Military Treatment Facilities: Internal Control Activities Need Improvement
Published: 2002-10-25T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The $24 billion Military Health System provided health care to over 8 million eligible beneficiaries. Although 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. The three MTF's 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. 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. 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.

section_title: Letter
paragraphs: 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  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. 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.
subsections: section_title: Background
paragraphs: 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.
section_title: Internal Controls Not Effectively Implemented
paragraphs: 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.
subsections: section_title: Weaknesses in Billings and Collections Prevent Full Recovery of Millions from Third Party Insurers
paragraphs: 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.
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, 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.
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.
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.  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.
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.
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.
section_title: Weaknesses Precluded Adequate Management of Pharmaceutical Return Goods Program
paragraphs: 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.
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.  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.
subsections: section_title: Weaknesses Preclude Adequate Safeguarding and Management of Personal Property Assets
paragraphs: 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.
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.   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  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. 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.  The documentation problems we found suggest that these  issues still exist.
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.
section_title: Weaknesses in Government Purchase Card Program Resulted in Misuse
paragraphs: 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, and at five Army sites (one being  Eisenhower), 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 statistical sampling and data mining, 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 Federal Acquisition Regulation.  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.  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  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.  Portsmouth lacked advance  approval documentation for 40 of the 50 nonrepresentatively selected  transactions we reviewed, but officials claim that all items purchased and  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. Of the 50 nonrepresentatively selected  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. 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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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   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;  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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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.
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.
section_title: Scope and Methodology
paragraphs: 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.
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  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  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.
section_title: Results of Personal Property Existence Testing
paragraphs: Table 4 displays overall estimated existence error rates and associated two- sided 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.
section_title: Comments from the Department of Defense
paragraphs: The following are GAO’s comments on the Department of Defense’s letter  dated September 27, 2002.
subsections: section_title: GAO Comments
paragraphs: 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.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Staff members making key contributions to this report were Shawkat  Ahmed, Mario Artesiano, Rathi Bose, Francine DelVecchio, Alfonso Garcia,  Janine Prybyla, and Sidney Schwartz.
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subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs