Social Security Administration: Policies and Procedures Were in Place over MMA Spending, but Some Instances of Noncompliance Occurred
Published: 2007-08-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) created a voluntary outpatient prescription drug benefit as part of the Medicare program, and appropriated up to $500 million for the Social Security Administration (SSA) to fund the start-up administrative costs in meeting its responsibilities to implement MMA. SSA was given a great deal of discretion in how to use the funds and the act provided little detail on how the funds were to be spent. You asked us to review SSA's costs for implementing MMA to determine (1) how the MMA funds were expended, (2) what procedures SSA has in place over the use of those funds, and (3) how SSA complied with those procedures related to contractor and vendor payments.
section_title: What GAO Found
paragraphs: SSA spent the $500 million in MMA funds from December 2003 through January 2006 to implement activities outlined in MMA. The majority of costs paid with MMA funds consisted of personnel-related expenses, contractors, and indirect costs. More than half of the funds were spent on payroll for staff hours used on MMA activities in SSA headquarters and field offices. Once the $500 million was spent, SSA began to use its general appropriation to fund the remaining costs of implementing MMA activities. SSA used its cost analysis system to track the total costs of its implementation of MMA activities. As of February 20, 2007, SSA had completed implementation of 16 of the 22 tasks for the six provisions under the act. SSA had agencywide policies and procedures in place for its cost tracking and allocation, asset accountability, and invoice review processes. It also established specific guidance to assign and better allocate SSA's costs in implementing MMA. There were some instances though where SSA did not comply with these policies and procedures. SSA did not effectively communicate the specific MMA-related guidance to all affected staff. SSA subsequently identified and corrected at least $4.6 million of costs that initially were incorrectly allocated to MMA, but had not corrected approximately $313,000 misallocated credit card purchase transactions. In addition, GAO found instances where accountable assets purchased with MMA funds, such as electronic and computer equipment, were not being properly tracked by SSA in accordance with its policies and instances where purchase card transactions were not properly supported. Although purchase card transactions and accountable asset purchases represented a small percentage of total MMA costs, proper approval and support for these types of transactions is essential to reduce the risk of improper payments.

section_title: Letter
paragraphs: The Congress passed the Medicare Prescription Drug, Improvement, and  Modernization Act of 2003 (MMA), which represented the most significant  expansion of the Medicare program since its enactment in 1965. The act  was established to (1) provide for a voluntary program for prescription  drug coverage under the Medicare program (referred to as Medicare Part  D), (2) modernize the Medicare program, (3) allow a deduction to  individuals for amounts contributed to health savings security accounts  and health savings accounts, (4) provide for the disposition of unused  health benefits in cafeteria plans and flexible spending arrangements, and  (5) for other purposes. The MMA included an appropriation of $500 million  for the Social Security Administration (SSA) to fund the start-up  administrative costs to implement MMA. SSA was given a great deal of  discretion in how to use the funds as the act provided little detail on how  the funds were to be spent. You asked us to review SSA’s use of MMA  funds to implement MMA activities to determine (1) how those funds were  expended, (2) what procedures SSA has in place over the use of those  funds, and (3) how SSA complied with those procedures related to  contractor and vendor payments.
We reviewed MMA and discussed its impact with SSA to obtain an  understanding of SSA’s responsibilities under the act. We also reviewed  the policies and regulations SSA had to track and report the use of MMA  funds implementing MMA provisions, as well as additional guidance  established by SSA officials to track the spending of MMA funds for MMA  implementation. We obtained cost and other information on SSA’s  implementation activities from officials in the agency’s headquarters in  Baltimore, Maryland. In addition, we discussed specific cost information  with officials and staff in headquarters and field offices that were  responsible for particular transactions. To obtain specific cost and  program information, as well as information related to specific financial  statement issues, we reviewed our reports and reports from SSA’s  independent financial statement auditors. We also tested individual  transactions for adequate supporting documentation, authorization, and  evidence of purchase and receipt, as well as accountability of assets  purchased with MMA funds. We provided SSA a draft of this report for  review and comment. SSA provided written comments, which are  reprinted in appendix II. SSA also provided technical comments, which we  have incorporated as appropriate. We conducted our work in Washington,  D.C. and Baltimore, Md., from March 2006 through June 2007 in  accordance with generally accepted government auditing standards.  Appendix I provides a detailed description of our scope and methodology.
subsections: section_title: Background
paragraphs: MMA enacted and affected a number of activities that SSA identified as  related to its responsibilities. Listed are six provisions enumerated in MMA  affecting SSA, and the Medicare-related functions and activities  undertaken by SSA as a result.
Prescription Drug Program (Part D) and Low Income Subsidy (LIS)–In  addition to establishing a beneficiary outreach demonstration project  for this provision, SSA is responsible for developing forms and  procedures for LIS including a simplified application, conducting  education and outreach activities, and processing LIS appeals. In  addition, SSA will use computer matching data for verification of  attestations, process subsidy-changing events, periodically redetermine  LIS eligibility, and deduct Part D premiums when the beneficiary  chooses to have their premium withheld from their Title II benefit  payment and the Centers for Medicare and Medicaid Services (CMS)  notifies SSA of this. SSA was also responsible for transferring  premiums withheld from Title II benefit payments to CMS.
Medicare Prescription Drug Discount Card Program–SSA will support  CMS administration of this program by providing data from SSA’s  records and data obtained from other federal agencies on potentially  eligible Medicare beneficiaries for transitional assistance.
TRICARE–SSA will be responsible for enrolling TRICARE  beneficiaries into Medicare Part B, calculating their premiums, and  refunding excess premiums paid.
Medicare Part B Premium–SSA is tasked with implementing Medicare  Part B income-based premium subsidy reductions for beneficiaries  with income above a stipulated level. SSA will also collect the income- related monthly amount from the Title II benefit payment and transfer  the premiums withheld from Title II benefit payments to CMS, and  process appeals of the initial determination.
Medicare Advantage (MA) Part C–SSA will compute and collect Part C  premiums when the beneficiary chooses to have premiums deducted  from his or her Title II benefit payment and transfer premiums  withheld from Title II benefit payments to CMS.
Health Savings Accounts–SSA will obtain information from employer  reports, record the information on SSA’s records, and pass the  information to the Internal Revenue Service.
As a result of the enactment of MMA, SSA conducts outreach efforts to  identify individuals entitled to benefits or enrolled under the Medicare  program under Title 18 of the Social Security Act, who may be eligible for  transitional assistance under the Medicare Prescription Drug Discount  Card Program and premium and cost-sharing subsidies under the  Prescription Drug Card Part D Program. SSA continues to have a role in  the outreach to low-income Medicare beneficiaries for payment of  Medicare cost-sharing under the Medicaid program. SSA is also required to  verify the eligibility of applicants for the subsidy under MMA who self- certify their income, resources, and family size. To determine whether a  Medicare beneficiary is eligible for a subsidy, SSA collects information on  whether the individual has income up to 150 percent of the federal poverty  guidelines. SSA has established a database to maintain the information it  collects and shares information on those eligible and ineligible for  subsidies with CMS.
To implement the new responsibilities under MMA, SSA established a  Medicare Prescription Drug Planning and Implementation Task Force in  December 2003. The objectives of the task force included identifying the  potentially eligible population, the number and locations of potential  workloads and staff and material resource needs, and agreeing on specific  responsibilities with other federal government agencies. SSA also  identified the specific tasks to carry out the implementation of the  activities for each of the provisions under MMA, including designing and  managing the planning and implementation processes; issuing regulations;  and developing and implementing communication strategies, budget,  appeals process, subsidy-changing event process, redetermination  process, and strategies for service delivery.
Under MMA, the Congress provided SSA with a $500 million appropriation  to fund SSA’s start-up administrative costs to implement MMA, during  fiscal years 2004 and 2005, but later extended this budget authority to  fiscal year 2006. SSA reported that the $500 million for these  administrative costs was exhausted in January 2006, and MMA costs are  now funded using the LAE. LAE is SSA’s basic administrative account and  is an annual appropriation financed from the Social Security and Medicare  trust funds.
The total amount of SSA administrative costs covered by the Medicare  Trust Funds to fund SSA’s Medicare responsibilities has increased with the  enactment of MMA. Prior to the establishment of Part D under MMA,  Medicare did not generally pay for outpatient prescription drugs, but it did  provide health insurance to individuals who are either 65 or older or  disabled. Table 1 reflects SSA’s reported administrative cost outlays  covered by the Medicare Trust Funds for implementing MMA activities and  other Medicare activities.
section_title: The Majority of Reported Costs Incurred Using MMA Funds Consisted Of Personnel-Related and Contractor Expenses, and Indirect Costs
paragraphs: SSA reported spending the $500 million MMA funds from December 2003  through January 2006 on activities to implement the provisions specified  in MMA. SSA’s financial reports showed that almost all of the funding  reported was used for personnel-related expenses, contractors, and  indirect costs (see table 2). More than half of the funds were spent on  personnel-related expenses for staff hours used on MMA activities at SSA’s  headquarters and field offices. Once the $500 million was spent, MMA  costs were funded by SSA’s LAE appropriation. SSA used its financial  accounting and reporting system, SSOARS, and its cost analysis system  (CAS) to track overall costs related to the implementation of MMA  legislation. SSA did not separately track the administrative costs incurred  to implement the individual provisions under MMA legislation because the  act did not specifically require SSA to do so and it was not cost effective to  do so.
SSA reported that it spent approximately $261 million on personnel-related  expenses, which consisted of salaries and related benefits for both newly  hired and existing SSA employees. As a result of MMA, SSA hired and  trained more than 2,200 new employees at its field offices and 500 at  headquarters to handle the additional workload created by SSA’s new  responsibilities under MMA. Personnel-related expenses included salaries  for current SSA employees who were also involved in activities related to  implementing MMA, including the new Medicare Part D responsibilities.  Many of these employees may have been engaged in work on other SSA  programs during the same time. SSA used CAS to prorate these employees’  salaries and related expenses based on the amount of time employees  charged to MMA and various other SSA responsibilities.
SSA reported indirect costs of approximately $117 million for MMA  implementation. During each year, SSA incurred administrative costs in  support of the various programs. For example, SSA makes rental payments  for most of the approximately 1,300 regional field offices it has located  around the country and staff in these offices perform duties related to all  of the programs administered by SSA, including MMA. In order to allocate  these administrative costs to each of its programs, SSA used its cost  analysis system, CAS, to charge certain types of costs either proportionally  or in full against the MMA appropriation. SSA charges both direct and  indirect costs to its programs either by directly charging specific program- related amounts to the affected program in SSOARS or using CAS to  allocate personnel-related and general administrative costs that apply to  more than one SSA program. CAS accounts for work-years and costs for  each program administered by SSA by specific subfunctions within the  SSA programs. It is a centralized, computer-based system that uses data  from the financial reporting system to break out costs at SSA by program  and major functions. The main objective of CAS is to distribute costs  equitably across programs and among the various trust funds and general  funds. However, SSA stated that systems modifications to enable tracking  MMA administrative costs by each of the MMA provisions were not  required by the legislation and that it would not have been cost effective to  modify the system.
SSA reported that $119.6 million in MMA funds went to contractors,  vendors, and other government agencies that provided various goods and  services necessary for SSA to meet its responsibilities under MMA. Some  of the largest reported expenditures included    $34.2 million paid to one contractor for software systems development    $23 million paid to one contractor for telephone-based beneficiary  outreach and information distribution;    $18.6 million to the United States Postal Service for mass mailings and  other paper-based information distribution;    $11.4 million to one contractor for computer hardware and software    $6.5 million to the Government Printing Office for the design and  production of informational mailings, posters, and other printed  materials.
The remaining expenditures to other contractors, vendors, and  government agencies for goods and services charged to the MMA  implementation appropriation included additional computer hardware,  software development, and information systems support, as well as  installation and reconfiguration of MMA service centers workstations.
As of February 2007, SSA reported it had completed 16 of the 22 tasks for  implementing six provisions of MMA. SSA is continuing its implementation  of the remaining six tasks using LAE funding. Table 3 provides a  breakdown of the 22 tasks by major MMA provision.
section_title: SSA Had Policies and Procedures for Tracking MMA Funds but They Were Not Complied with Consistently
paragraphs: SSA had agencywide policies and procedures in place over its cost  tracking and allocation, asset accountability, and invoice review and  approval processes. SSA also established specific guidance to charge and  allocate its costs to implement MMA. However, those policies and  procedures were not always complied with consistently. We found that  SSA did not effectively communicate the specific MMA-related guidance to  all relevant staff. This ineffective communication resulted in millions of  dollars of costs being misallocated to MMA. Some of these misallocations  were subsequently detected by SSA and corrected during SSA’s review  process. In the area of purchase card transactions, which represented   0.5 percent of the $500 million, we found some instances where credit card  purchases had not yet been correctly allocated to MMA. In addition, we  found that some purchases made with credit cards were not properly  supported or reviewed and may not have been a proper use of MMA funds.  Finally, noncompliance with SSA policies and procedures over asset  accountability resulted in inadequately tracked accountable assets that  were purchased with MMA funds.
