This is the accessible text file for GAO report number GAO-03-168 
entitled 'Military Treatment Facilities: Internal Control Activities 
Need Improvement' which was released on November 20, 2002.



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Report to Congressional Requesters:



October 2002:



Military Treatment Facilities:



Internal Control Activities Need Improvement:



GAO-03-168:



Letter:



Results in Brief:



Background:



Internal Controls Not Effectively Implemented:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Scope and Methodology:



Appendix II: Financial and Operational Information at Selected MTF’s 

(Unaudited):



Appendix III: Results of Personal Property Existence Testing



Appendix IV: Comments from the Department of the Defense:



GAO Comments:



Appendix V: GAO Contact and Staff Acknowledgements:



GAO Contact:



Acknowledgments:



Tables :



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

Type:	



Table 2: Third Party Billing Timeliness for Selected Transactions:



Table 3: Fiscal Year 2001 Financial and Operational Information at 

Selected MTFs (Unaudited):



Table 4: Error Rates for Personal Property:



Abbreviations:



DMLSS: Defense Medical Logistics Standard Support:



DOD: Department of Defense:



IG: Inspector General:



JWOD: Javits-Wagner-O’Day Act:



MTF : military treatment facility:



SSA: Social Security Administration:



Letter October 25, 2002:



The Honorable Dennis J. Kucinich

Ranking Minority Member

Subcommittee on National Security, Veterans Affairs 

 and International Relations

Committee on Government Reform

House of Representatives:



The Honorable Janice D. Schakowsky

Ranking Minority Member

Subcommittee on Government Efficiency, Financial Management

 and Intergovernmental Relations

Committee on Government Reform

House of Representatives:



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

million eligible beneficiaries. Although the Congress has provided 

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

the Department of Defense (DOD) has needed supplemental appropriations 

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

were higher than expected. The growing budgetary pressure increases the 

risk of not achieving the mission of the organization.



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

health care expenditures. Because budgetary pressures sometimes result 

in agencies reducing key oversight and control activities, you 

requested that we review key internal controls at selected MTFs in 

order to determine whether the internal control activities were 

effectively implemented.



The Comptroller General’s five standards of internal control help 

management to cope with evolving demands and priorities, achieve 

effective and efficient program results, and are essential for proper 

stewardship and accountability of government resources. These standards 

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

environment, (2) an assessment of the risks the agency faces from both 

external and internal sources, (3) an assessment of the quality of 

performance over time, (4) relevant, reliable, and timely 

communications among managers and others relating to both internal and 

external events, and (5) control activities, which are the policies, 

procedures, techniques, and mechanisms that help ensure that 

management’s directives to mitigate risk are carried 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.[Footnote 1] These key internal control activities were in the 

areas of:



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



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

timeliness of the billing and collection process for third party 

insurance;



* monitoring and analyzing the types and levels of expired drugs turned 

in for credit or disposal;



* managing personal property accountability; and:



* using government purchase cards.



Our objective was to determine whether the targeted internal control 

activities at the selected medical facilities were effectively 

implemented. To address this objective, we gained an overall 

understanding of their operations and performed specific tests and 

analyses to assess adherence to policies and procedures. Because we 

tested only selected internal control activities at three locations, we 

cannot give an overall opinion on internal controls at these facilities 

or project our results to other facilities. We did not perform a 

financial audit of the medical facilities, nor did we do the level of 

internal control testing that would be done in conjunction with a 

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

financial condition. Further details on our scope and methodology are 

included in appendix I.



Results in Brief:



The three MTFs we reviewed have not effectively implemented internal 

control activities in the areas of eligibility, billings and 

collections, expired drugs, personal property management, and 

government purchase card usage. Unreliable and inaccurate data, system 

inadequacies, complicated processes, and a lack of adherence to 

policies and procedures contributed to the internal control weaknesses 

we identified. For example, a comparison of Social Security 

Administration (SSA) death records with hospital treatment records at 

one location indicated that 41 patients who allegedly had been treated 

during fiscal year 2001 had died in the prior fiscal year or earlier. 

