal control 

activities at the selected medical facilities were effectively implemented. 

To address this objective, we gained an overall understanding of their 

operations and performed specific tests and analyses to assess adherence 

to policies and procedures. Because we tested only selected internal 

control activities at three locations, we cannot give an overall opinion on 

internal controls at these facilities or project our results to other facilities. 

We did not perform a financial audit of the medical facilities, nor did we do 

the level of internal control testing that would be done in conjunction with 

a financial audit. Therefore, we cannot give an opinion on their financial 

condition. Further details on our scope and methodology are included in 

appendix I. 

1

We chose Eisenhower Army Medical Center, Augusta, Georgia; Naval Medical CenterPortsmouth, Portsmouth, Virginia; and Wilford Hall Air Force Medical Center, San Antonio, 

Texas, as our case study MTFs. Unaudited financial and operational information provided 

by each of the three MTFs is shown in app. II.
Page 3 GAO-03-168 MTF Internal Controls

Results in Brief The three MTFs we reviewed have not effectively implemented internal 

control activities in the areas of eligibility, billings and collections, expired 

drugs, personal property management, and government purchase card 

usage. Unreliable and inaccurate data, system inadequacies, complicated 

processes, and a lack of adherence to policies and procedures contributed 

to the internal control weaknesses we identified. For example, a 

comparison of Social Security Administration (SSA) death records with 

hospital treatment records at one location indicated that 41 patients who 

allegedly had been treated during fiscal year 2001 had died in the prior 

fiscal year or earlier. Although these matches of information in death 

records and patients’ records could be the result of clerical errors, 

someone may have fraudulently assumed the identity of a deceased person 

in order to receive free medical care. Weaknesses in DOD eligibility 

databases as well as in the facilities’ processes and efforts to identify 

ineligible individuals preclude them from knowing whether individuals are 

fraudulently obtaining health care services. 

The three MTFs also did not identify all patients with third party insurance 

coverage. In addition, they frequently did not bill those insurers even when 

they knew that such coverage existed, thereby losing opportunities to 

collect millions of dollars of reimbursements for services. Moreover, two 

of the medical facilities did not perform inventories of their expired or 

obsolete drugs being held for return and could not validate the accuracy of 

the credits received from manufacturers for their return. None of the three 

hospitals adequately analyzed trends of their returned drugs or the actual 

losses related to the expired drugs. Consequently, the MTFs do not have 

reliable information needed to improve their pharmaceutical inventory 

management practices and reduce future losses.

Ineffective physical and financial controls over personal property assets 

and indications of control breakdowns in the use of government purchase 

cards existed at the three facilities. We found items that were not included 

in property records as well as weak processes for ensuring that items were 

actually received and recorded in facility records. Both types of 

weaknesses increase the risk that pilferable items or other types of assets 

can be converted to personal use. Lack of controls over the use of the 

government purchase card also resulted in misuse including potentially 

fraudulent, improper, abusive, and questionable purchases as evidenced by, 

at one location, a military cardholder defrauding the government of tens of 

thousands of dollars by purchasing items for personal use. 
Page 4 GAO-03-168 MTF Internal Controls

We are making recommendations to strengthen the internal control 

activities over these areas to improve accountability, reduce the abuse of 

government resources, and enable program directors and managers to 

make better decisions. In its comments, DOD agreed with our 

recommendations and briefly outlined both current and planned actions for 

addressing them.

Background The medical mission of DOD is to provide and maintain readiness, medical 

services, and support to the armed forces during military operations and to 

provide medical services and support to members of the armed forces, 

their family members, retirees and their families, and eligible survivors of 

deceased active and retired military personnel. DOD’s health care program 

provides medical services such as surgery and inpatient care, pharmacy 

services, and mental health care to eligible beneficiaries. This care is 

delivered through its military hospitals and clinics, known as MTFs, or 

from contracted civilian-provided care. However, if an eligible beneficiary 

has commercial insurance and care is provided by the MTF, the 

government is authorized to bill the insurance company under the Third 

Party Collections Program established in Public Law 99-272, as amended by 

Public Law 101-510 (10 U.S.C. 1095). Currently, according to DOD records, 

over 8 million active duty and retired military personnel along with their 

dependents and survivors are eligible for health care benefits from the 

military health care system. 

The three medical facilities in our engagement are also DOD medical 

teaching facilities. Eisenhower trains residents in both surgical and 

primary care specialties with emphasis on research and state-of-the-art 

specialty care. Portsmouth is the oldest hospital in the U.S. Navy having 

provided continuous care since July 1830. It has a medical education 

program offering internships and residency training programs in medicine, 

dentistry, psychology, and pastoral care. It is one of three teaching 

hospitals in the Navy with residency programs in 13 specialty areas. 

Wilford Hall is the Air Force’s largest medical facility. It focuses on military 

readiness, provides a worldwide referral center for military personnel and 

their dependents, and provides trauma and emergency medical care for the 

San Antonio and south Texas civilian communities. It is also the Air 

Force’s foremost provider of medical education, providing the Air Force 

with 65 percent of its physician specialists and 85 percent of its dental 

specialists. Appendix II provides more background information about the 

military facilities. 
Page 5 GAO-03-168 MTF Internal Controls

Internal Controls Not 

Effectively 

Implemented 

The following five subsections of this report outline opportunities for the 

three MTFs covered by this review to improve their financial or operating 

controls and to, in the process, reduce federal costs. DOD auditors’ and 

our work has also reported on a number of these issues at some of the 

same facilities and recommended improvements. As discussed in appendix 

I and under the following sections, our work, while not designed to 

ascertain the extent of each problem, indicates the existence of systemic 

problems for each of the five areas we reviewed.

Inadequate Eligibility Controls 

Allow for Unauthorized Access 

to Care

Erroneous eligibility information contained in DOD information systems 

precluded the MTFs from providing reasonable assurance that medical 

care was only provided to eligible persons. DOD personnel query a medical 

management automated information system to determine those who are 

eligible. However, the three facilities could not readily provide a list from 

this system of all those who were treated during fiscal year 2001, which 

could be used to facilitate analysis and detect ineligible persons who were 

treated. Further, the DOD Inspector General (IG)reported2

 weaknesses in 

DOD’s eligibility database and concluded that ineligible persons could have 

received medical care, pharmaceuticals, or other benefits. Our work at the 

three facilities supports the DOD IG’s finding that eligibility information 

contains inaccuracies. 

In order to measure the facilities’ ability to control access to care, we 

requested data files of all patients who had been admitted, treated as 

outpatients, or received pharmaceutical benefits during fiscal year 2001. 

