Civil Fines and Penalties Debt: Review of CMS' Management and Collection Processes
Published: 2001-12-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report focuses on the debt collection processes and procedures used by the Department of Health and Human Services' (HHS) Centers for Medicare and Medicaid Services (CMS).
section_title: What GAO Found
paragraphs: The primary reason for the growth of CMS' civil monetary penalties (CMP) receivables was the expansion of fraud and abuse detection activities from fiscal year 1995 through fiscal year 1997 that significantly increased reported fraud and abuse debts in fiscal year 1997. GAO's analysis of CMS' CMP receivable data revealed similar financial accountability and reporting issues as those identified for non-CMP receivables by CMS' external financial statement auditors. GAO identified (1) unreconciled differences of tens of millions of dollars in the CMP receivables balances reported by HHS and CMS for fiscal years 1997 through 1999 and (2) an unreconciled net difference of about $22 million between the CMP receivables balance in CMS' general ledger and the detailed subsidiary systems as of September 30, 2000. The data reliability issue prevented GAO from determining the overall adequacy of the CMP debt collection policies and procedures. However, GAO's limited tests showed that debt collection policies and procedures were followed for 11 of the 12 selected delinquent debts. GAO could not determine whether debt collection policies and procedures were followed for the 12th selected debt because supporting documentation was unavailable.

section_title: Letter
paragraphs: On December 14, 2001, we briefed your office on our review of selected  federal agencies’ management and collection of civil fines and penalties  debt.  As agreed with your staff, this work focused on the debt collection  processes and procedures used by the Department of the Treasury’s U.S.  Customs Service, the Department of Interior’s Office of Surface Mining, and  the Department of Health and Human Service’s (HHS) Centers for Medicare  and Medicaid Services (CMS).
This report summarizes the information presented in our December 14,  2001, briefing related to CMS’ collection of civil fines and penalties debt,  referred to as civil monetary penalties (CMP) debt.  The briefing slides are  included in appendix I.  We will separately report on our work on the U.S.  Customs Service and the Office of Surface Mining.  As discussed with your  staff, our original objectives were to determine (1) the primary reasons for  the growth in CMS’ reported CMP debt, (2) whether CMS’ CMP receivables  have similar financial accountability and reporting issues as its non-CMP  receivables, (3) whether adequate processes exist to collect CMP debt, and  (4) what roles, if any, the Office of Management and Budget (OMB) and  Treasury play in overseeing and monitoring CMS’ collection of CMP debt.
However, for the third objective, incomplete and unreliable CMP  information limited the determination of the overall adequacy of the CMP  debt collection policies and procedures.  Instead, as agreed with your staff,  we performed limited tests of CMS’ debt collection policies and  procedures.  Specifically, we selected and reviewed all delinquent CMP  debts (over 60 days delinquent per CMS records) with a recorded  receivables balance as of September 30, 2000, greater than $2 million (12  debts).  We also analyzed long-term care CMP assessment and settlement  data for fiscal years 1999 and 2000 for all cases where the settlements were  reached at three selected CMS regional offices.  These regional offices  accounted for 76 percent of the reported cases opened in this 2-year period.
subsections: section_title: Scope and Methodology
paragraphs: To determine the primary reasons for the growth in reported CMP debt at  CMS and whether CMS’ CMP receivables have similar financial  accountability and reporting issues as its non-CMP receivables, we  obtained and reviewed CMS’ audited financial statements, HHS’  accountability reports, and other financial reports that relate to CMS’ CMP  and non-CMP collection activities.
We also analyzed CMS’ reported CMP receivables and related accounts and  information for fiscal years 1997 through 2000 and compared CMS’ CMP  accounting records to detailed subsidiary tracking records.  We did not  independently verify the completeness or accuracy of the subsidiary  system data or test information security controls over the systems used to  compile these data.
We interviewed officials in CMS, HHS OIG, and Department of Justice’s  (DOJ) Executive Office for U.S. Attorneys (EOUSA) to obtain explanations  for identified significant trends, similarities with non-CMP receivables,  material internal control weaknesses, findings and exceptions, as well as  unsupported/unreconciled amounts.
To determine whether adequate processes exist to collect CMP debt, we  obtained an understanding of CMS’ CMP debt collection policies and  procedures that relate to CMS’ long-term care, HHS OIG, and DOJ cases, as  well as applicable federal laws and regulations.  Because CMS could not  provide complete and reliable CMP information, a random sample was not  selected from CMP receivables as of September 30, 2000, and CMP  receivables cases closed in fiscal years 1999 and 2000.  However, as agreed  with your staff, we performed limited tests of CMS’ debt collection policies  and procedures.
Specifically, we selected and reviewed all delinquent CMP debts (over 60  days delinquent per CMS records) with a recorded receivables balance as  of September 30, 2000, greater than $2 million (12 debts).  This represented  57 percent of the delinquent CMP debt balance and 27 percent of the total  CMP debt balance per CMS records.   We interviewed DOJ’s EOUSA  officials to obtain explanations for identified findings and exceptions.
We also analyzed long-term care CMP assessment and settlement data for  fiscal years 1999 and 2000 for all cases in which the settlements were  reached at three selected CMS regional offices.  According to CMS’ Civil  Monetary Penalty Tracking System, the long-term care cases opened at  these regional offices represented approximately 76 percent of all long- term care CMP cases opened during this 2-year period.  For identified  findings and exceptions, we developed and submitted questions to CMS’  regional offices.  We obtained and analyzed the regional offices’ written  responses to our questions.
To determine what roles, if any, OMB and Treasury play in overseeing and  monitoring the government’s collection of civil debt, we interviewed OMB  and Treasury officials.
We performed our review in Washington, DC and Atlanta, GA from March  2001 through August 2001 in accordance with U.S. generally accepted  government auditing standards.  Prior to our December 14, 2001, briefing to  your office on the results of our work, we provided CMS, HHS OIG, DOJ’s  EOUSA, Treasury, and OMB with a draft of our detailed briefing slides,  which contained recommendations to the Administrator of CMS, for review  and comment.  The comments received are discussed in the “Agency  Comments and Our Evaluation” section of this report and on the “Agency  Comments” slide in Appendix I or incorporated into the report as  applicable.  CMS’ letter is reprinted in appendix II.
section_title: Background
paragraphs: As of September 30, 2000, HHS reported that CMS’ CMP receivables totaled  about $260 million.  CMP debt results from deficiencies at long-term care  nursing facilities or fraud and abuse and is collected by three separate  groups.  CMS’ regional offices are responsible for the long-term care debt,  and HHS OIG and DOJ are responsible for fraud and abuse debt.  DOJ fraud  debt accounted for about 88 percent of the reported $260 million  receivables balance as of September 30, 2000, while OIG fraud and abuse  debt accounted for approximately 11 percent and CMS’ long-term care debt  accounted for about 1 percent of the reported balance.
For the long-term care debt, Sections 1819 (42 U.S.C. Sections 1395i-3) and  1919 (42 U.S.C. Section 1396r) of the Social Security Act establish  requirements for surveying nursing facilities to determine whether they  meet the requirements for participation in the Medicare and Medicaid  programs.  A survey must be conducted at each nursing facility within 15  months of the previous survey by a state survey agency.  In addition, the  statewide average interval between surveys must be 12 months or less.   Remedies, of which CMP is one, may be used when a nursing facility is not  in substantial compliance with the requirements for participation in the  Medicare and Medicaid programs.