subsections: section_title: SSA Did Not Effectively Communicate MMA- Related Guidance Resulting in Misallocation of Costs to MMA
paragraphs: In order to track costs associated with the development and  implementation of SSA’s MMA-related activities, SSA used existing  processes and applications, such as CAS, expanded existing processes,  such as establishing unique common accounting numbers (CAN) for MMA- related costs, and implemented new processes, such as the online time  recording system for MMA-related time spent by administrative staff. In  addition, SSA developed specific cost accounting principles for each of its  major offices which, when appropriately applied, would enable the offices  to allocate nonpersonnel costs among MMA-related activities and across  other SSA operating activities. However, the lack of a formal process to  ensure that this critical information was communicated to the appropriate  level within the SSA offices resulted in misallocation of costs to MMA.
In January 2004, SSA initiated a process to expand on its cost accounting  process to track and report the cost of implementing the MMA-related  activities. The Deputy Commissioner for Finance, Assessment, and  Management issued a series of three memoranda to senior officials  containing policies and procedures for reporting time spent and updating  cost accounting principles associated with MMA planning and  implementation efforts. These memoranda included accounting codes and  procedures for tracking costs specific to implementing MMA activities,  reporting formats for MMA-related costs, and updated cost accounting  principles for LAE and MMA allocations.
In May 2005 the Deputy Commissioner for Finance, Assessment, and  Management issued a memorandum to the deputy commissioners and  other key officers for all SSA offices, which reemphasized the need to  properly account for MMA-related costs, provided updated cost  accounting principles for costs associated with the planning and  implementation of MMA, and requested SSA-wide assistance in accurately  applying these principles. The updated cost accounting principles were  included in a table that was attached to the memorandum. The table  provided specific guidance for each office on the cost principle  methodology to apply for specific types of costs in order to allocate the  costs between the component’s regular resource allocations and the MMA  funding. In addition, the memorandum requested that each component  identify an individual who would aid in ensuring these principles were  appropriately applied.
We met with SSA staff to discuss the policies and procedures in place to  disseminate these critical memoranda within SSA. We found that not all  staff responsible for MMA activities were aware of the guidance. We were  told that there was no specific guidance related to the dissemination of  key management memoranda. The May 2005 memorandum was addressed  to the deputy commissioners of each of SSA’s major offices, and it clearly  stated the importance of applying the principles described. We obtained  information and documentation from the individuals identified as the  contact employee for each component to aid in the effort. We found that  there was no mechanism in place to help ensure that all memoranda were  disseminated to all relevant staff at SSA’s headquarters and field offices.
Timely and thorough communication of operational procedures is critical  in ensuring that an agency is able to perform its responsibilities effectively.  Our Standards for Internal Control in the Federal Government state that  for an entity to run and control its operations, it must have relevant,  reliable, and timely communications relating to internal as well as external  events. Information is needed throughout the agency to achieve its internal  control objectives. Operating information is also needed to determine  whether the agency is achieving its compliance requirements under  various laws and regulations. Pertinent information should be identified,  captured, and distributed in a form and time frame that permits people to  perform their duties efficiently. Effective communications should occur in  a broad sense with information flowing down, across, and up through the  organization.
As a result of the ineffective communication of MMA-related guidance, at  least $4.6 million of costs were initially incorrectly allocated to MMA.  SSA’s offices went through a process to review the allocation of the  charges between MMA and LAE appropriation activities, and make  appropriate adjustments. The offices identified numerous transactions and  adjusted the transaction amounts to reflect the appropriate allocation of  costs between MMA and the LAE appropriation. In total they identified  transactions totaling more than $4.6 million that had not initially been  properly allocated to LAE. However, SSA officials agreed that they had  probably not identified all of the transactions that had not been properly  allocated and should have been adjusted, such as purchase card  purchases.
In addition, during our review of the supporting documentation of MMA  purchase card transactions, we found 48 purchases totaling $375,313 that  had been charged entirely to MMA when a portion of those costs should  have been allocated to other SSA programs. The purchases included more  than 160 digital projectors, furniture, and other IT equipment such as  routers, servers, and tape libraries. While some of these items were  initially purchased to carry out MMA-related activities, such as beneficiary  outreach, SSA realized that they would also be used for SSA programs  other than MMA in the future. Therefore, according to the guidance on  accounting for MMA-related expenses, the offices should have charged  only one-sixth of the costs for equipment to MMA, with the remainder of  the cost charged to the LAE appropriation account to be further allocated  across other SSA programs. However, these costs were not allocated as  described above and as a result; SSA over-allocated these costs against the  MMA appropriation by approximately $313,000.