After considerable effort, just one facility was able to provide a file of 

beneficiaries who received pharmaceuticals during the year. Using this file, 

we compared patient name, date of birth, and social security number with 

similar data contained in the SSA death records and identified 41 patients 

who received care during fiscal year 2001, and who, according to SSA 

records, had died prior to the start of fiscal year 2001. The social security 

numbers of an additional 225 patients matched SSA death records, but the 

names or dates of birth did not match. The implications of this comparison 

could reflect something as simple as the erroneous entry of a patient’s 

social security number in the hospital’s medical records or clinical staff 

2

Department of Defense, Office of the Inspector General, Beneficiary Data Supporting the 

DOD Military Retirement Health Benefits Liability Estimate, Report No. D-2001-154 

(Washington, D.C.: July 5, 2001). 
Page 6 GAO-03-168 MTF Internal Controls

mistakenly dispensing a prescription under a deceased person’s records. 

Or, at the other end of the spectrum, a person could be fraudulently using a 

deceased person’s identification to receive prescriptions and treatment at 

no cost. Having complete and unique information for each patient, such as 

name, social security number, and date of birth, is important not only to 

control access to care but also to assure that clinical care is being provided 

to the right patient. We have follow-up work under way on these matters.

A July 2001 DOD IG report indicated that questions regarding eligibility are 

an issue across the MTF network. The DOD IG reviewed the reliability and 

completeness of DOD’s eligibility data as well as management controls in 

the system used to control access to military-provided health care. The 

DOD IG reported that these data were reliable 85 percent of the time, and 

said that quality control and other improvements were needed to improve 

the accuracy of the eligibility databases. It estimated that about 415,000, or 

about 5 percent, of the 8.4 million beneficiaries in this database were either 

ineligible or had incorrect critical data, and that the existence or eligibility 

of another 10 percent could not be verified. For example, a divorced 

spouse inappropriately remained eligible in the system for almost 2 years 

after losing eligibility as result of the divorce from the sponsor.3

 Another 

example involved a sponsor who was discharged over 20 years ago without 

benefits yet was listed incorrectly in this system as an eligible active duty 

retiree.

The DOD IG also found inadequate management controls associated with 

the implementation of the system used to produce identity cards for 

military personnel and family members. This military identity card system 

is important because it is used to update personnel information stored in 

DOD’s eligibility database, which provides information to the military 

health system. The DOD IG reported weak management controls and little 

consistency and standardization of policies and procedures to ensure 

accurate and reliable data entry at the 13 sites the staff visited. The 

problems occurring most often at these locations include the lack of 

documented data quality reviews, no retention of source documents, lack 

of separation of duties between officials responsible for verifying 

3

A sponsor is the active duty service member or retiree. A sponsor may have many other 

eligible beneficiaries, such as dependent children; current and, in certain instances, a former 

spouse; and others who by virtue of their relationship to the sponsor are eligible for care at 

the MTF. 
Page 7 GAO-03-168 MTF Internal Controls

beneficiary eligibility information and officials responsible for issuing the 

military identification card, and no internal standard operating procedures. 

Weaknesses in Billings and 

Collections Prevent Full 

Recovery of Millions from 

Third Party Insurers 

Although the MTFs are authorized to bill insurance companies under the 

Third Party Collections program, millions of dollars are not being collected 

each year because patient medical records are incomplete, as is the 

identification and billing of reimbursable care. Patients were not 

systematically asked to provide current insurance information, thereby 

hindering the ability to identify all billable care. Even when patient 

insurance information was obtained, the staff often failed to send a bill to 

the third party insurer or sent the bill late. Once a bill is successfully 

processed, collections from third party insurance companies represent 2 

percent to 5 percent of the facilities’ operating costs each year.

The MTF Uniform Business Office Manual, DOD 6010.15-M, dated April 

1997, prescribes procedures for third party collection activities such as the 

identification of beneficiaries who have other health insurance. It also 

states that the staff shall obtain written certification from beneficiaries at 

the time of each inpatient admission or outpatient visit if a certification is 

not on file or if it has not been updated within 12 months. However, our 

observations of patient reception at several clinics at the three medical 

facilities showed that staffs were not systematically obtaining and updating 

patient insurance information and rarely asked outpatients about third 

party insurance coverage. In addition, the required DOD Form 2569 used to 

document third party insurance coverage was often not completed and 

maintained for either inpatients or outpatients in hospital files or 

databases. Having a completed form is important because it (1) documents 

the existence and type of coverage, (2) is used to update insurance data in 

the automated medical management information system, and (3) 

authorizes the medical facility to bill insurance companies on behalf of the 

beneficiary. Our tests of third party insurance documentation for 1 day 

during each quarter of fiscal year 2001 showed the following results. 

• At Eisenhower, only 9 of 60 patients, primarily inpatients, selected had a 

current completed DOD Form 2569. After our visit, Eisenhower’s staff 

began monitoring the admissions process in an effort to improve the 

completions of DOD Form 2569 by all non-active-duty inpatients and 

assigned staff members to ask about insurance while patients wait to 

receive pharmaceuticals.
Page 8 GAO-03-168 MTF Internal Controls

• Portsmouth uses an internally developed form to document if patients 

have private health insurance. For 40 of 60 inpatients selected, 

Portsmouth had insurance information in the patient billing files. 

• Wilford Hall had a completed, current DOD Form 2569 for 41 of the 69 

patients selected. Wilford Hall has for some time dedicated personnel 

on a part-time basis to assist patients in completing the DOD Form 2569 

at one of its clinics. 

Without completed insurance information forms, recording and 

maintaining accurate, complete, up-to-date, and verifiable insurance 

information in facilities’ billing systems is not possible. We found instances 

where the patient record in the automated medical information system 

contained out-of-date or no insurance coverage information, making 

system reports incomplete and inaccurate. Reasons given by facility 

officials for these problems were mostly attributed to staffing constraints 

and shortages. Consequently, there was little assurance that all 

reimbursable care was being identified for billing. 

In a recent report,4

 the Air Force Audit Agency reported the same 

condition—insurance information for inpatients was not being obtained 

and entered into the automated medical information system. For over 70 

percent of the non-active-duty inpatient population at 14 MTFs they 

reviewed, no insurance data were recorded in the system, resulting in lost 

collections. Air Force auditors sampled the inpatients shown in the system 

as not having insurance data and determined that those who actually had 

unrecorded third party coverage had received care valued at $113,330. 

Projected to the entire population over a 6-year period, Air Force auditors 

estimated that $14.4 million could have been billed to third party insurers at 

the 14 Air Force MTFs. 

Our tests of billings at the three facilities revealed that even when patient 

insurance information was available, the staff often did not send a bill. As 

shown in table 1, about one-third of our nonrepresentative selection of 240 

instances of treatment that should have been billed to a third party insurer 

were not billed. 

4

Air Force Audit Agency, Follow-up, Third Party Collection Program, Audit Report 

00051011 (Washington, D.C.: Apr. 26, 2001).
Page 9 GAO-03-168 MTF Internal Controls

Table 1: Results of Third Party Billing Selections by MTF and Workload Type

Source: GAO analysis of DOD data.

Billings were generally better for inpatient admissions, while the billing 

rates for outpatient visits and pharmacy benefits were much lower. More 

specifically, our testing of 48 inpatient admissions identified only 3 

instances when insurers were not billed. In addition to the 38 outpatient 

visits not billed, our selection also disclosed patients with third party 

insurance who used the facilities frequently, but whose insurance had 

never been billed for any care provided during fiscal year 2001. While all 

facilities had pharmacy billing problems, the situation was most serious at 

Wilford Hall, which reported only billing for about $158,000 in pharmacy 

charges during fiscal year 2001. After we brought this to the attention of 

Wilford Hall’s management, it hired a contractor to supplement its billing 

staff. As a result, by June 30, 2002, Wilford Hall had billed almost $800,000 

in pharmacy charges during the first 9 months of fiscal year 2002, of which 

$650,000 was billed during the third quarter of the year. Lost forms, clinical 

data coding or input problems, lack of staff to handle high workloads, 

missed billings due to clerical oversight, and a complicated multistep 

billing process were explanations provided for not billing for reimbursable 

care.

Hospital/workload Billed Not billed Total

Eisenhower

• Admissions 16 0 16

• Outpatient visits 10 10 20

• Pharmacy 34 6 40

 Subtotal 60 16 76

Portsmouth

• Admissions 15 2 17

• Outpatient visits 24 16 40

• Pharmacy 22 10 32

 Subtotal 61 28 89

Wilford Hall

• Admissions 14 1 15

• Outpatient visits 17 12 29

• Pharmacy 4 27 31

 Subtotal 35 40 75

Total 156 84 240
Page 10 GAO-03-168 MTF Internal Controls

The Air Force Audit Agency also recently reported that military facilities 

were not effectively recovering the cost of pharmaceuticals provided to 

patients with private health insurance.5

 Thirteen facilities were not 

adequately identifying patients with third party insurance, and even when 

sufficient data were available, billing was not always done. Air Force 

auditors projected that increased management emphasis in this area would 

generate increased billings of about $114 million for the 13 Air Force MTFs 

over a 6-year period. Wilford Hall was one of the facilities included in the 

Air Force Audit Agency review.

When billing for third party insurance occurred, it was often delayed. DOD 

standard criteria call for facilities to bill for admissions within 10 business 

days following completion of the medical record and within 7 business 

days for outpatient visits. In evaluating the timeliness of billing, we used a 

more liberal standard of 30 days after treatment for billing admissions and 

90 days for outpatients and pharmaceuticals dispensed. Even then, the 

military facilities still did not bill within those extended time frames in 

about half the cases, as shown in table 2.

Table 2: Third Party Billing Timeliness for Selected Transactions 

Source: GAO analysis of DOD data.

Promptly invoicing insurers for care provided is a sound business practice 

and should result in improved cash flow for the government. Reasons for 

delayed billings provided by personnel were staffing shortages, high 

workloads, and coding delays. Also, officials at all three MTFs cited the 

current cumbersome billing process, which requires a high degree of 

manual intervention, as a cause for not billing promptly.

5

Air Force Audit Agency, Third Party Collection Program – Pharmaceuticals, Audit Report 

01051015 (Washington, D.C.: Aug. 8, 2001).

Hospital Billed timely Billed late

Total

bills tested

Eisenhower 25 35 60

Portsmouth 23 38 61

Wilford Hall 28 7 35

Total 76 80 156
Page 11 GAO-03-168 MTF Internal Controls

Compared to appropriated funds, third party collections represented a 

relatively small revenue source for the MTFs but could actually be larger. 

In fiscal year 2001, Eisenhower collected $4.6 million for current and past 

years’ billings, which was about 5 percent of its facility costs, and 

Portsmouth and Wilford Hall collected about $5.1 million and $4.2 million, 

respectively, or about 2 percent of their respective facility costs. 

Collections were derived primarily from admissions and, to a lesser extent, 

from outpatient care, which includes recoveries for prescription drugs, 

emergency medical care, and clinical visits. 

Weaknesses Precluded 

Adequate Management of 

Pharmaceutical Return 

Goods Program 

Management at the three facilities did not have the information needed to 

evaluate the cost of drugs turned in under the pharmaceutical return goods 

program. Specifically, pharmacy personnel did not perform inventories of 

non-narcotic expired drugs being returned to the manufacturers for reuse 

or destruction, which would help management verify the level and types of 

drugs being turned in and the accuracy of any credits received. The lack of 

a review of expired drugs hampers the pharmacy personnel’s ability to 

identify reasons for any unusual trends associated with the drugs turned in 

and any adjustments needed to current inventory levels. 

Pharmacy personnel at the Portsmouth and Wilford Hall facilities did not 

inventory the non-narcotic drugs turned in for pickup by their respective 

pharmaceutical return goods contractor. This contractor collects recalled, 

expired, or deteriorated drugs for a fee and returns them to their respective 

manufacturers for possible future credits. The contractor also provides 

each facility with a detailed report of the items returned and credits 

received. However, the two military facilities cannot verify the accuracy of 

credits received without having performed their own inventories of the 

returned items since they do not keep perpetual inventories of non-narcotic 

drugs, and they did not have records of what they turned in to the 

contractor. As a result, the hospitals were relying solely on the contractor 

to identify the actual type and amount of drugs returned to the drugs’

manufacturers. 

Pharmacy officials at Wilford Hall told us that it was not cost-effective to 

track non-narcotic expired drugs, but did not provide any analysis or 

documentation to support this assertion. However, we contacted a 

pharmacy operations official at a large commercial health care company 

who stated that it was the company’s practice to maintain an inventory of 

returned drugs by assigning a tracking number for each returned item so 

the credit received can be reconciled to its related tracking number. 
Page 12 GAO-03-168 MTF Internal Controls

Conversely, Eisenhower pharmacy personnel recently started inventorying 

the turned in non-narcotic drugs in response to a January 2002 Army Audit 

Agency report of its pharmaceutical management practices.6

 In this report, 

Army auditors reported that pharmacy personnel had not established a 

method for tracking the amount of drugs returned to the manufacturers to 

make sure related credits were received. 

Further, the hospitals did not use the detailed contractor reports to 

perform a “returned drug” analysis. Therefore, pharmacy personnel are 

unable to efficiently monitor drug usage or to determine whether unusual 

trends are occurring and if the inventory levels in the pharmacies are 

appropriate. Drugs have defined shelf lives, and there is value added in 

managing the inventories to minimize the levels of expired drugs. A 

periodic evaluation of expired and/or deteriorated drugs being turned in 

throughout the year may reveal certain drugs being turned in at 

consistently high levels and thus indicate a need to adjust the inventory 

levels to better align them with usage levels. If management reviewed 

actual performance data and took necessary corrective action to optimize 

inventory levels, the cost of pharmaceutical operations could be reduced. 

For example, in July 2001, Portsmouth returned 2,000 tablets of Zocor, a 

cholesterol-lowering drug, for destruction and received no credit. Since 

this drug costs the pharmacy about $.50 per tablet, the government lost 

$1,000 on the purchase of this unused drug. 