A CMP is imposed either for the number of days ($50 to $10,000 per day) or  for each instance ($1,000 to $10,000 per instance) that a nursing facility is  not in substantial compliance with the participation requirements.  The  amount depends on the severity of the deficiency.  A written notice of the  CMP is sent to the nursing facility.  The facility has 60 days from the date of  the notice to either waive its right to an administrative hearing and receive  automatically a reduction of 35-percent in the CMP amount or request an  administrative hearing. At any time prior to an administrative hearing, the  nursing facility may enter into a settlement of the CMP amount.   Once  there is an administrative hearing decision or a settlement, the final CMP  receivable amount is determined.
According to CMS’ State Operations Manual, if a decision is made to settle,  the settlement should not be for a better term than had the nursing facility  opted for a 35-percent reduction.  To track assessments and collections,  CMS’ regional offices use the Civil Monetary Penalty Tracking System for  fiscal year 1999 and later CMP cases and spreadsheets for fiscal year 1996  through fiscal year 1998 CMP cases.  In addition, CMS’ regional offices use  the long-term care system to track CMP cases.
For civil health care fraud matters, DOJ generally uses the False Claims  Act, as well as common law fraud remedies, payment by mistake, unjust  enrichment, and conversion to recover amounts from those who have  submitted false or improper claims to the United States.  Civil health care  fraud matters are referred directly from federal or state investigative  agencies, or result from filings by private persons known as “relators,” who  file suits on behalf of the federal government under the 1986 qui tam  amendments to the False Claims Act.  The False Claims Act (31 U.S.C.  Sections 3729-3733) provides that anyone who “knowingly” submits a false  claim to the government is liable for a penalty from $5,000 to $10,000 plus  up to three times the amount of damages sustained by the government.
A court judgment or settlement establishes amounts due by violators.  DOJ  prepares a Health Care Fraud Tracking Form, which is submitted to HHS  OIG and CMS’ Office of Financial Management, and establishes the debt in  a tracking system.  If the health care violator does not pay the fraud debt,  DOJ’s U.S. Attorney Offices (USAO) have several options to pursue  collection, including contacting the debtor, securing or executing upon a  judgment, filing liens or garnishments, and referring the delinquent debt to  Treasury.  To track assessments and collections of civil health care fraud  cases, DOJ’s USAOs use either the Tracking Assistance for the Legal Office  Network or the Collection Litigation Automated Support System, and DOJ’s  Civil Division uses the Debt Collection System.
HHS OIG also pursues fraud and abuse cases.  According to HHS OIG data,  since 1988, about 90 percent of its CMP assessments relate to the  requirements of Section 1867 of the Social Security Act (42 U.S.C. Section  1395dd).  This statute specifies that a hospital’s emergency department  must provide an appropriate medical screening examination within the  capability of the hospital’s emergency department to any individual who  comes to the department with a request for examination or treatment of a  medical condition.  In addition, if the hospital determines that the  individual has an emergency medical condition, the hospital must either  stabilize the medical condition or transfer the individual to another medical  facility.  This statute provides for a maximum penalty of $50,000 per  violation.  According to HHS OIG data, since 1988, approximately 10  percent of its CMP assessments relate to violations of the statutory  provisions applicable to false or fraudulent claims submitted to federal  health care programs in Section 1128A of the Social Security Act (42 U.S.C.  Sections 1320a-7a).  This law provides that for false, fraudulent, or  otherwise improper claims, HHS may impose a penalty of not more than  $10,000 for each item or service and an assessment of no more than triple  the amount claimed for each item or service in lieu of damages.  HHS OIG  uses spreadsheets to track assessments and collections of CMP cases.
CMS’ Office of Financial Management is responsible for the accounting and  reporting of CMP receivables in the general ledger using the Financial  Accounting Control System.  This office is also responsible for determining  the allowance for uncollectible receivables.  According to CMS, an  allowance is calculated as the amount of CMP debt delinquent for 60 days  or longer that is considered to be inactive and truly delinquent based on a  case-by-case review of each receivable.
HHS OIG’s Office of Audit Services stated that due to the immateriality of  the CMP receivables balances in relation to CMS’ total accounts receivable  balance, CMS’ external financial statement auditors have not performed  any detailed audit work on CMP receivables.  However, these auditors have  identified various reporting, internal control, and accountability issues  related to Medicare (non-CMP) receivables.  These issues resulted in a  qualified opinion on CMS’ financial statements for fiscal year 1998 and a  material weakness on non-CMP receivables during fiscal years 1998  through 2000.  The external financial statement auditors reported that  CMS’ lack of an integrated financial management system continues to  impair its ability to adequately support the reported non-CMP receivables  activity and balances.  The external financial statement auditors also  identified deficiencies in the non-CMP receivables activity, including  incorrectly reported activity by non-CMP contractors and   inability of non-CMP contractors to reconcile reported ending balances  to the contractors’ subsidiary records.
The external financial statement auditors’ recommendations included  establishing an integrated financial management system for use by non- CMP contractors and CMS’ central and regional offices and   ensuring that all non-CMP contractors develop and implement control  procedures to provide independent checks of the validity, accuracy, and  completeness of the amounts reported to CMS, including a  reconciliation with the contractors’ supporting documentation, and  periodic review of contractors’ control procedures over reconciliations.
section_title: Increase in Fraud and Abuse Debt Is the Primary Reason for Reported Growth in CMP Debt
paragraphs: The primary reason for the growth of CMS’ CMP receivables was the  expansion of fraud and abuse detection activities from fiscal years 1995  through 1997 that significantly increased fraud and abuse debts in fiscal  year 1997.  This is supported by CMS’ accounting records, which revealed  that about $255 million of the $260 million CMP receivables balance as of  September 30, 2000, related to fraud and abuse debts.  For the $255 million  in receivables, about $172 million remained outstanding from fiscal year  1997.
In 1995, under authority to use trust fund money to develop or demonstrate  improved methods for investigating and prosecuting fraud, HHS launched  Project Operation Restore Trust.  The project targeted fraud and abuse in  three high-growth areas of the health care industry:  home health agencies,  nursing homes, and durable medical equipment suppliers.  In addition, the  passage of the Health Insurance Portability and Accountability Act  (HIPAA) in 1996 expanded funding for HHS’ fraud and abuse detection  activities by establishing the Fraud and Abuse Control Program, a program  designed to combat fraud and abuse committed in the health plans (both  public and private).  By January 1, 1997, HHS OIG and DOJ had jointly  implemented the Fraud and Abuse Control Program, as required by HIPAA.