section_title: SSA Asset Accountability Policies and Procedures Were Not Consistently Followed for Assets Purchased for MMA Activities
paragraphs: SSA had policies and procedures for purchasing assets and for maintaining  accountability for those assets. Included were definitions of the types of  assets for which SSA required the requestor to affix bar codes for  identification and record in SSA’s asset inventory system. In addition, SSA  issued an acquisition alert on the purchase of accountable sensitive and  personal government property, which reminded purchase card holders  that they were required to provide information to the requestor to ensure  that the purchases were reported to their property management or  custodial officers so that the property was properly bar-coded and entered  into SSA’s property system. However, we found in our review of  accountable property purchases that for 21 of 36 transactions that we  tested, the purchasers were not aware of their responsibility to provide the  requestor of the property with information on the property purchased.
The 36 transactions we reviewed included a total of 3,254 accountable  property items with a total cost of approximately $4.2 million. As of May  25, 2007, SSA had not properly identified 317 of these items with bar codes  or included these assets in the asset inventory system. These items  included assets such as information technology network servers and  switches, digital projectors, and other electronic equipment. These items  had a total cost of approximately $1.3 million. As a result, hundreds of  assets purchased with MMA funds were not properly accounted for and  SSA was unable to provide us with bar codes or evidence of inclusion of  those assets in SSA’s asset inventory system.
section_title: Some Credit Card Purchases Were Not Properly Approved or Supported
paragraphs: SSA also has guidance for credit card purchases applicable to  micropurchases and purchases made by contracting officers. According to  SSA policy on micro-purchasing, credit card purchases are limited to  $2,500, must have funds pre-approved, and may not be used to split  purchases into more than one transaction to avoid purchase limits. In  addition, all credit card purchases must be documented, including written  requests, approvals, and proof of purchase and delivery, and maintained  by the cardholders for 3 years.
Over the last several years, inspectors general and we have reported that  some federal agencies do not have adequate internal control over their  purchase card programs. Without effective internal control, management  does not have adequate assurance that fraudulent, improper, and abusive  purchases are being prevented or, if occurring, are being promptly  detected with appropriate corrective actions taken. Supervisory approval  of purchase requests is a principal means of ensuring that only valid  transactions are initiated or entered into by persons acting within the  scope of their authority, and the proper amounts are paid to contractors  and appropriately charged. A supervisory review of purchase requests is  also critical because a supervisor or approving official may be the only  person other than the purchaser who would be in a position to identify an  inappropriate purchase. Therefore, the supervisor’s or approving official’s  review is a critical internal control for ensuring that purchases are  appropriate and comply with agency regulations. However, we identified  invoices that were paid for questionable amounts without the appropriate  supervisory review and approval. Of the 147 purchase card transactions  we reviewed, we found 45 transactions totaling $63,828 that did not have  proper approval or did not have adequate support for the propriety of the  purchase.
While SSA’s micro-purchase card policy requires the purchaser to receive  an approved purchase request before acquiring goods or services, we  noted instances in which the supervisory review or approval was  inadequate. We identified the following 18 transactions totaling $31,914  that were initiated and completed by cardholders without proper prior  approval.
For 8 transactions totaling $17,454, the approvals on the request  authorization form occurred after the items had already been  purchased by the cardholders.
For 2 transactions totaling $2,163, the authorizing signatures were  provided on the request authorization form before the request was  signed by the requestor.
For 2 transactions totaling $3,984, SSA could not provide evidence that  the electronic signatures on the purchase requests represented valid  authorizations.
For 6 transactions totaling $8,313, SSA did not provide evidence that  the purchase requests, which authorize the purchase of goods to be  made, were approved.
We also found instances where the supporting documentation did not  provide evidence to support that the costs were related to SSA’s  implementation of MMA. We found the following 27 transactions totaling  $31,914 for which sufficient supporting evidence was not provided.
For 6 transactions totaling $7,077, SSA did not provide any  documentation to support the purchases.
For 21 transactions totaling $24,837, SSA could not provide sufficient  evidence of any relationship between the goods and services purchased  and implementation of MMA. The items purchased included five  wireless headsets, one big-screen television, remote control devices for  PowerPoint presentations, and engraved items. In addition to being  unable to relate these purchases to the implementation of MMA, we  found no evidence these items were necessary purchases for SSA.