Weaknesses Preclude Adequate 

Safeguarding and Management 

of Personal Property Assets

Although internal control standards require agencies to establish physical 

control to secure and safeguard vulnerable assets, internal controls over 

property at Wilford Hall and Portsmouth were ineffective and were only 

partially effective at Eisenhower due to inaccurate personal property data 

relative to the existence of these assets. We also found inaccuracies in the 

areas of completeness and a lack of support for the costs and dates of 

acquisition of these assets. More specifically, our tests of personal 

property found examples of items on the property records that could not be 

located and items that were incorrectly recorded or were not recorded in 

the property records. In addition, many items in the personal property 

records had little or no documentation available to support their 

acquisition values or dates, and the resolution of items discovered missing 

during physical inventories was significantly delayed. 

6

Army Audit Agency, Pharmaceutical Management, U.S. Army Medical Command, Report 

No. 02-129 (Washington, D.C.: Jan. 25, 2002).
Page 13 GAO-03-168 MTF Internal Controls

We statistically sampled 100 property items at each facility, attempted to 

physically locate the items, and compared the facility-assigned bar code 

and manufacturer’s serial number on each item with that shown in the 

record. Based on the results of tests of existence of personal property 

items at each location, we assessed the overall effectiveness of each 

facility’s property internal controls. To determine effectiveness, we 

established three categories of error rates: below 5 percent error was 

considered effective, from 5 to 10 percent error was considered partially 

effective, and above 10 percent error was considered ineffective. As such, 

we estimate that at least 11 percent and 23 percent of the property items 

could not be found or had serial numbers that did not match those 

recorded on the books at Wilford Hall and Portsmouth, respectively. Since 

these percentages are greater than 10 percent, we assessed the internal 

control activities as ineffective at these two locations. At Eisenhower, we 

estimate, with 95 percent confidence, that at most 9 percent of the property 

items could not be found or had serial numbers that did not match those 

recorded on the books. Since this percentage falls between 5 and 10 

percent, we assessed the internal control activities at Eisenhower as 

partially effective. 

Additionally, we also estimated the specific existence error rates at each 

location. Based on our review, we estimate that the percentage of items 

that facility officials would not be able to find, or would find with serial 

numbers different than those listed in the property records, would be 31 

percent at Portsmouth, 4 percent at Eisenhower, and 17 percent at Wilford 

Hall.7

 Almost all of the personal property items that could not be located 

were lower priced (under $5,000) or pilferable items that had been 

recorded as accountable assets. Examples of these items included a 

personal digital assistant (i.e., a Palm PilotTM); a cellular telephone; 

computer monitors; color printers; a handheld radio; and various pieces of 

medical equipment such as a stretcher, electric beds, and intravenous 

pumps. Officials stated that many of the pieces of medical equipment are 

portable and may move from one location to another with patients. 

However, for the office equipment items, no explanation was provided as to 

where they could be or what had happened to them. Property record 

errors were not limited to low dollar value items. For example, Wilford 

Hall officials told us that a $1 million magnetic resonance imaging scanner 

7

The 95 percent confidence interval extends from 21 percent to 41 percent for Portsmouth, 

from 1 percent to 10 percent for Eisenhower, and from 10 percent to 27 percent for Wilford 

Hall.
Page 14 GAO-03-168 MTF Internal Controls

was returned to the contractor in September 2001. However, the scanner 

was still on Wilford Hall’s records at the time our sample items were 

selected in October 2001, and not removed from the MTF’s records until 

November 2001. In addition to the sample items that could not be located, 

serial number errors where the facility-assigned bar code matched but the 

serial number did not were prevalent in property of all dollar values. 

Appendix III summarizes the results of our personal property existence 

testing. 

Tests of property items traced from their physical locations to the property 

records showed similar types of errors. We found instances where the 

serial numbers in the property records did not match the serial numbers on 

the personal property, although the bar codes did match. In addition, other 

items such as a laptop computer, a Sony monitor, and a sterilizer were not 

recorded in the property records. Recording these items accurately in the 

property records is an important step to improving accountability and 

financial control over these assets and, along with periodic inventory, 

preventing theft or improper use of government property. 

In addition to the weaknesses found in the physical controls over personal 

property assets, the three facilities provided little or no independent 

documentation to adequately support the cost or acquisition dates of their 

personal property items. Eisenhower and Wilford Hall had no supporting 

documentation readily available for any of the items in the sample, while 

Portsmouth’s property management staff mostly provided internally 

generated purchase orders and requests in support of the estimated cost 

and acquisition dates of many personal property items. Based on our 

review, we estimate that Portsmouth would not be able to provide 

independent documentation for 93 percent of the items in the property 

records.8

 Internal control standards for the federal government require that 

all transactions be clearly and completely documented, and that this 

documentation be readily available for examination. We previously 

reported that DOD guidance on proper documentation and retention was 

inadequate.9

 The documentation problems we found suggest that these 

issues still exist. 

8

The 95 percent confidence interval extends from 86 percent to 98 percent.

9

U.S. General Accounting Office, Internal Controls: DOD Records Retention Practices 

Hamper Accountability, GAO/AIMD/OSI-00-48R (Washington, D.C.: Feb. 4, 2000).
Page 15 GAO-03-168 MTF Internal Controls

Taking a periodic physical inventory of personal property and resolving 

discrepancies in a timely manner are key internal control activities for 

property accountability. However, although all three facilities take periodic 

physical inventories, Portsmouth and Wilford Hall had long delays in 

researching personal property items not located during their physical 

inventories and finalizing inventory results, weakening personal property 

accountability. At Portsmouth and Wilford Hall, missing inventory items 

were not promptly researched as required by the DOD Financial 

Management Regulation. This regulation requires that an inquiry be 

initiated immediately after discovery of the loss, damage, or destruction of 

government property and that a “Financial Liability Investigation of 

Property Loss” form be completed. At Wilford Hall, research was still 

ongoing in May 2002 for items missing during the May 2001 annual 

inventory. Further, neither of these locations had completed their 2001 

physical inventories as of May 2002, indicating a lack of management 

emphasis on the importance of personal property accountability. These 

delays make it more difficult to research and investigate the cause of the 

loss of the personal property items, and lessen the effectiveness of the 

physical inventory process as a key internal control activity. 

Weaknesses in Government 

Purchase Card Program 

Resulted in Misuse 

Purchase card program internal control weaknesses make medical 

facilities vulnerable to fraudulent and abusive purchases and place the 

government at financial risk for the purchases. As a result, the ability to 

buy items or services that may be (1) potentially fraudulent, (2) improper, 

and (3) abusive or questionable increases. These purchase card 

weaknesses are similar to those identified in our previous work at two 

Navy sites in San Diego, California,10 and at five Army sites (one being 

Eisenhower),11 both of which found a weak control environment and 

ineffective internal controls, which allowed potentially fraudulent, 

improper, and abusive purchases. The work at Eisenhower is the result of

10U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Two Navy 

Units Vulnerable to Fraud and Abuse, GAO-02-32 (Washington, D.C.: Nov. 30, 2001).

11U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Army 

Vulnerable to Fraud, Waste, and Abuse, GAO-02-732 (Washington, D.C.: June 27, 2002), and 

Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse,

GAO-02-844T (Washington, D.C.: July 17, 2002). 
Page 16 GAO-03-168 MTF Internal Controls

statistical sampling and data mining,12 while only data mining was used to 

review purchase card transactions at Portsmouth and Wilford Hall. 

Because we did not select statistical samples at these two locations, we 

cannot conclude as to the effectiveness of key internal controls. However, 

our tests indicated the same type of control breakdowns as seen in other 

work, indicating that these facilities could have similar problems.

A potentially fraudulent purchase by a cardholder is defined as one made 

that is unauthorized and intended for personal use. Potentially fraudulent 

purchases can also result from compromised accounts in which a purchase 

card or account number is stolen and used by someone other than the 

cardholder to make a potentially fraudulent purchase. At Eisenhower, an 

Army investigation found that a military cardholder defrauded the 

government of $30,000 with purchases of a computer, purses, rings, and 

clothing for personal use and as a result had been sentenced to 18 months 

in prison. The cardholder took advantage of a situation wherein the 

cardholder’s approving official was on temporary duty for several months. 

The cardholder believed that the alternate approving official would certify 

the statement for payment without reviewing the transactions or their 

documentation. These fraudulent transactions were not discovered until 

the resource manager who monitored the unit’s budget noticed a large 

increase in spending by the cardholder. The cardholder had destroyed all 

documentation for the 3-month period during which these transactions 

took place. These fraudulent transactions might not have occurred if the 

cardholder had known that the approving official would review the 

transactions. At a minimum, prompt approving official review would have 

detected the fraudulent transactions. 

Although our data mining tests do not allow us to determine the extent of 

improper purchases at the three locations, we did find instances of two 

types of improper purchases—split purchases and purchases from 

nonmandatory sources. Split purchases occur when a cardholder divides a 

single purchase into more than one transaction to avoid the requirement to 

obtain competitive bids for purchases over the $2,500 micropurchase 

threshold or to avoid other established credit limits as prohibited by the

12In our work, data mining involved the manual or electronic sorting of purchase card data 

to identify and select for further follow-up and analysis transactions with unusual or 

questionable characteristics.
Page 17 GAO-03-168 MTF Internal Controls

Federal Acquisition Regulation.13 Of the 17 sets of transactions reviewed 

at Wilford Hall that appeared to be split purchases, officials could not 

provide invoices or other third party documentation for 15 of these sets of 

transactions to determine whether they were actual split purchases. 

However, a cardholder and another official acknowledged that two of the 

selected transactions were split purchases. For example, one transaction 

set contained 19 orders that were placed to the same vendor on the same 

day. These 19 orders totaled over $7,200. Officials agreed that this set of 

transactions was a split purchase because the buyer knew all the 

requirements and probably knew the total was above the threshold and still 

placed the orders at one time. 

Another type of improper purchase occurs when cardholders do not buy 

from mandatory sources of supply. Various laws and regulations require 

the purchase of certain products from designated sources such as the 

Javits-Wagner-O’Day Act (JWOD) vendors. The program created by this act 

is a mandatory source of supply for all federal entities.14 The JWOD 

program generates jobs and training for Americans who are blind or have 

severe disabilities by requiring federal agencies to purchase supplies and 

services furnished by nonprofit agencies, such as the National Industries 

for the Blind and the National Institute for the Severely Handicapped. At 

Portsmouth and Wilford Hall, items such as day planner refills, other 

miscellaneous office supplies, and plastic utensils were bought from a 

commercial source when they, or substantially similar products, could have 

been bought from JWOD vendors. Further, Portsmouth and Wilford Hall 

did not have documentation to show that the cardholders had checked item 

availability from these vendors before purchasing them elsewhere. 

Each location had examples of either abusive or questionable purchase 

card transactions. Abusive transactions are those that were authorized, but 

the items purchased were at an excessive cost or for a questionable 

government need or both. Abuse can also be viewed as when the conduct 

of a government organization, program, activity, or function falls short of 

societal expectations of prudent behavior. One example of an abusive 

transaction was the purchase of a $650 Sony digital camera at Wilford Hall 

that was justified as needed to “take photos for Christmas party and other 

13The Federal Acquisition Regulation is the primary source of the uniform policies and 

procedures for acquisition by all executive agencies.

14Federal Acquisition Regulation, Part 8.7. 
Page 18 GAO-03-168 MTF Internal Controls

events put on for squadron morale boosters,” while the digital camera 

bought by the pass office to update its badge security system only cost 

$350. The purchase of the more expensive model for the reasons given was 

excessive, and a more modest camera could have been bought. 

Questionable transactions are those that appear to be improper or abusive 

but for which there is insufficient documentation to conclude either. Many 

of the transactions we selected in the data mining were without supporting 

documentation, which makes a firm determination of their legitimacy 

impossible without a thorough investigation. Also, we have found that the 

lack of documentation can be an indicator of fraud, as in the $30,000 

Eisenhower fraud case. Questionable purchases often do not easily fit 

within generic governmentwide guidelines on purchases that are 

acceptable for the purchase card program. Because they tend to raise 

questions about their reasonableness and subject the activity to criticism, 

they require a higher level of prepurchase review and documentation than 

other purchases. An example of a questionable transaction involved the 

purchase of food by a psychiatric clinic at Portsmouth. Hospital officials 

stated that the planning of meals, purchasing of food at local groceries, and 

its subsequent preparation is a commonly prescribed therapy for certain 

patients, and the hospital pays for the food. While this may be true, there 

was no advance approval of this transaction and military facility officials 

provided no other documentation authorizing this activity as legitimate. 

Because there are limitations on the purchase of food with a government 

purchase card, it seems reasonable to expect that each of these particular 

transactions be closely reviewed and approved and be well documented 

and justified before the purchase, not after. 

In addition to fraudulent, improper, and abusive or questionable purchases, 

the medical facilities lacked documentation of (1) advance approval, (2) 

independent receiving, and (3) invoices or other means to independently 

verify both the quantity and price of purchases for the items we reviewed. 

Many of the government purchase card transactions we reviewed at these 

facilities did not have documentation of advance approval. At Eisenhower, 

we estimated that 60 percent of the items purchased with the government 

purchase card lacked advance approval.15 Portsmouth lacked advance 

approval documentation for 40 of the 50 nonrepresentatively selected 

transactions we reviewed, but officials claim that all items purchased and 

15The 95 percent confidence interval extends from 48 percent to 71 percent.
Page 19 GAO-03-168 MTF Internal Controls

recorded in their Defense Medical Logistics Standard Support (DMLSS) 

system have been through the approval process. However, once an item is 

approved and recorded in this system, subsequent reorders of the same 

item do not need any other approval. In other words, after the initial order, 

there is no separation of duties between the approving and ordering 

official. At Wilford Hall, which lacked advance approval documentation for 

14 of the 50 nonrepresentatively selected transactions reviewed, several of 

the transactions were purchases of briefcases for war reserves appearing 

on project allowance lists. Officials said that as long as the items were on 

an allowance list, then they were authorized to buy them without any other 

necessary paperwork. Our selected items were on these approved project 

allowance lists, and no other advance approval documents with supervisor 

review and signature were available. Both the automated DMLSS system 

and war reserve approval processes do not prevent cardholders from 

buying items, such as these briefcases, for possible personal use. 

Leaving a cardholder solely responsible for a procurement action without 

some type of documented approval puts the cardholder at risk and makes 

the government inappropriately vulnerable. A segregation of duties so that 

someone other than the cardholder is involved in the purchase improves 

the likelihood that both the cardholder and the government are protected 

from fraud, waste, and abuse. Advance approval is an appropriate internal 

control activity and can be achieved without requiring the formal 

contracting procedures that could impede timely purchases and increase 

costs. For example, blanket approval for routine purchases within set 

dollar limits involves minimal cost, but provides reasonable control. For 

nonroutine purchases involving significant expenditures, advance 

approval, even through informal processes, appears to be an important 

internal control activity.

The wide range of items lacking documentation of independent receiving 

could be the result of the type of documentation maintained at the 

facilities. Independent receiving by someone other than the cardholder is a 

basic internal control activity that provides additional assurance that 

purchased items are not acquired for personal use and that the purchased 

items come into the possession of the government. We estimated that 71 

percent of the transactions at Eisenhower lacked documentation of 

independent receiving.16 Of the 50 nonrepresentatively selected 

16The 95 percent confidence interval extends from 60 percent to 81 percent. 
Page 20 GAO-03-168 MTF Internal Controls

transactions reviewed at each of the other two locations, 12 from Wilford 

Hall and 2 from Portsmouth lacked documentation of independent receipt. 

Portsmouth’s medical logistics system, which was different from those in 

place at Eisenhower and Wilford Hall, allows the person receiving the item 

to document the receipt directly into the system. This process makes the 

receipt documentation more readily available than paper files since it 

tracks the name and date of receipt. For 48 of the 50 items we reviewed, 

system records showed a different person ordering and receiving the 

goods. However, we did not test the system’s access controls over the 

segregation of the ordering and receiving functions. Having receipt 

documentation recorded directly in the system is efficient and acceptable, 

but only if the system controls are adequate. 

A large number of the transactions reviewed did not have independent 

documentation such as an invoice available to verify both quantity and 

price information. We estimated that 26 percent of the transactions at 

Eisenhower lacked an invoice or other independent documentation.17 Of 

the 50 nonrepresentatively selected items reviewed at the other two 

locations, 20 and 18 lacked invoices or other independent documentation 

at Wilford Hall and Portsmouth, respectively. Internal control standards 

require that transactions be clearly documented and that support be readily 

available for examination. A valid invoice to show what was purchased 

and the price paid is a basic transaction document, and a missing invoice is 

an indicator of potential fraud, as was demonstrated in the $30,000 fraud 

case at Eisenhower. Without this independent documentation, supervisors 

and management cannot be certain that the items purchased are 

appropriate and that government funds were properly used. For example, 

some transactions had no documentation supporting the description, 

quantity, or price for items or services bought from vendors such as a 

jewelry store, an automobile audio accessory store, a dry cleaner, a camera 

store, and a carpet retailer. While officials told us that these transactions 

were for valid government reasons, they could not provide any 

documentation supporting the purchases. Without a vendor invoice, a 

thorough review is necessary to determine whether the transaction was 

proper or potentially fraudulent, improper, or abusive. Also, independent 

receiving cannot confirm that all purchased items were received if no 

invoice or other documentation supporting the quantity is available. 

17The 95 percent confidence interval extends from 17 percent to 38 percent. 
Page 21 GAO-03-168 MTF Internal Controls

Conclusions Collectively, the weaknesses found and their effects as demonstrated by 

our work indicate the existence of financial management problems at the 

three MTFs. Because selected internal controls at the facilities have not 

been effectively implemented, management at these facilities does not have 

reasonable assurance that only eligible patients are receiving care, the 

government has been properly reimbursed for care from third party 

insurers, personal property and expired drugs can be accounted for, and 

purchase cards are used properly. The same issues and recommendations 

identified in our other work related to purchase card usage are also 

applicable to the MTFs. As a result of these control weaknesses, millions 

of dollars that could be used for patient care may be unnecessarily spent 

for ineligible patients, unused pharmaceuticals, or unneeded purchases. 

Recommendations for 

Executive Action 

Because having sound financial and management practices affects the 

ability of program directors and managers to make better decisions and 

achieve results, we recommend that the Under Secretary of Defense for 

Personnel and Readiness and the military services’ Surgeons General, in 

conjunction with the senior management at the three MTFs, as appropriate,

• develop a strategy to make short-term and long-term improvements in 

data quality in the automated eligibility, cost, and clinical health care 

systems;

• develop and utilize analytical tools for facilitating the identification of 

erroneous records in the eligibility, cost, and clinical health care 

systems such as comparisons between SSA records and facility 

automated medical management records; 

• reiterate through correspondence with MTF personnel the importance 

of 

• completing or updating the DOD Form 2569, as required, to 

document whether each health care beneficiary has third party 

insurance;

• entering patient insurance coverage information into the automated 

medical information system so that more complete and accurate 

reports can be generated to better identify reimbursable care for 

billing;
Page 22 GAO-03-168 MTF Internal Controls

• billing third party insurance carriers promptly for admissions, 

outpatient visits, and pharmacy care, including items identified in our 

testing as well as other care not billed; and

• collecting third party reimbursements due to the government to the 

fullest extent allowed as required by DOD policy; 

• require MTFs to maintain an itemized list of the names and quantities of 

drugs to be returned to the pharmaceutical return goods contractor for 

credit or disposal, and require MTFs to routinely monitor and evaluate, 

based on the management reports provided by the contractor and the 

pharmaceutical prime vendor, the credits received from the returns of 

drugs and net losses of those drugs to use as an indicator in determining 

whether on hand inventory levels are appropriate;

• require property office management to maintain, and have readily 

available, independent documentation supporting the cost and date of 

acquisition for all accountable personal property;

• require property office management to promptly report the loss of any 

personal property items detected during their periodic physical 

inventories, and to adjust the property records accordingly; and 

• review and modify the existing processes and requirements to improve 

documentation of purchase card transaction approvals, independent 

receipt of the items, and invoices to better verify costs and quantities. 

Agency Comments and 

Our Evaluation

DOD provided written comments on a draft of this report. DOD concurred 

with our recommendations and identified corrective actions planned and 

underway related to eligibility for health care and collections from third 

party insurers. In addition, both the Deputy Secretary of Defense and the 

Executive Director of the TRICARE Management Activity have recently 

issued guidance on the use of government purchase cards. DOD’s 

comments are reprinted in appendix IV. DOD also provided additional 

comments, which we have incorporated as appropriate or responded to at 

the end of appendix IV.