Although these matches of information in death records and patients’ 

records could be the result of clerical errors, someone may have 

fraudulently assumed the identity of a deceased person in order to 

receive free medical care. Weaknesses in DOD eligibility databases as 

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

individuals preclude them from knowing whether individuals are 

fraudulently obtaining health care services.



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

insurance coverage. In addition, they frequently did not bill those 

insurers even when they knew that such coverage existed, thereby losing 

opportunities to collect millions of dollars of reimbursements for 

services. Moreover, two of the medical facilities did not perform 

inventories of their expired or obsolete drugs being held for return 

and could not validate the accuracy of the credits received from 

manufacturers for their return. None of the three hospitals adequately 

analyzed trends of their returned drugs or the actual losses related to 

the expired drugs. Consequently, the MTFs do not have reliable 

information needed to improve their pharmaceutical inventory management 

practices and reduce future losses.



Ineffective physical and financial controls over personal property 

assets and indications of control breakdowns in the use of government 

purchase cards existed at the three facilities. We found items that 

were not included in property records as well as weak processes for 

ensuring that items were actually received and recorded in facility 

records. Both types of weaknesses increase the risk that pilferable 

items or other types of assets can be converted to personal use. Lack 

of controls over the use of the government purchase card also resulted 

in misuse including potentially fraudulent, improper, abusive, and 

questionable purchases as evidenced by, at one location, a military 

cardholder defrauding the government of tens of thousands of dollars by 

purchasing items for personal use.



We are making recommendations to strengthen the internal control 

activities over these areas to improve accountability, reduce the abuse 

of government resources, and enable program directors and managers to 

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

recommendations and briefly outlined both current and planned actions 

for addressing them.



Background:



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

medical services, and support to the armed forces during military 

operations and to provide medical services and support to members of 

the armed forces, their family members, retirees and their families, 

and eligible survivors of deceased active and retired military 

personnel. DOD’s health care program provides medical services such as 

surgery and inpatient care, pharmacy services, and mental health care 

to eligible beneficiaries. This care is delivered through its military 

hospitals and clinics, known as MTFs, or from contracted civilian-

provided care. However, if an eligible beneficiary has commercial 

insurance and care is provided by the MTF, the government is authorized 

to bill the insurance company under the Third Party Collections Program 

established in Public Law 99-272, as amended by Public Law 101-510 (10 

U.S.C. 1095). Currently, according to DOD records, over 8 million 

active duty and retired military personnel along with their dependents 

and survivors are eligible for health care benefits from the military 

health care system.



The three medical facilities in our engagement are also DOD medical 

teaching facilities. Eisenhower trains residents in both surgical and 

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

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

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

education program offering internships and residency training programs 

in medicine, dentistry, psychology, and pastoral care. It is one of 

three teaching hospitals in the Navy with residency programs in 13 

specialty areas. Wilford Hall is the Air Force’s largest medical 

facility. It focuses on military readiness, provides a worldwide 

referral center for military personnel and their dependents, and 

provides trauma and emergency medical care for the San Antonio and 

south Texas civilian communities. It is also the Air Force’s foremost 

provider of medical education, providing the Air Force with 65 percent 

of its physician specialists and 85 percent of its dental specialists. 

Appendix II provides more background information about the military 

facilities.



Internal Controls Not Effectively Implemented:



The following five subsections of this report outline opportunities for 

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

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

auditors’ and our work has also reported on a number of these issues at 

some of the same facilities and recommended improvements. As discussed 

in appendix I and under the following sections, our work, while not 

designed to ascertain the extent of each problem, indicates the 

existence of systemic problems for each of the five areas we reviewed.