HHS reported, in fiscal year 1996, that Project Operation Restore Trust  combined with the upgraded funding provided by HIPAA would enable  HHS to more aggressively detect and prevent fraud, waste, and abuse.  In  addition, DOJ’s EOUSA stated that DOJ’s health care fraud activities were  expanded in fiscal years 1996 and 1997, and with the implementation of the  Health Care Fraud Tracking Forms in December 1996, DOJ began  submitting health care fraud debts to CMS during fiscal year 1997.  Prior to  this time, only fraud and abuse debts submitted by HHS OIG were recorded  and reported by CMS.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables
paragraphs: As discussed above, no detailed audit work on CMP receivables has been  performed by CMS’ external financial statement auditors due to the small  balance of CMS’ CMP receivables in relation to CMS’ total accounts  receivables, which consist primarily of non-CMP Medicare receivables.  For  example, as of September 30, 2000, CMS’ CMP receivables were reported to  be about $260 million, or 3 percent, of total reported accounts receivables  of approximately $8.1 billion, of which non-CMP Medicare receivables  totaled more than $7.7 billion.
Our analysis of CMS’ CMP receivables data revealed similar financial  accountability and reporting issues as those identified for non-CMP  receivables by CMS’ external financial statement auditors.  We found that  CMS does not have formal written policies and procedures for the  reconciliation of CMP receivables, recording CMP receivables in the  general ledger, and determining the allowance for uncollectible accounts  related to CMP receivables.  As a result, we found (1) unreconciled  differences between CMP receivables amounts on HHS’ accountability  reports and CMS’ audited financial statements, (2) unreconciled  differences between CMP receivables amounts in CMS’ general ledger and  the detailed subsidiary systems, (3) incorrect recording—not removing  debts paid in full and misclassifications between delinquent and current— of CMP receivables in the general ledger, and (4) lack of an adequate  collectibility analysis for uncollectible accounts relating to CMP  receivables.
CMS does not have policies and procedures requiring it to compare CMP  receivables reported in its audited financial statements and HHS’  accountability report.  According to HHS, CMS is the only HHS  component that has CMPs.  Therefore, the CMP receivable amounts  reported in HHS’ accountability report and CMS’ audited financial  statements should be the same.  However, our work identified that year- end CMP receivables balances for fiscal year 1997 through fiscal year  1999, differed by tens of millions of dollars between HHS’ accountability  report and CMS’ audited financial statements.
For example, CMS’ fiscal year 1997 financial statements reported a CMP  receivables balance of about $243 million; however, HHS’ accountability  report for fiscal year 1997 reported approximately $191 million—a  difference of about $52 million.  The beginning balance for CMP  receivables in HHS’ fiscal year 2000 draft accountability report was  adjusted by approximately $50 million to agree with CMS’ accounting  records.  As a result of the adjustment, the fiscal year 2000 beginning  balance in HHS’ fiscal year 2000 accountability report differed from the  ending balance in its fiscal year 1999 accountability report.  After we  brought this difference to HHS’ attention, a statement identifying the  difference was added to HHS’ fiscal year 2000 accountability report’s  overview; however, the statement did not explain the cause of the  difference.
Similar to the accountability and reporting issues reported for non-CMP  receivables by CMS’ external financial statement auditors, CMS also  does not have policies or procedures for reconciling CMP receivables  balances in the general ledger to detailed support maintained in the  subsidiary systems.  As discussed above, three separate groups (CMS’  long-term care, HHS OIG, and DOJ) collect CMP debt.  Each group  maintains at least one subsidiary system to track its CMP cases.  As of  September 30, 2000, the CMP receivables balance in the general ledger  and the detailed subsidiary systems differed by a net of about $22  million, with the difference for each group ranging from what appears to  be an understatement of about $35 million to a possible overstatement  of about $29 million.
The difference between the general ledger and the subsidiary systems  for the long-term care CMP debt totaled about $17 million.  The primary  reason for the long-term care difference is that, beginning in fiscal year  1999, all new long-term care CMP receivables are no longer recorded in  the general ledger until a collection is made.  This practice is not in  accordance with SFFAS No. 1, Accounting for Selected Assets and  Liabilities, and SFFAS No. 7, Accounting for Revenue and Other  Financing Sources and Concepts for Reconciling Budgetary and  Financial Accounting.  These statements require a receivable to be  recognized once amounts that are due to the federal government are  assessed, net of an allowance for uncollectible amounts.   CMS stated  that the general ledger does not include all potentially valid long-term  care CMP receivables because of the unreliability of the long-term care  CMP accounts receivable amounts in the Civil Monetary Penalty  Tracking System.  CMS stated that the long-term care CMP receivables  would be reviewed for validity and recorded in the general ledger as part  of the planned upgrade of the subsidiary system.
In addition, according to CMS’ accounting records, of the 12 selected  delinquent debts we reviewed, 2 totaling about $24 million were the  responsibility of HHS OIG.  However, upon further research by DOJ,  these debts were actually the responsibility of DOJ and were included in  DOJ’s subsidiary system on September 30, 2000, as uncollected.  This  misclassification appears to explain a portion of the difference between  the general ledger and HHS OIG’s and DOJ’s subsidiary systems.
In addition to CMS’ lack of policies and procedures relating to the  reconciliation of CMP information, CMS stated that Division of  Accounting staff responsible for the recording of information in the  general ledger use notes and knowledge gained during training provided  by staff previously responsible for the duties to record CMP receivables  in the general ledger.  However, these informal policies and procedures  do not (1) contain specific guidance on recording due dates for  payments being made through payment plans or recording collections  against established receivables and (2) address control procedures to  ensure the accurate recording of CMP receivables in the general ledger,  such as review and approval of transactions by a supervisor.  Our testing  identified instances, in addition to the above misclassification between  HHS OIG and DOJ receivables, in which CMP receivables were recorded  in the general ledger incorrectly.
For the 12 selected delinquent debts with receivable balances totaling  about $70 million, 7 debts totaling approximately $32 million were  recorded incorrectly in the general ledger.  For four of the debts totaling  about $23 million, CMS failed to remove the debts from CMP receivables  even though collections of these debts were received prior to September  30, 2000.  In addition, CMS incorrectly classified three of the debts  totaling about $9 million as delinquent, instead of current, even though  collections were being received in accordance with the due dates of the  respective payment plans. Further, for the 12 selected delinquent debts,  documentation supporting one of the debts with a balance of about $3  million could not be located by DOJ.  The status of receivables— current, delinquent, or paid—should be properly noted since it affects  the accuracy of the allowance for uncollectible accounts, which is  netted against gross CMP receivables reported on HHS’ and CMS’  financial statements.  In addition, these errors could possibly have been  avoided if there was appropriate review and approval of such  transactions.
Lastly, CMS does not have formal written policies and procedures for  determining its allowance for uncollectible accounts.  As previously  noted, CMS stated that its allowance for uncollectible accounts  represents the balance of all CMP debt delinquent for 60 days or longer  that is considered to be inactive and truly delinquent based on a case-by- case review of each receivable.  According to SFFAS No. 1, losses due to  uncollectible amounts should be measured through a systematic  methodology with an analysis of both individual accounts and a group of  accounts as a whole.  Individual account analysis should be based on  factors such as the debtor’s ability to pay and the probable recovery of  amounts from secondary sources.  Group analysis should be performed  using a method such as statistical estimation by modeling or sampling  and should take into consideration such factors as historical loss  experience and recent economic events.  However, CMS’ allowance for  uncollectible accounts is not based on a systematic analysis of the  collectibility of the outstanding receivables balance.
section_title: Incomplete and Unreliable CMP Data Limited the Determination of Overall Adequacy of CMP Debt Collection Policies and Procedures
paragraphs: CMP debt collection policies and procedures have been established by  CMS for the long-term care debt and by HHS OIG and DOJ for the fraud and  abuse debt.  However, incomplete and unreliable CMP information limited  us from determining the overall adequacy of the CMP debt collection  policies and procedures.  As a result and as agreed with your staff, we  performed limited tests of CMS’ debt collection policies and procedures.   We found that debt collection policies and procedures were followed for 11  of the 12 selected delinquent debts.  We could not determine whether DOJ  followed its debt collection policies and procedures for the remaining  selected debt because DOJ was unable to locate supporting  documentation.