In addition, we found evidence that one cardholder circumvented the  $2,500 per transaction purchase authority by submitting four purchase  requests for the purchase of audio and video media (CDs, DVDs, and VHS  tapes) from a single vendor on the same day. As a result, the cardholder  ultimately paid a total of $4,365 for four invoices, which was $1,865 above  the $2,500 purchase authority limit.
section_title: Conclusions
paragraphs: SSA had existing policies and procedures in place to track and report the  total costs it incurred to implement MMA provisions and to maintain  accountability and control over its MMA-related activities. However,  procedures and controls over purchase card transactions and asset  accountability could be improved. Although purchase card transactions  and accountable asset purchases represented a small percentage of the  total MMA administrative costs that were paid with MMA funds, having  effective controls in place to ensure the proper approval, support, and  accountability for these transactions is essential to reduce the risk of  improper purchases and improperly accounted for assets.
section_title: Recommendations for Executive Action
paragraphs: To enhance SSA’s (1) ability to track the costs of program activities  including MMA administrative costs, (2) controls over its review and  approval processes for purchase card payments, and (3) tracking of its  accountable assets, we recommend that the Commissioner of Social  Security    establish procedures to ensure better dissemination of policies and  procedures to all relevant offices and staff;    establish additional detailed procedures for a purchase card supporting  documentation review and approval process to help ensure that  purchase card payments are properly supported, allowable, and  allocated; and  reinforce existing policies and procedures for the purchase of  accountable assets to ensure that accountable assets are bar coded,  recorded in SSA’s asset inventory system, and inventoried periodically.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments reprinted in appendix II, SSA generally agreed with  two of our recommendations, but disagreed with one recommendation.  SSA also stated its belief that our report title, SSA Policies and Procedures  Were in Place over MMA Spending, but Some Instances of  Noncompliance Occurred, did not accurately reflect the findings in the  report since it believed there was compliance with its policies and  procedures. SSA also believes our characterization of the cause of SSA’s  misallocation of costs to MMA as ineffective communication needs to be  modified, and pointed out that there was no mention of the remaining  misallocated credit card transactions representing only 0.06 percent of the  total amount appropriated. SSA suggested the change in the report title  because SSA had identified and corrected the $4.6 million initially  incorrectly allocated to MMA and the remaining uncorrected instances  were insignificant to the total amount appropriated. However, the areas  where policies and procedures were not complied with also included  misallocated credit card purchases not corrected (which represented  more than 10 percent of the dollar value of the credit card purchases  charged to MMA), and maintaining accountability over assets purchased  with MMA funds. Therefore, we continue to believe that the title of our  report accurately characterizes our findings.
SSA agreed in theory with our recommendation to establish procedures to  better disseminate policies and procedures, but stated its belief that the  recommendation was too broad and did not accurately reflect what  needed to be done. SSA stated that it will provide more specific  instructions for distribution of costs in future guidance. SSA also believed  that it had sufficient dissemination methods for acquisition related issues.  Our recommendation was intentionally broad to provide SSA management  flexibility to determine the most appropriate steps it should take to ensure  the complete dissemination of future guidance. To that end, SSA including  more specific instructions in future memoranda guidance would provide a  corrective action that would be sufficient to address our recommendation.
SSA disagreed with our recommendation to establish additional detailed  procedures for reviewing and approving supporting documentation for  credit card purchases to help ensure that purchase card payments are  properly supported, allowable, and allocated. SSA stated its belief that our  recommendation was too broad and its guidance for contracting officers  and micro-purchasers is sufficient. While SSA stated its belief that its  guidance is sufficient and that its contracting officers are already aware of  the file documentation required for purchases, we found that 45 of 147   (30 percent) credit card purchases we reviewed did not have proper  authorization or complete documentation. This is an unacceptable error  rate. We agree that our recommendation is broad, but it is intended to  allow SSA the flexibility to determine the most appropriate actions needed  to help ensure that there is sufficient evidence available to determine that  all credit card purchases are properly approved, supported, allowable, and  allocable. SSA pointed out that its current “remote” reviews of  micropurchases made in the regions do not include a full file review, and  that SSA is considering changing this process to include such reviews.  SSA agreed with our recommendation to reinforce existing policies and  procedures for accountable asset purchases to help ensure that those  assets are bar coded, recorded in SSA’s asset inventory system, and  inventoried periodically. SSA also identified its plan to include an  acquisition topics website on one of its intranet pages by September 2007  and listed several actions undertaken since December 2006 to reinforce  existing policies and procedures and to implement an improvement work  plan.  SSA also provided additional technical comments, which have been  included in the report as appropriate.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from its  date. At that time, we will send copies of this report to the Commissioner  of SSA, and other interested parties. Copies will also be made available at  no charge on GAO’s Web site at http://www.gao.gov. If you have questions  concerning this report, please call me on (202) 512-9471. Contact points  for our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made contributions to this  report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To review the costs of the Social Security Administration’s (SSA)  implementation of MMA activities, we reviewed the Medicare Prescription  Drug, Improvement, and Modernization Act of 2003 and discussed its  impact with SSA to obtain an understanding of SSA’s responsibilities  under the act. We also reviewed the policies and regulations SSA  established to track and report MMA-related costs and other information  pertaining to its program activities, as well as additional guidance  provided to SSA officials so that they could track the costs of new MMA- related activities. We obtained cost and other information on SSA’s  implementation activities from SSA officials in the agency’s headquarters  in Baltimore, Maryland. In addition, we discussed specific cost  information with various officials and staff in headquarters and field  offices who were responsible for specific transactions. To obtain specific  cost and program information, as well as information related to specific  financial statement issues, we reviewed our reports and reports from  SSA’s independent financial statement auditors.