Inadequate Eligibility Controls Allow for Unauthorized Access to Care:



Erroneous eligibility information contained in DOD information systems 

precluded the MTFs from providing reasonable assurance that medical 

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

medical management automated information system to determine those who 

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

list from this system of all those who were treated during fiscal year 

2001, which could be used to facilitate analysis and detect ineligible 

persons who were treated. Further, the DOD Inspector General 

(IG)reported[Footnote 2] weaknesses in DOD’s eligibility database and 

concluded that ineligible persons could have received medical care, 

pharmaceuticals, or other benefits. Our work at the three facilities 

supports the DOD IG’s finding that eligibility information contains 

inaccuracies.



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

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

as outpatients, or received pharmaceutical benefits during fiscal year 

2001. After considerable effort, just one facility was able to provide 

a file of beneficiaries who received pharmaceuticals during the year. 

Using this file, we compared patient name, date of birth, and social 

security number with similar data contained in the SSA death records 

and identified 41 patients who received care during fiscal year 2001, 

and who, according to SSA records, had died prior to the start of 

fiscal year 2001. The social security numbers of an additional 225 

patients matched SSA death records, but the names or dates of birth did 

not match. The implications of this comparison could reflect something 

as simple as the erroneous entry of a patient’s social security number 

in the hospital’s medical records or clinical staff mistakenly 

dispensing a prescription under a deceased person’s records. Or, at the 

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

deceased person’s identification to receive prescriptions and treatment 

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

such as name, social security number, and date of birth, is important 

not only to control access to care but also to assure that clinical 

care is being provided to the right patient. We have follow-up work 

under way on these matters.



A July 2001 DOD IG report indicated that questions regarding 

eligibility are an issue across the MTF network. The DOD IG reviewed 

the reliability and completeness of DOD’s eligibility data as well as 

management controls in the system used to control access to military-

provided health care. The DOD IG reported that these data were reliable 

85 percent of the time, and said that quality control and other 

improvements were needed to improve the accuracy of the eligibility 

databases. It estimated that about 415,000, or about 5 percent, of the 

8.4 million beneficiaries in this database were either ineligible or 

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

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

spouse inappropriately remained eligible in the system for almost 2 

years after losing eligibility as result of the divorce from the 

sponsor.[Footnote 3] Another example involved a sponsor who was 

discharged over 20 years ago without benefits yet was listed 

incorrectly in this system as an eligible active duty retiree.



The DOD IG also found inadequate management controls associated with 

the implementation of the system used to produce identity cards for 

military personnel and family members. This military identity card 

system is important because it is used to update personnel information 

stored in DOD’s eligibility database, which provides information to the 

military health system. The DOD IG reported weak management controls 

and little consistency and standardization of policies and procedures 

to ensure accurate and reliable data entry at the 13 sites the staff 

visited. The problems occurring most often at these locations include 

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

documents, lack of separation of duties between officials responsible 

for verifying beneficiary eligibility information and officials 

responsible for issuing the military identification card, and no 

internal standard operating procedures.



Weaknesses in Billings and Collections Prevent Full Recovery of 

Millions from Third Party Insurers:



Although the MTFs are authorized to bill insurance companies under the 

Third Party Collections program, millions of dollars are not being 

collected each year because patient medical records are incomplete, as 

is the identification and billing of reimbursable care. Patients were 

not systematically asked to provide current insurance information, 

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

patient insurance information was obtained, the staff often failed to 

send a bill to the third party insurer or sent the bill late. Once a 

bill is successfully processed, collections from third party insurance 

companies represent 2 percent to 5 percent of the facilities’ operating 

costs each year.



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

1997, prescribes procedures for third party collection activities such 

as the identification of beneficiaries who have other health insurance. 

It also states that the staff shall obtain written certification from 

beneficiaries at the time of each inpatient admission or outpatient 

visit if a certification is not on file or if it has not been updated 

within 12 months. However, our observations of patient reception at 

several clinics at the three medical facilities showed that staffs were 

not systematically obtaining and updating patient insurance information 

and rarely asked outpatients about third party insurance coverage. In 

addition, the required DOD Form 2569 used to document third party 

insurance coverage was often not completed and maintained for either 

inpatients or outpatients in hospital files or databases. Having a 

completed form is important because it (1) documents the existence and 

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

medical management information system, and (3) authorizes the medical 

facility to bill insurance companies on behalf of the beneficiary. Our 

tests of third party insurance documentation for 1 day during each 

quarter of fiscal year 2001 showed the following results.