In analyzing long-term care CMP cases and settlement data for fiscal years  1999 and 2000, we noted one debt collection matter in which debt  collection policies and procedures can be strengthened.  The matter relates  to CMS often settling at amounts that exceeded the 35-percent discount  threshold established by management.  At the three selected regional  offices, we found that CMS reduced the assessed long-term care CMP  amounts more than 35-percent for 89 out of 215 cases (41 percent), or  about $8.4 million out of about $11.4 million (73 percent) in assessments  settled in fiscal years 1999 and 2000.  For the 89 cases, a 35-percent  discount on approximately $8.4 million in assessments results in possible  collections of about $5.5 million. However, CMS actually discounted these  cases in total by about 69 percent, reducing potential collections by about  $2.9 million.  According to CMS officials, other matters can develop while a  hearing is pending that can affect the settlement amount, such as  unavailability of witnesses and new information related to the deficiencies.   In these cases, according to the officials, it may be in CMS’ best interests to  settle for less, given the cost of litigation and the risk of not collecting  anything.  However, CMS does not have debt collection policies and  procedures for instances in which a discount greater than 35-percent is  allowed.  Of the three selected regional offices, one regional office was  maintaining documentation to support that such settlements were  warranted, while two regional offices were not maintaining documentation.   Consistent with good management practices and the Standards for  Internal Control in the Federal Government, when exceptions to a stated  management policy occur, typical control practices are to document,  review, and approve such exceptions to ensure that management’s  objectives are being met.
section_title: OMB’s and Treasury’s Roles in the Oversight and Monitoring of CMP Debt
paragraphs: OMB and Treasury are provided with the information useful in performing  their debt oversight roles through the agencies’ reporting of CMP  receivables and referral of CMP debt to Treasury for collection.  With  respect to the reporting of CMP receivables, beginning with fiscal year  1997, CMS and HHS have annually disclosed CMP receivables information  in their financial reports.  In accordance with requirements of DCIA and  Treasury guidance, CMS reports receivables information quarterly, which  includes CMP, to Treasury in the Report on Receivables Due from the  Public.
However, in discussions with OMB officials, they emphasized that OMB’s  oversight is broad and consists of monitoring and evaluating  governmentwide credit management, debt collection activities, and federal  agency performance.  OMB also stated that it is the specific responsibility  of the agency Chief Financial Officer and program managers to manage and  be accountable for the debt collection of their agency’s credit portfolios in  accordance with applicable federal debt statutes, regulations, and  guidance.  OMB further added that it is the role of each agency to  specifically monitor and collect its civil penalty debt regardless of dollar  magnitude and the responsibility of each agency’s OIG to provide oversight  through audit of the agency’s debt collection activities.
Regarding referral of CMP debt to Treasury, Treasury stated that it relies on  the agencies to determine what debt should be referred to Treasury for  collection as required by DCIA.  DCIA requires federal agencies to transfer  eligible nontax debt or claims over 180 days delinquent to Treasury for  collection actions.  DOJ stated that referral to Treasury was one type of  debt collection tool used by USAOs when pursuing collection of fraud  cases.  However, CMS is not referring long-term care CMP debt to  Treasury for collection actions.  CMS stated that it plans to refer eligible  long-term care CMP debts to Treasury in the future and is currently  researching the issue.
section_title: Conclusion
paragraphs: The expanded fraud and abuse detection activities and resulting growth in  fraud and abuse debt is the primary reason for the increase in CMP  receivables over the last several years.  In addition, our work found similar  financial accountability and reporting issues as those reported for non- CMP receivables and that a CMP debt collection policy and procedure can  be strengthened.  As long as CMP receivables continue to be considered  immaterial in the judgment of CMS’ external financial statement auditors,  minimal audit coverage will be provided in this area.  Therefore, CMS  management needs to take steps to improve the accounting and reporting  of CMP receivables.
section_title: Recommendations
paragraphs: In order to improve CMS’ accounting, reporting, and collection of CMP  receivables, we recommend that the Administrator of CMS establish and  implement formal written accounting and reporting policies and  procedures for  comparing CMP receivables reported in CMS’ audited financial  statements and HHS’ accountability report,  reconciling CMP receivables between CMS’ general ledger and the  detailed subsidiary systems,   recording of long-term care receivables in the general ledger since long- term care CMP receivables currently are not recorded in the general  ledger until a collection is made, and  ensuring the accurate recording of information into the general ledger.
We also recommend that the Administrator of CMS  determine an approach for assessing the collectibility of outstanding  amounts so that a meaningful allowance for uncollectible accounts can  be reported and used for measuring debt collection performance and  establish formal written policies and procedures to ensure that the  allowance for uncollectible CMP debts is properly determined using  such an approach.
We further recommend that the Administrator of CMS establish and  implement formal written debt collection policies and procedures for  handling instances in which a discount greater than 35-percent is  allowed, including the documentation, review, and approval of such  settlements and   referring eligible long-term care CMP debt to Treasury as required by  DCIA.
section_title: Agency Comments and Our Evaluation
paragraphs: A draft of the briefing slides was provided to CMS, HHS OIG, DOJ’s  EOUSA, OMB, and Treasury for their review and comment.  CMS’ letter is  reprinted in appendix II.   CMS, HHS OIG, DOJ’s EOUSA, OMB, and  Treasury also provided us with technical comments that we considered and  addressed, as appropriate.  The following discussion addresses these  agencies’ comments and our evaluation.
CMS agreed with all but one of our recommendations.   CMS did not agree  with our recommendation to establish and implement debt collection  policies and procedures for instances in which a discount greater than 35- percent is allowed.  According to CMS, flexibility is needed in the  settlement process and issuing policies and procedures on settlements  would add rigidity to the process.  It was not our intent that a rigid process  for determining settlement amounts would be implemented. However,  consistent with good management practices and the Standards for  Internal Control in the Federal Government, when exceptions to a stated  management policy occur, typical control practices are to document,  review, and approve such exceptions to ensure that management’s  objectives are being met.
CMS also stated that the non-CMP issues reported by CMS’ external  financial statement auditors have no correlation to the CMP issues  discussed in the report.  We disagree.  Even though these are two different  types of debt, the underlying financial accountability and reporting issues  are similar.  For example, as discussed earlier, the external financial  statement auditors reported that non-CMP contractors are unable to  reconcile reported ending balances to the contractors’ subsidiary records.   Our review also found reconciliation problems with the CMP receivables.   As discussed in this report, as of September 30, 2000, the CMP receivables  balance in the general ledger and the detailed subsidiary systems differed  by a net of about $22 million.