Unless you publicly announce its contents earlier, we plan no further 

distribution of this report until 15 days from the date of this letter. At that 
Page 23 GAO-03-168 MTF Internal Controls

time, we will send copies of this report to the Chairmen of the 

Subcommittee on National Security, Veterans Affairs and International 

Relations and the Subcommittee on Government Efficiency, Financial 

Management and Intergovernmental Relations; House Committee on 

Government Reform and other congressional committees. We are also 

sending copies to the Secretary of Defense; the Under Secretary of Defense 

for Personnel and Readiness; the Surgeon General of the Air Force; the 

Surgeon General of the Army; the Surgeon General of the Navy; the 

Secretary of the Air Force; the Secretary of the Army; the Secretary of the 

Navy; and the Commanders of Eisenhower, Portsmouth, and Wilford Hall. 

Copies will be made available to others upon request. In addition, the 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov.
Page 24 GAO-03-168 MTF Internal Controls

Please contact Linda Garrison at (404) 679-1902 or by e-mail at 

garrisonl@gao.gov if you or your staffs have any questions about this 

report. An additional contact and staff acknowledgments are listed in 

appendix V. 

Gregory D. Kutz

Director

Financial Management and Assurance

William M. Solis

Director

Defense Capabilities and Management
Page 25 GAO-03-168 MTF Internal Controls

Appendix I

Scope and Methodology ApApenednxidexiIs

We used a case study approach to review key internal control activities in 

five areas—eligibility, third party billings and collections, pharmacy 

expired drugs, personal property management, and government purchase 

card usage at three MTFs. Our work was performed at three large, diverse 

medical facilities—Eisenhower Army Medical Center, Augusta, Georgia 

(Eisenhower); Naval Medical Center Portsmouth, Portsmouth, Virginia 

(Portsmouth); and Wilford Hall Air Force Medical Center, San Antonio, 

Texas (Wilford Hall). We also performed work at the TRICARE 

Management Activity in Falls Church, Virginia. 

This was not a financial audit; as a result, we do not render an opinion on 

the internal controls or any financial data or financial statements. Also, the 

results of our review cannot be projected beyond the three case study 

MTFs. Since we were not testing the internal controls as a part of a 

financial audit, we did not perform tests of the general or application 

electronic data processing controls. We also did not assess the overall 

control environment or perform a comprehensive risk assessment nor did 

we independently verify DOD’s financial information used in this report.

To determine whether the key internal control activities were effectively 

implemented, we reviewed applicable laws and regulations; our Standards 

for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, 

November 1999); and our Internal Control Standards: Internal Control 

Management and Evaluation Tool (GAO-01-1008G, August 2001). We 

obtained an overview of the process and gained an understanding of the 

policies, procedures, techniques, and mechanisms used to help ensure that 

management’s directives were carried out. We interviewed and observed 

management and personnel at the three MTFs and the TRICARE 

Management Activity. We also reviewed relevant audit reports from 

defense audit agencies and the DOD IG. Further, we performed targeted 

analyses of fiscal year 2001 transactions and control activities in the five 

areas. 

To determine whether control activities used to identify those eligible for 

care were effective, we observed whether staff members in various clinics 

and sites throughout the MTFs were asking patients for military 

identification cards and querying the clinical system for eligibility status, 

and compared a file of all patients receiving prescriptions in fiscal year 

2001 at one facility to an SSA file of all persons who had died in order to 

identify patients who either had erroneous social security numbers in the 

clinical system or who might be ineligible for care. The other two facilities 

were unable to readily provide comparable information.
Appendix I

Scope and Methodology

Page 26 GAO-03-168 MTF Internal Controls

To determine the effectiveness of the third party billing and collection 

internal control activities, we (1) tested a nonrepresentative selection of 

patients from 1 day each quarter during fiscal year 2001 to determine 

whether the facilities were systematically obtaining and updating patient 

insurance information, (2) tested a nonrepresentative selection of incidents 

of patient care that should have been billed, (3) reviewed the timeliness of 

a selection of third party insurance bills, and (4) analyzed the third party 

insurance collections.

To determine whether control activities over expired and obsolete drugs 

were effective, we (1) observed the pharmaceutical returned goods 

contractor pickup of expired drugs, (2) discussed with pharmacy and 

contractor personnel procedures and requirements for inventorying the 

expired drugs collected, and (3) obtained contractor-provided inventory 

lists of expired drugs turned in. 

To determine the effectiveness of the control activities over personal 

property management, we performed tests of the existence, completeness, 

and accuracy of the cost and acquisition date recorded in the personal 

property records. To test existence, within each medical center we 

stratified the population of personal property items by the dollar value 

recorded as the purchase price for the item. We selected a stratified 

random probability sample of 100 personal property items recorded on the 

property records at each of the three facilities. With these statistically valid 

random probability samples, each transaction in the property records had a 

nonzero probability of being included, and that probability could be 

computed for any transaction. Each sample item was subsequently 

weighted in the analysis to account statistically for all the property records 

in the population at that location, including those that were not selected. 

For each property item in the sample, we tested the physical existence of 

the item and compared the facility-assigned bar code and serial number in 

the property record to that attached to the property item. An error was 

recorded if MTF personnel (1) could not locate the item or (2) located the 

item, but the serial number on the item did not match that in the property 

record. We also examined the documentation supporting the date and cost 

of acquisition for each property item in the sample. 

Because we followed a probability procedure based on random selections 

of property items, our sample for each facility is only one of a large number 

of samples that we might have drawn. Since each sample could have 

produced different estimates, we express our confidence in the precision 
Appendix I

Scope and Methodology

Page 27 GAO-03-168 MTF Internal Controls

of our particular samples’ results (that is, the sampling error) as 95 percent 

two-sided confidence intervals. These are intervals that would contain the 

actual population value for 95 percent of the samples we could have drawn. 

As a result, we are 95 percent confident that each of the confidence 

intervals in this report will include the true (unknown) values in the study 

population. 

We also generated one-sided 95 percent confidence intervals around the 

overall results at each MTF and used them to assess whether the controls 

at each MTF over personal property were effective, ineffective, or partially 

effective. If the upper limit of a one-sided 95 percent confidence interval 

was 5 percent or less, we considered the controls effective. If the lower 

limit of a one-sided 95 percent confidence interval was 10 percent or more, 

we considered the controls ineffective. Otherwise, we considered the 

controls partially effective. 

Although we projected the results of our samples to the population of items 

recorded in the property records at each of the medical centers, the results 

cannot be projected to the population of all property records at all of the 

MTFs. 

In addition to our review of the existence of items recorded in the property 

records and the accuracy of the facility-assigned bar codes and serial 

numbers of the items, we also tested the completeness of the property 

records by selecting an item located next to all items in our sample that 

they were able to find. We then traced the bar code and serial number of 

the item back to the property records. 

In order to test the accuracy of the cost and acquisition date recorded in 

the personal property records for the sample items, we obtained and 

reviewed any supporting documentation available from property 

management personnel. 