* At Eisenhower, only 9 of 60 patients, primarily inpatients, selected 

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

staff began monitoring the admissions process in an effort to improve 

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

assigned staff members to ask about insurance while patients wait to 

receive pharmaceuticals.



* 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,[Footnote 4] the Air Force Audit Agency reported the 

same condition--insurance information for inpatients was not being 

obtained and entered into the automated medical information system. For 

over 70 percent of the non-active-duty inpatient population at 14 MTFs 

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

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

the system as not having insurance data and determined that those who 

actually had unrecorded third party coverage had received care valued 

at $113,330. Projected to the entire population over a 6-year period, 

Air Force auditors estimated that $14.4 million could have been billed 

to third party insurers at the 14 Air Force MTFs.



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

patient insurance information was available, the staff often did not 

send a bill. As shown in table 1, about one-third of our 

nonrepresentative selection of 240 instances of treatment that should 

have been billed to a third party insurer were not billed.



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

Type:



Hospital/workload: Eisenhower.



Hospital/workload: * Admissions; Billed: 16; Not billed: 

0; Total: 16.



Hospital/workload: * Outpatient visits; Billed: 10; Not 

billed: 10; Total: 20.



Hospital/workload: * Pharmacy; Billed: 34; Not billed: 

6; Total: 40.



Hospital/workload: Subtotal; Billed: 60; Not billed: 

16; Total: 76.



Hospital/workload: Portsmouth.



Hospital/workload: * Admissions; Billed: 15; Not billed: 

2; Total: 17.



Hospital/workload: * Outpatient visits; Billed: 24; Not 

billed: 16; Total: 40.



Hospital/workload: * Pharmacy; Billed: 22; Not billed: 

10; Total: 32.



Hospital/workload: Subtotal; Billed: 61; Not billed: 

28; Total: 89.



Hospital/workload: Wilford Hall



Hospital/workload: Wilford Hall; Billed: [Empty]; Not 

billed: [Empty]; Total: [Empty].



Hospital/workload: * Admissions; Billed: 14; Not billed: 

1; Total: 15.



Hospital/workload: * Outpatient visits; Billed: 17; Not 

billed: 12; Total: 29.



Hospital/workload: * Pharmacy; Billed: 4; Not billed: 

27; Total: 31.



Hospital/workload: Subtotal; Billed: 35; Not billed: 

40; Total: 75.



Hospital/workload: Total; Billed: 156; Not billed: 

84; Total: 240.



Source: GAO analysis of DOD data.



[End of table]



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.[Footnote 5] 

Thirteen facilities were not adequately identifying patients with third 

party insurance, and even when sufficient data were available, billing 

was not always done. Air Force auditors projected that increased 

management emphasis in this area would generate increased billings of 

about $114 million for the 13 Air Force MTFs over a 6-year period. 

Wilford Hall was one of the facilities included in the Air Force Audit 

Agency review.



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

DOD standard criteria call for facilities to bill for admissions within 

10 business days following completion of the medical record and within 

7 business days for outpatient visits. In evaluating the timeliness of 

billing, we used a more liberal standard of 30 days after treatment for 

billing admissions and 90 days for outpatients and pharmaceuticals 

dispensed. Even then, the military facilities still did not bill within 

those extended time frames in about half the cases, as shown in table 

2.



Table 2: Third Party Billing Timeliness for Selected Transactions:



Hospital: Eisenhower; Billed timely: 25; Billed late: 35; Total: 60.



Hospital: Portsmouth; Billed timely: 23; Billed late: 38; Total: 61.



Hospital: Wilford Hall; Billed timely: 28; Billed late: 7; Total: 35.