We are sending copies of this report to the Chairman of the Permanent  Subcommittee on Investigations, Senate Committee on Governmental  Affairs, as well as the Chairman and Ranking Minority Member of the  Senate Committee on Governmental Affairs.  We will also provide copies to  the Secretary of Health and Human Services; the Administrator, Centers for  Medicare and Medicaid Services; the Attorney General; the Inspector  General of the Department of Health and Human Services; the Secretary of  the Treasury; and the Director, Office of Management and Budget.  Copies  will also be made available to others upon request.
If you have any questions about this report, please contact me at (202) 512- 3406 or Steven Haughton, Assistant Director, at (202) 512-5999.  Additional  contributors to this assignment were Dawn Simpson, Suzanne Murphy,  Rathi Bose, and Marshall Hamlett.
section_title: Briefing to the Permanent Subcommittee on Investigations, Senate Committee on Governmental Affairs
subsections: section_title: Contents
subsections: section_title: • Incomplete and Unreliable CMP Data Limited the Determination of Overall
section_title: Objectives
paragraphs: Formerly the Health Care Financing Administration (HCFA).
section_title: Objectives (cont’d)
paragraphs: whether adequate processes exist to collect CMP debt, and what roles, if any, the Office of Management and Budget (OMB) or the Department of the Treasury play in overseeing and monitoring CMS’ collection of CMP debt.
section_title: Overview
subsections: section_title: • We found the following.
paragraphs: Increases in fraud and abuse debt was the primary reason for the reported growth in CMP debt.
CMS’ CMP receivables have similar financial accountability and reporting issues as those identified for non-CMP receivables by its external financial statement auditors.
Incomplete and unreliable CMP data limited the determination of overall adequacy of CMP debt collection policies and procedures. Instead, as agreed with your staff, we performed limited tests of CMS’ debt collection policies and procedures and found that one policy and procedure, relating to settling at amounts that exceed a 35-percent discount threshold, can be strengthened.
section_title: Overview (cont’d)
paragraphs: OMB and Treasury are provided with information useful in performing CMP debt oversight roles.  However, OMB stated that it has broad oversight responsibility in monitoring and evaluating governmentwide debt collection activities.  OMB further stated that it is the specific responsibility of the agency to monitor, manage, and collect CMP debt and the responsibility of the agency’s Office of Inspector General (OIG) to provide oversight through audit of the agency’s debt collection activities.  In addition, Treasury stated that it relies on the agencies to determine what debt should be referred to Treasury for collection action, as required by the Debt Collection Improvement Act of 1996 (DCIA).  However, not all eligible CMP debts are currently being referred.
section_title: Background
subsections: section_title: • As of September 30, 2000, the Department of Health and Human
paragraphs: Services (HHS) reported that CMS’ CMP receivables totaled about $260 million.  CMP debt results from deficiencies at long-term care nursing facilities (LTC) or fraud and abuse and is collected by three separate groups.  CMS is responsible for the LTC debt and HHS’ Office of Inspector General (OIG) and the Department of Justice (DOJ) are responsible for fraud and abuse debt.
section_title: Background (cont’d)
paragraphs: CMP receivables relate to two categories of violations:  (1) LTC and (2) Fraud and Abuse.
Sections 1819 (42 U.S.C. Sections 1395i-3) and 1919 (42 U.S.C. Section 1396r) of the Social Security Act require standard surveys of nursing facilities to determine whether they meet the requirements for participation in the Medicare and Medicaid programs.
A survey must be conducted at each nursing facility within 15 months of the previous survey by a state survey agency.  In addition, the statewide average interval between surveys must be 12 months or less.
section_title: Background (cont’d)
paragraphs: Remedies, of which CMP is one, may be used when a nursing facility is not in substantial compliance with the requirements for participation in the Medicare and Medicaid programs.
CMP is imposed either for the number of days ($50 to $10,000 per day) or for each instance ($1,000 to $10,000 per instance) that a nursing facility is not in substantial compliance with the participation requirements.  The amount depends on the severity of the deficiency.
A written notice of the CMP is sent to the nursing facility.  The facility has 60 days from the date of the notice to either waive its right to an administrative hearing and automatically receive a reduction of 35-percent in the CMP amount or request an administrative hearing.
section_title: Background (cont’d)
paragraphs: At any time prior to an administrative hearing, the nursing facility may enter into a settlement of the CMP amount.  Once there is an administrative hearing decision or a settlement, the final CMP receivable amount is determined.
According to CMS’ State Operations Manual, if a decision is made to settle, the settlement should not be for a better term than had the nursing facility opted for a 35-percent reduction.
To track assessments and collections, CMS’ regional offices use the Civil Monetary Penalty Tracking System (CMPTS) for FY 1999 and later CMP cases and spreadsheets for FY 1996 through FY 1998 CMP cases.2  In addition, CMS’ regional offices use the LTC system to track CMP cases.
Regulations implementing the imposition of LTC CMP were effective July 1, 1995.  The first LTC CMP assessment was made at the beginning of FY 1996.
Background (cont’d)
For civil health care fraud matters, DOJ generally uses the False Claims Act, as well as common law fraud remedies, payment by mistake, unjust enrichment, and conversion to recover amounts from those who have submitted false or improper claims to the United States.
Civil health care fraud matters are referred directly from federal or state investigative agencies, or result from filings by private persons known as “relators,” who file suits on behalf of the federal government under the 1986 qui tam amendments to the False Claims Act.
section_title: Background (cont’d)
paragraphs: The False Claims Act (31 U.S.C. Sections 3729-3733) provides that anyone who “knowingly” submits a false claim to the government is liable for a penalty from $5,000 to $10,000 plus up to three times the amount of damages sustained by the government.
A court judgment or settlement establishes amounts due by violators.  DOJ prepares a Health Care Fraud Tracking Form,3 which is submitted to HHS OIG and CMS’ Office of Financial Management, and establishes the debt in a tracking system.
In documenting a judgment or settlement, DOJ uses this form to note the judgment or settlement  amount and the recipients to be paid from the collected debt.
section_title: Background (cont’d)
paragraphs: If the health care violator does not pay the fraud debt, DOJ’s U.S. Attorneys’ Offices (USAO) have several options to pursue collection, such as contacting the debtor, securing or executing upon a judgment, filing liens or garnishments, and referring the delinquent debt to Treasury.
DOJ uses one of the following systems to track assessments and collections of civil health care fraud cases.
USAOs use either the Tracking Assistance for the Legal Office Network or the Collection Litigation Automated Support System.