To determine how SSA expended the MMA funds to implement MMA  activities, we obtained annual schedules of amounts charged to MMA for  fiscal years 2004 (starting in December 2003), 2005, and 2006. We analyzed  the expenditure data, sorted it by object class, and segregated the amounts  charged to the Limitation on Administrative Expenses appropriation after  the $500 million of MMA funding had been used by SSA. We discussed our  sorted detailed analysis with SSA budget and finance officials. We also  compared expenditure data to audited Social Security Online Accounting  and Reporting System (SSOARS) data and determined that the data were  sufficiently reliable for the purposes of this report.
To determine what procedures SSA had in place over the MMA funds, we  reviewed MMA and SSA policies, procedures, and other guidance and  interviewed key SSA officials for information on the contract  procurement, payroll, cost accounting, budget, and payment processes to  obtain a thorough understanding of each process. We also conducted  follow-up discussions to verify our understanding of all key processes  related to spending MMA funds. We reviewed SSA’s independent financial  statement auditors’ reports and audit documentation to determine the  level of audit coverage provided in the payroll; property, plant, and  equipment; and cost accounting areas, plus any internal control  weaknesses identified. On the basis of the clean audit opinion on SSA’s  financial statements and no related findings, we did not perform testing on  the payroll and cost accounting areas. As a result, we focused our testing  of transactions on contractor and vendor payments.
To determine whether SSA’s contractor expenditures were properly  supported as valid uses of MMA funds, we selected and tested a monetary  unit sample of 59 transactions totaling $82.6 million from a population of  20,736 transactions totaling $123.5 million paid from January 2004 through  February 2006. We found no exceptions during testing. We also used  various nonstatistical sampling methods (data mining, document analysis,  and other forensic techniques) to nonstatistically select 208 transactions  to test adequate supporting documentation of requests, authorization,  evidence of purchase and receipt, and applicability to MMA. We discussed  all testing exceptions with the appropriate SSA officials and staff involved  with the specific transaction.
We conducted our work in Washington, D.C., and Baltimore, Md., from  March 2006 through April 2007 in accordance with generally accepted  government auditing standards.
section_title: Appendix II: Comments from the Social Security Administration
paragraphs: Appendix II: Comments from the Social  Security Administration  COMMENTS ON THE GOVERNMENT ACCOUNTABILITY OFFICE (GAO) DRAFT  REPORT, "SOCIAL SECURITY ADMINISTRATION:  POLICIES AND  PROCEDURES WERE IN PLACE OVER MMA SPENDING, BUT INSTANCES OF  NONCOMPLIANCE OCCURRED” (GAO-07-986)
Thank you for the opportunity to review and comment on the draft report.  We feel that the  title “Policies and Procedures Were in Place Over MMA Spending, but Instances of  Noncompliance Occurred,” does not accurately reflect the findings in the report and would  recommend that it be changed to “Policies and Procedures Were In Place Over MMA  Spending And There Was Compliance”.