To test internal control activities in the use of the government purchase 

card, we utilized two different approaches. To test the implementation of 

specific control activities at Eisenhower, 150 transactions were selected in 

a stratified random probability sample drawn from the population of 

transactions paid from October 1, 2000, through July 31, 2001. The 

methodology for the statistical sample is presented in the June 2002 GAO 

report, Purchase Cards: Control Weaknesses Leave Army Vulnerable to 

Fraud, Waste, and Abuse (GAO-02-732). The statistical sample allowed for 

projection of an estimate of the percentage of transactions for which each 
Appendix I

Scope and Methodology

Page 28 GAO-03-168 MTF Internal Controls

control activity tested was not performed. We also evaluated the control 

environment and did data mining at Eisenhower. 

For Portsmouth and Wilford Hall, we obtained files of all purchase card 

transactions made during fiscal year 2001. From these files, we tested a 

nonrepresentative selection of 50 transactions for each medical facility to 

test the implementation of specific control activities and to determine if 

indications exist of potentially fraudulent, improper, and abusive or 

questionable transactions. Our data mining included identifying 

transactions with certain vendors that had a more likely chance of selling 

items that would be unauthorized or that would be personal items. 

Because of the large number of transactions that met these criteria, we did 

not look at all potential abuses of the purchase card. We requested that 

each facility provide all documentation supporting the purchases and each 

of the control activities. If no documentation was provided, or if the 

documentation provided indicated there were further issues, we obtained 

additional information through interviews with cardholders and other 

hospital or purchase card officials. While we identified some potentially 

fraudulent, improper, and abusive or questionable transactions, our work 

was not designed to identify, and we cannot determine, the extent of 

potentially fraudulent, improper, or abusive transactions. The data mining 

techniques used at Wilford Hall and Portsmouth did not allow for a 

projection of an estimate of the effectiveness of key internal control 

activities. 

Although we projected the results of the purchase card sample to the 

populations of transactions at Eisenhower, the results cannot be projected 

to the population of all purchase card transactions at all of the MTFs. 

We briefed DOD officials at the three MTFs and at the TRICARE 

Management Activity on the details of our review, including our findings 

and conclusions. We requested comments through the DOD Office of the 

Inspector General, which distributed the report to the appropriate officials. 

We received written comments from the Office of the Assistant Secretary of 

Defense for Health Affairs, which also included copies of comments from 

the Surgeons General of the Air Force, Army, and Navy. DOD’s response, 

including additional comments and a technical comment are reprinted in 

appendix IV. However, we did not reprint the comments from the three 

Surgeons General that formed the basis of the DOD response. We 

performed our work from August 2001 through June 2002 in accordance 

with U.S. generally accepted government auditing standards. 
Page 29 GAO-03-168 MTF Internal Controls

Appendix II

Financial and Operational Information at 

Selected MTFs (Unaudited) ApendxiI

Table 3: Fiscal Year 2001 Financial and Operational Information at Selected MTFs 

(Unaudited)

Source: GAO presentation of DOD data.

Eisenhower Army

Medical Center

Augusta, Ga.

Naval Medical

Center-Portsmouth

Portsmouth, Va.

Wilford Hall Air

Force Medical

Center

San Antonio, Tex.

Budget allocation –

original at 10/1/00 $92,565,000 $210,578,000 $133,136,000

Budget allocation –

supplemental 5,100,000 39,496,000 30,217,000

Reimbursements 

earned 7,202,000 14,130,000 11,411,000

Budget – overall 

budget authority at 

9/30/01 104,867,000 264,204,000 174,764,000

Obligations at 9/30/01

Civilian pay 42,723,000 63,643,000 38,014,000

Contracts 17,010,000 92,507,000 20,105,000

Supplies 40,721,000 89,903,000 78,374,000

Equipment 1,957,000 1,772,000 7,719,000

Other 2,456,000 16,379,000 30,552,000

Full-time equivalent employees

 Civilian 954 1,194 879

 Military 1,178 2,361 3,658

 Contract 286 643 424

Inpatient admissions 5,361 17,612 15,423

Outpatient visits 596,247 1,450,504 854,292

Pharmacy 

prescriptions filled 2,808,923 2,464,304 2,602,827
Page 30 GAO-03-168 MTF Internal Controls

Appendix III

Results of Personal Property Existence 

Testing ApendxiI

Table 4 displays overall estimated existence error rates and associated twosided 95 percent confidence intervals for personal property at each of the 

three facilities, as well as error rates for personal property with a recorded 

purchase price of $1,000,000 or more. 

Table 4: Error Rates for Personal Property

a

An error is defined as DOD officials not locating an item or locating an item with a serial number 

different from that which was recorded in the property record.

b

All but one error that occurred in this $1,000,000+ stratum was due to manufacturers’ serial numbers 

that did not match the facility-assigned bar codes shown in the records as opposed to missing 

property. 

Source: GAO analysis of DOD data.

Installation Portsmouth Eisenhower Wilford Hall

Total items sampled 100 100 100

Estimated overall percentage of errorsa 31% 4% 17%

95 percent confidence interval 21-41% 1-10% 10-27%

Actual percentage and number of 

errors in $1,000,000+ stratumb

(100% testing performed)

11%

(1 of 9)

0%

(0 of 4)

88%

(7 of 8)
Page 31 GAO-03-168 MTF Internal Controls

Appendix IV

Comments from the Department of Defense ApendxiIV

See comment 1.
Appendix IV

Comments from the Department of Defense

Page 32 GAO-03-168 MTF Internal Controls
Appendix IV

Comments from the Department of Defense

Page 33 GAO-03-168 MTF Internal Controls
Appendix IV

Comments from the Department of Defense

Page 34 GAO-03-168 MTF Internal Controls

See comment 2.
Appendix IV

Comments from the Department of Defense

Page 35 GAO-03-168 MTF Internal Controls

See comment 3.
Appendix IV

Comments from the Department of Defense

Page 36 GAO-03-168 MTF Internal Controls
Appendix IV

Comments from the Department of Defense

Page 37 GAO-03-168 MTF Internal Controls
Appendix IV

Comments from the Department of Defense

Page 38 GAO-03-168 MTF Internal Controls

The following are GAO’s comments on the Department of Defense’s letter 

dated September 27, 2002. 

GAO Comments 1. Report number was changed to reflect issuance in fiscal year 2003.

2. The MTF did not maintain a list of non-narcotic drugs awaiting pick up 

by the contractor in either its former system or the one to which it was 

transitioning.

3. We have not been provided documentation indicating that the MRI was 

returned for credit. The point of the finding is that the property records 

were inaccurate at the time of our review. 
Page 39 GAO-03-168 MTF Internal Controls

Appendix V

GAO Contact and Staff Acknowledgments ApendxiV

GAO Contact

Rebecca Beale, (757) 552-8228 or bealer@gao.gov

Acknowledgments Staff members making key contributions to this report were Shawkat 

Ahmed, Mario Artesiano, Rathi Bose, Francine DelVecchio, Alfonso Garcia, 

Janine Prybyla, and Sidney Schwartz.

(192037)
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