The Civil Division uses the Debt Collection System.
section_title: Background (cont’d)
paragraphs: According to HHS OIG data, since 1988, about 90 percent of its CMP assessments relate to the requirements of Section 1867 of the Social Security Act (42 U.S.C. Section 1395dd). This statute specifies that a hospital’s emergency department must provide an appropriate medical screening examination within the capability of the hospital’s emergency department to any individual who comes to the department with a request for examination or treatment of a medical condition.  In addition, if the hospital determines that the individual has an emergency medical condition, the hospital must either stabilize the medical condition or transfer the individual to another medical facility.  This statute provides for a maximum penalty of $50,000 per violation.
section_title: Background (cont’d)
paragraphs: According to HHS OIG data, since 1988, approximately 10 percent of its CMP assessments relate to violations of the statutory provisions applicable to false or fraudulent claims submitted to federal health care programs in Section 1128A of the Social Security Act (42 U.S.C. Sections 1320a-7a). This law provides that for false, fraudulent, or otherwise improper claims, HHS may impose a penalty of not more than $10,000 for each item or service and an assessment of no more than triple the amount claimed for each item or service in lieu of damages.
section_title: Background (cont’d)
paragraphs: HHS OIG uses spreadsheets to track assessments and
CMS’ Office of Financial Management is responsible for the accounting and reporting of CMP receivables in the general ledger using the Financial Accounting Control System (FACS).  This office is also responsible for determining the allowance for uncollectible receivables. According to CMS, an allowance is calculated as the amount of CMP debt delinquent for 60 days or longer that is considered to be inactive and truly delinquent based on a case-by-case review of each receivable.
According to HHS OIG, collections being received through payment plans for CMP assessments under  Section 1128A of the Social Security Act are sent directly to CMS.  HHS OIG does not track collections  for these cases.
section_title: Background (cont’d)
subsections: section_title: • HHS OIG’s Office of Audit Services stated that due to the immateriality
paragraphs: of CMP receivables balances, no detailed audit work has been performed on CMP receivables by CMS’ external financial statement auditors.  However, these auditors have identified various reporting, internal control, and accountability issues related to Medicare (non- CMP) receivables.
These issues resulted in a qualified opinion on CMS’ financial statements for fiscal year 1998 and a material weakness on non- CMP receivables during fiscal years 1998 through 2000.5
The external auditors reported that CMS’ lack of an integrated financial management system continues to impair its ability to adequately support the reported non-CMP receivables activity and balances.
CMS’ financial statements and related auditor reports referred to in the slides were issued under  CMS’ former name (HCFA).
section_title: Background (cont’d)
paragraphs: The external auditors also identified deficiencies in non-CMP receivables activity, including the following: incorrectly reported activity by non-CMP contractors and inability of non-CMP contractors to reconcile reported ending balances to the contractors’ subsidiary records.
The external auditors’ recommendations included (1) establishing an integrated financial management system for use by non-CMP contractors and CMS’ central and regional offices and (2) ensuring that all non-CMP contractors develop and implement control procedures to provide independent checks of the validity, accuracy, and completeness of the amounts reported to CMS, including a reconciliation with the contractors’ supporting documentation, and periodic review of contractors’ control procedures over reconciliations.
section_title: Scope and Methodology
subsections: section_title: • To accomplish our objectives, we:
paragraphs: Obtained and reviewed CMS’ audited financial statements, HHS’ accountability reports, and other financial reports that relate to CMS’ CMP and non-CMP collection activities.
Analyzed CMS’ reported CMP receivables and related accounts and information for fiscal years 1997 through 2000.
Compared CMS’ CMP accounting records to detailed subsidiary tracking records.
section_title: Scope and Methodology (cont’d)
paragraphs: Obtained an understanding of CMS’ CMP debt collection policies and procedures that relate to LTC, HHS OIG, and DOJ cases, as well as applicable federal laws and regulations.
Did not select a random sample, due to incomplete and unreliable CMP information, from CMP receivables as of September 30, 2000, and CMP receivable cases closed in fiscal years 1999 and 2000. However, as agreed with your staff, we performed limited tests of CMS’ debt collection policies and procedures, including the following.
section_title: Scope and Methodology (cont’d)
paragraphs: Selected and reviewed all delinquent CMP debts (over 60 days delinquent) with a recorded receivable balance as of September 30, 2000, greater than $2 million (12 debts), which represented 57 percent of the delinquent CMP debt balance and 27 percent of the total CMP debt balance per CMS’ records.6
Analyzed LTC CMP assessment and settlement data for FY 1999 and 2000 for all cases settled at three selected CMS regional offices.  According to CMPTS, the LTC cases opened at these regional offices represented approximately 76 percent of all LTC CMP cases opened during this 2-year period.
The 12 selected debts were fraud cases managed by DOJ.
section_title: Scope and Methodology (cont’d)
paragraphs: Interviewed officials in CMS, HHS OIG, and DOJ’s Executive Office for U.S. Attorneys (EOUSA) to obtain explanations for identified significant trends, similarities with non-CMP receivables material internal control weaknesses, findings and exceptions, as well as unsupported/unreconciled amounts.
Interviewed OMB and Treasury officials to determine what roles, if any, OMB and Treasury play in overseeing and monitoring the government’s collection of civil debt.
section_title: Scope and Methodology (cont’d)
paragraphs: Did not independently verify the completeness or accuracy of the subsidiary system data or test information security controls over the systems used to compile these data.
Provided CMS, HHS OIG, DOJ’s EOUSA, OMB, and Treasury with a draft of our detailed briefing slides, which contained recommendations to the Administrator of CMS, for review and comment.  The comments received are discussed on the “Agency Comments” slide or incorporated into the slides as applicable.
Performed our review in Washington, DC and Atlanta, GA from March 2001 through August 2001 in accordance with U.S. generally accepted government auditing standards.
section_title: Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth in CMP Debt
subsections: section_title: • Between FY 1995 and 1997, fraud and abuse detection activities were
paragraphs: expanded that significantly increased fraud and abuse debts in FY 1997.  This was the primary reason for the growth of CMS’ CMP receivables.7
In 1995, under authority to use trust funds money to develop or demonstrate improved methods for investigating and prosecuting fraud, HHS launched Project Operation Restore Trust (ORT).  ORT targeted fraud and abuse in three high-growth areas of the health care industry: home health agencies, nursing homes, and durable medical equipment suppliers.
DOJ is responsible for collection activity for the majority of the fraud and abuse debt.
section_title: Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth in CMP Debt (cont’d)
subsections: section_title: • In 1996, the passage of the Health Insurance Portability and
paragraphs: Accountability Act (HIPAA) expanded funding for HHS’ fraud and abuse detection activities.  In FY 1996, HHS reported that ORT combined with the upgraded funding provided by HIPAA would enable HHS to more aggressively detect and prevent fraud, waste, and abuse.
With the establishment of HIPAA, HHS OIG and DOJ jointly implemented, by January 1, 1997, the Fraud and Abuse Control Program to combat fraud and abuse committed in the health plans (both public and private).
section_title: Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth in CMP Debt (cont’d)
subsections: section_title: • A DOJ EOUSA official stated that health care fraud activities were
paragraphs: expanded in FY 1996 and FY 1997, and, with the implementation of the Health Care Fraud Tracking Forms in December 1996, DOJ began submitting health care fraud debts to CMS during FY 1997.  Prior to this time, only fraud and abuse debts submitted by HHS OIG were recorded and reported by CMS.
CMS’ accounting records revealed that about $255 million of the $260 million CMP receivables balance as of September 30, 2000, related to fraud and abuse debts.  Of the fraud and abuse debts, about $172 million remained outstanding from FY 1997.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables
subsections: section_title: • Our analysis of CMS’ CMP receivables data revealed similar financial
paragraphs: accountability and reporting issues as those identified for non-CMP receivables by CMS’ external financial statement auditors.
Nonetheless, using HHS’ accountability reports, the following is a summary of CMS’ key CMP financial information for FY 1997 through FY 2000:
CMS’ outstanding CMP receivables increased from about $41 million, as of September 30, 1996, to about $260 million, as of September 30, 2000.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
paragraphs: CMS annually reserved, in an allowance account, from 14 to 29 percent of the outstanding CMP receivables balance for the estimated amounts that it deemed collection was doubtful.
There were no write-offs of CMS’ CMP receivables during the 4- year period.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
paragraphs: CMS does not have policies and procedures requiring it to compare CMP receivables reported in its audited financial statements and HHS’ accountability report.  The following differences between such reported balances have been identified.
According to HHS, CMS is the only HHS component that has CMP.
However, FY 1997 through FY 1999 ending balances reported for CMP receivables differed by tens of millions of dollars between HHS’ accountability reports and CMS’ audited financial statements.
FY 2000 beginning balance for CMP receivables in HHS’ draft accountability report was adjusted by approximately $50 million to agree with CMS’ accounting records.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
paragraphs: As a result of the adjustment, the beginning balance in HHS’ FY 2000 accountability report differed from the ending balance in its FY 1999 accountability report.  After we brought this difference to HHS’ attention, a statement identifying the difference was added to HHS’ FY 2000 accountability report’s overview; however, the statement did not explain the cause of the difference.
According to HHS OIG’s Office of Audit Services, no detailed audit work on CMP receivables has been performed by CMS’ external financial statement auditors due to the small balance of CMS’ CMP receivables in relation to CMS’ total accounts receivables, which consists primarily of non-CMP Medicare receivables.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • As of September 30, 2000, CMS’ reported CMP receivables were about
paragraphs: $260 million, or 3 percent, of total reported accounts receivables of approximately $8.1 billion, of which non-CMP Medicare receivables totaled more than $7.7 billion.
Similar to the accountability and reporting issues reported for non-CMP receivables by CMS’ external financial statement auditors, CMS also does not have policies or procedures for reconciling CMP accounts receivables balances to detailed support maintained in the subsidiary systems.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • For FY 2000, the amounts reported in HHS’ and CMS’ financial reports
paragraphs: Difference  ($ 17,422)      28,835     (34,950)        1,437  ($ 22,100)
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • Statement of Federal Financial Accounting Standards (SFFAS) No. 1,
paragraphs: Accounting for Selected Assets and Liabilities, and SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, state that a receivable should be recognized once amounts that are due to the federal government are assessed, net of an allowance for uncollectible amounts.
However, CMS stated that beginning in FY 1999, all new LTC CMP receivables are no longer recorded in FACS until a collection is made due to the unreliability of the accounts receivable amounts in CMS’ subsidiary system--CMPTS.  CMS stated that the LTC CMP receivables would be reviewed for validity as part of the planned upgrade of CMPTS.  As a result, FACS does not include all potentially valid LTC CMP receivables.  This appears to be the primary reason for the LTC difference between FACS and the subsidiary system.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • Of the 12 selected delinquent debts that we reviewed, 2 totaling about
paragraphs: $24 million were the responsibility of HHS OIG according to CMS’ accounting records.  However, upon further research by DOJ, these debts were actually the responsibility of DOJ and were included in DOJ’s subsidiary system on 9/30/00 as uncollected.  This misclassification appears to explain a portion of the difference between FACS and HHS OIG’s and DOJ’s subsidiary systems.
CMS does not have formal written policies and procedures for determining its allowance for uncollectible accounts.  CMS stated that the allowance represents the balance of all CMP debt delinquent for 60 days or longer that is considered to be inactive and truly delinquent based on a case-by-case review of each receivable.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • According to SFFAS No. 1, losses due to uncollectible amounts should
paragraphs: be measured through a systematic methodology with an analysis of both individual accounts and a group of accounts as a whole.  Individual account analysis should be based on factors such as the debtor’s ability to pay and the probable recovery of amounts from secondary sources. Group analysis should be performed using a method such as statistical estimation by modeling or sampling and should take into consideration such factors as historical loss experience and recent economic events.
However, CMS’ allowance for uncollectible accounts is not based on a systematic analysis of the collectibility of the outstanding receivables balance.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • For the 12 selected delinquent debts with receivable balances totaling
paragraphs: about $70 million, 7 debts totaling approximately $32 million were recorded incorrectly in FACS.
CMS failed to remove four of the debts totaling about $23 million from CMP receivables even though collections of these debts were received prior to September 30, 2000.
CMS incorrectly classified three of the debts totaling about $9 million as delinquent, instead of current, even though collections were being received in accordance with the due dates of the respective payment plans.
For the 12 selected delinquent debts, documentation supporting one of the debts with a balance of about $3 million could not be located by DOJ.
section_title: CMP Receivables Have Similar Financial Accountability and Reporting Issues as Non-CMP Receivables (cont’d)
subsections: section_title: • CMS stated that Division of Accounting staff responsible for the recording
paragraphs: of information in FACS use notes and knowledge gained during training provided by staff previously responsible for the duties to record CMP receivables in the general ledger.  However, these informal policies and procedures do not (1) contain specific guidance on recording due dates for payments being made through payment plans or recording collections against established receivables and (2) address control procedures to ensure the accurate recording of CMP receivables in the general ledger, such as review and approval of transactions by a supervisor.
The status of receivables—current, delinquent, or paid—should be properly noted since it affects the accuracy of the allowance for uncollectible accounts, which is netted against gross CMP receivables reported on HHS’ and CMS’ financial statements.  In addition, these errors could possibly have been avoided if there was appropriate review and approval of such transactions.
section_title: Incomplete and Unreliable CMP Data Limited the Determination of Overall Adequacy of CMP Debt Collection Policies and Procedures
paragraphs: CMS (LTC, HHS OIG, and DOJ) has established debt collection policies and procedures.  However, incomplete and unreliable CMP information limited us from determining the overall adequacy of the CMP debt collection policies and procedures.  As a result and as agreed with your staff, we performed limited tests of CMS’ debt collection policies and procedures and found the following.
For 11 of the 12 selected delinquent debts, DOJ followed its debt collection policies and procedures.
For four cases, DOJ had followed its procedures and had collected the debts in full.
section_title: Incomplete and Unreliable CMP Data Limited the Determination of Overall Adequacy of CMP Debt Collection Policies and Procedures (cont’d)
paragraphs: For three cases, DOJ was following its procedures for collecting the debts in accordance with the respective payment plans.
Four cases remained delinquent, but DOJ was following its procedures for pursuing collection of unpaid debt.
We were unable to determine whether DOJ followed its debt collection policies and procedures for one case since DOJ was unable to locate supporting documentation.
section_title: Incomplete and Unreliable CMP Data Limited the Determination of Overall Adequacy of CMP Debt Collection Policies and Procedures (cont’d)
paragraphs: For LTC CMP debt collection policies and procedures, we noted one debt collection matter in which such policies and procedures can be strengthened.  The matter relates to CMS often settling at amounts that exceeded the 35-percent discount threshold.