Also, the summary page and pages 3, 12 and 13 of the report state that “SSA subsequently  identified and corrected at least $4.6 million of amounts  misallocated between MMA  and other SSA program activities, but had not corrected approximately $313,000 misallocated  credit card purchase transactions.”  The fact is that $4.6 million was initially not correctly  allocated to MMA.  However, the original plan on allocation was to review the ongoing  transactions to assure policy consistency.  That being said, the $4.6 million was correctly  allocated as planned.  As a result, the statement on page 10 that the “ineffective  communications resulted in millions of dollars of costs being misallocated to MMA” needs to  be appropriately modified.  Also, no mention is made that the $313,000 in misallocated credit  card purchase transactions represents only 0.06 percent of the total amount appropriated.
Our comments on the draft report recommendations, along with technical revisions to assist in  the clarity of the report, are as follows:    Establish procedures to ensure better dissemination of policies and procedures to all relevant  offices and staff.
We agree in theory.  As the recommendation exists, we do not feel it accurately reflects what  needs to be done and find it too broad.  In reference to memoranda regarding accounting for  costs, rather than establishing specific procedures, which would require interpretation by staff,  future memorandum providing guidance similar to that issued for MMA implementation will  contain specific instructions for distribution.
With respect to acquisition policy, we believe that we have already established sufficient  dissemination methods for acquisition related issues.  Our Office of Acquisition and Grants  (OAG) uses Acquisition Alerts to disseminate policy related to micro-purchasers (and, when  noted, to all persons with delegated acquisition authority).  Additionally, we have established  an email distribution list consisting of project officers, who are requestors for purchases at  various dollar levels, in order to better disseminate policies and procedures applicable to  them.
Establish additional detailed procedures for purchase card supporting documentation review and  approval process to help ensure that purchase card payments are properly supported, allowable,  and allocated.
We disagree.  With respect to the policies and procedures directed to micro-purchasers and  contracting officers (not requestors), we do not concur with this recommendation and find it  too broad.  Contracting officers (COs) are already aware of the file documentation required  for their purchases, whether paid with the purchase card or otherwise.  We believe that our  current guidance, “Micro-purchasing in SSA,” contains sufficient information for micro- purchasers and their approving officials regarding file documentation and retention.  Micro- purchasers and approving officials must take this course prior to being appointed and,  beginning in fiscal year 2008, they will be required to take refresher training every three  years.
Additionally, OAG and regional COs conduct acquisition management reviews (AMRs) of  micro-purchase activity.  When OAG conducts reviews of purchases made by micro- purchasers in Headquarters, and when regional COs conduct on-site AMRs within their  regions, we review the purchase log and the file documentation associated with the purchases.   OAG also conducts “remote” AMRs of purchases made in the regions.  These remote reviews  currently do not entail a review of an entire contract file.  We are currently considering  altering this process to request, for select cases, that the cardholder under review send us a  copy of all the file documentation related to the purchase being reviewed.
Regarding the issue of proper allocation of purchase card transactions, we will review this  area with the appropriate component officials.
Reinforce existing policies and procedures for accountable assets purchased to help ensure that  accountable assets are bar coded, recorded in SSA’s asset inventory system, and inventoried  periodically.
We agree.  As previously stated, we will add this policy to the “Acquisition Special Topics”  webpage on the OAG intranet page.  A notice and other cross-references to this permanent  location of the policy will be disseminated via Acquisition Alerts and Acquisition Updates. We anticipate completing this by the end of September 2007.
With regard to accountable assets and related policies, since December 2006, our Office of  Publications and Logistics Management have undertaken actions to reinforce existing policies  and procedures and to implement an improvement work plan.  These include:   Entering into collaborative agreements with our Operations and Systems components  to establish mechanisms for correcting Property Management issues and policies;   Developing a new User’s Guide for the Sunflower Asset System (SFA), our Property  Management System.  The new guide contains not only the “how” but also the “why”  to give users a better understanding of Property Management;   Reviewing and revising internal policy guides, Administrative Instructions Manual  Systems (AIMS Guides);   Developing stronger lines of communication with employees responsible for property  management (e.g., established a Quarterly Property Management Teleconference,  updated and distributed news letters on Property Management, offered Sunflower  training sessions, website updates, etc.);   Updating and clarifying the listing of “Items to be Bar-coded”; and    Continuing to reinforce the importance of asset accountability and management.
Finally, for the 317 assets noted on page 13 of the report, we have requested GAO provide us  specific asset details to assure our inventory system includes the required information.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: The following team members made key contributions to this report:  Steven R. Haughton, Assistant Director; William (Ed) Brown; Sharon Byrd;  Rich Cambosos; Marcia Carlsen; Lisa Crye; Leslie C. Jones; Brent J.  LaPointe; Margaret Mills; and Robert Martin.