At the three selected regional offices, CMS reduced the assessed LTC CMP amounts more than 35-percent for 89 out of 215 cases (41 percent), or about $8.4 million out of about $11.4 million (73 percent) in assessments settled in fiscal years 1999 and 2000.
For the 89 cases, a 35-percent discount on approximately $8.4 million in assessments results in possible collections of about $5.5 million.  However, CMS actually discounted these cases in total by about 69 percent, reducing potential collections by $2.9 million.
section_title: Incomplete and Unreliable CMP Data Limited the Determination of Overall Adequacy of CMP Debt Collection Policies and Procedures (cont’d)
paragraphs: According to CMS, other matters can develop while an administrative hearing is pending that can affect the settlement amount, such as unavailability of witnesses and new information related to the deficiencies.  In these cases, according to CMS, it may be in CMS’ best interest to settle for less, given the cost of litigation and the risk of not collecting anything.
However, CMS does not have debt collection policies and procedures for instances in which a discount greater than 35-percent is allowed. Of the three selected regional offices, one regional office was maintaining documentation to support that such settlements were warranted, while two regional offices were not maintaining documentation. Consistent with good management practices and the Standards for Internal Control in the Federal Government,8 when exceptions to a stated management policy occur, typical control practices are to document, review, and approve such exceptions to ensure that management’s objectives are being met.
GAO/AIMD-00-21.3.1, November 1999.
section_title: OMB’s and Treasury’s Roles in the Oversight and Monitoring of CMP Debt
subsections: section_title: • Reporting of CMP Receivables9
paragraphs: Beginning with fiscal year 1997, CMS and HHS have annually disclosed CMP receivables information in their financial reports.
In accordance with requirements of DCIA and Treasury guidance, CMS reports receivables information quarterly, which includes CMP, to Treasury in the Report on Receivables Due from the Public.
The information reported to OMB and Treasury needs to be considered in light of the reliability   issues we identified (see slides 27-37).
section_title: OMB’s and Treasury’s Roles in the Oversight and Monitoring of CMP Debt (cont’d)
paragraphs: OMB and Treasury are provided with information useful in performing CMP debt oversight roles. However, in discussions with OMB officials, they emphasized that OMB’s oversight is broad and consists of monitoring and evaluating governmentwide credit management, debt collection activities, and federal agency performance.  OMB also stated that it is the specific responsibility of the agency Chief Financial Officer and program managers to manage and be accountable for the debt collection of their agency’s credit portfolios in accordance with applicable federal debt statutes, regulations, and guidance.  OMB further added that it is the role of each agency to specifically monitor and collect its civil penalty debt regardless of dollar magnitude and the responsibility of each agency’s OIG to provide oversight through audit of the agency’s debt collection activities.
section_title: OMB’s and Treasury’s Roles in the Oversight and Monitoring of CMP Debt (cont’d)
subsections: section_title: • Referral of CMP Debt to Treasury
paragraphs: DCIA requires federal agencies to transfer eligible nontax debt or claims over 180 days delinquent to Treasury for collection action.
DOJ stated that referral to Treasury was one type of debt collection tool used by USAOs when pursuing collection of fraud cases.10
CMS stated that CMS is not referring LTC CMP debt to Treasury for collection actions.  CMS stated that it plans to refer eligible LTC CMP debts to Treasury in the future and is currently researching the issue.
HHS OIG stated that, as of September 30, 2000, it did not have any eligible delinquent CMP debt    for the cases in which the OIG tracks collections.
section_title: OMB’s and Treasury’s Roles in the Oversight and Monitoring of CMP Debt (cont’d)
paragraphs: Treasury stated that it relies on the agencies to determine what debt should be referred to Treasury for collection action, as required by DCIA.
section_title: Conclusion
subsections: section_title: • The expanded fraud and abuse detection activities and resulting growth
paragraphs: in fraud and abuse debt is the primary reason for the increase in CMP receivables over the last several years.  In addition, our work found similar financial accountability and reporting issues as those reported for non-CMP receivables and that a CMP debt collection policy and procedure can be strengthened.  As long as CMP receivables continue to be considered immaterial in the judgment of CMS’ external financial statement auditors, minimal audit coverage will be provided in this area. Therefore, CMS management needs to take steps to improve the accounting and reporting of CMP receivables.
section_title: Recommendations
subsections: section_title: • We recommend that the Administrator of CMS take the following
paragraphs: actions.
Establish and implement formal written accounting and reporting (1) comparing CMP receivables reported in CMS’ audited financial statements and HHS’ accountability report, (2) reconciling CMP receivables between CMS’ general ledger and the detailed subsidiary systems, (3) recording of LTC receivables in FACS since LTC CMP receivables currently are not recorded in FACS until a collection is made, and (4) ensuring the accurate recording of information into FACS.
section_title: Recommendations (cont’d)
paragraphs: Determine an approach for assessing the collectibility of outstanding amounts so that a meaningful allowance for uncollectible accounts can be reported and used for measuring debt collection performance.  In addition, establish formal written policies and procedures to ensure that the allowance for uncollectible CMP debts is properly determined using such an approach.
Establish and implement formal written debt collection policies and (1) handling instances in which a discount greater than 35-percent is allowed, including the documentation, review, and approval of such settlements, and (2) referring eligible LTC CMP debt to Treasury as required by DCIA.
section_title: Agency Comments
paragraphs: In commenting on these briefing slides, CMS agreed with all but one of our recommendations.
CMS did not agree with our recommendation to establish and implement debt collection policies and procedures for instances in which a discount greater than 35-percent is allowed.  According to CMS, flexibility is needed in the settlement process and issuing policies and procedures on settlements would add rigidity to the process.  It was not our intent that a rigid process for determining settlement amounts would be implemented.  However, consistent with good management practices and the Standards for Internal Control in the Federal Government, when exceptions to a stated management policy occur, typical control practices are to document, review, and approve such exceptions to ensure that management’s objectives are being met.
section_title: Agency Comments (cont’d)
paragraphs: CMS also stated that the non-CMP issues reported by CMS’ external financial statement auditors have no correlation to the CMP issues discussed in the slides.  We disagree.  Even though these are two different types of debt, the underlying financial accountability and reporting issues are similar.  For example, as discussed on slide 18, the external financial statement auditors reported that non-CMP contractors are unable to reconcile reported ending balances to the contractors’ subsidiary records.  Our review also found reconciliation problems with the CMP receivables.  As discussed on slide 32, as of September 30, 2000, CMP receivables balances in FACS and the detailed subsidiary systems differed by a net of about $22 million.
section_title: Comments From the U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services
paragraphs: The following are our comments on the Centers for Medicare and Medicaid  Services’ letter dated August 30, 2001.
subsections: section_title: GAO Comments
paragraphs: 1. We subsequently combined recommendations 1 and 3 together under  recommendation 1 in order to group related topics.  CMS agreed with  both recommendations. 2. Recommendation 4 was subsequently renumbered as recommendation  3 due to the combining of recommendations 1 and 3.  3. See the “Agency Comments and Our Evaluation” section.