Hospital: Total; Billed timely: 76; Billed late: 80; Total: 156.



Source: GAO analysis of DOD data.



[End of table]



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.



Weaknesses Precluded Adequate Management of Pharmaceutical Return Goods 

Program:



Management at the three facilities did not have the information needed 

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

goods program. Specifically, pharmacy personnel did not perform 

inventories of non-narcotic expired drugs being returned to the 

manufacturers for reuse or destruction, which would help management 

verify the level and types of drugs being turned in and the accuracy of 

any credits received. The lack of a review of expired drugs hampers the 

pharmacy personnel’s ability to identify reasons for any unusual trends 

associated with the drugs turned in and any adjustments needed to 

current inventory levels.



Pharmacy personnel at the Portsmouth and Wilford Hall facilities did 

not inventory the non-narcotic drugs turned in for pickup by their 

respective pharmaceutical return goods contractor. This contractor 

collects recalled, expired, or deteriorated drugs for a fee and returns 

them to their respective manufacturers for possible future credits. The 

contractor also provides each facility with a detailed report of the 

items returned and credits received. However, the two military 

facilities cannot verify the accuracy of credits received without 

having performed their own inventories of the returned items since they 

do not keep perpetual inventories of non-narcotic drugs, and they did 

not have records of what they turned in to the contractor. As a result, 

the hospitals were relying solely on the contractor to identify the 

actual type and amount of drugs returned to the drugs’ manufacturers.



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

effective to track non-narcotic expired drugs, but did not provide any 

analysis or documentation to support this assertion. However, we 

contacted a pharmacy operations official at a large commercial health 

care company who stated that it was the company’s practice to maintain 

an inventory of returned drugs by assigning a tracking number for each 

returned item so the credit received can be reconciled to its related 

tracking number.



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.[Footnote 6] In this report, Army auditors reported that 

pharmacy personnel had not established a method for tracking the amount 

of drugs returned to the manufacturers to make sure related credits 

were received.



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

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

unable to efficiently monitor drug usage or to determine whether 

unusual trends are occurring and if the inventory levels in the 

pharmacies are appropriate. Drugs have defined shelf lives, and there 

is value added in managing the inventories to minimize the levels of 

expired drugs. A periodic evaluation of expired and/or deteriorated 

drugs being turned in throughout the year may reveal certain drugs 

being turned in at consistently high levels and thus indicate a need to 

adjust the inventory levels to better align them with usage levels. If 

management reviewed actual performance data and took necessary 

corrective action to optimize inventory levels, the cost of 

pharmaceutical operations could be reduced. For example, in July 2001, 

Portsmouth returned 2,000 tablets of Zocor, a cholesterol-lowering 

drug, for destruction and received no credit. Since this drug costs the 

pharmacy about $.50 per tablet, the government lost $1,000 on the 

purchase of this unused drug.



Weaknesses Preclude Adequate Safeguarding and Management of Personal 

Property Assets:



Although internal control standards require agencies to establish 

physical control to secure and safeguard vulnerable assets, internal 

controls over property at Wilford Hall and Portsmouth were ineffective 

and were only partially effective at Eisenhower due to inaccurate 

personal property data relative to the existence of these assets. We 

also found inaccuracies in the areas of completeness and a lack of 

support for the costs and dates of acquisition of these assets. More 

specifically, our tests of personal property found examples of items on 

the property records that could not be located and items that were 

incorrectly recorded or were not recorded in the property records. In 

addition, many items in the personal property records had little or no 

documentation available to support their acquisition values or dates, 

and the resolution of items discovered missing during physical 

inventories was significantly delayed.



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.[Footnote 7] Almost all of the personal 

property items that could not be located were lower priced (under 

$5,000) or pilferable items that had been recorded as accountable 

assets. Examples of these items included a personal digital assistant 

(i.e., a Palm PilotTM); a cellular telephone; computer monitors; color 

printers; a handheld radio; and various pieces of medical equipment 

such as a stretcher, electric beds, and intravenous pumps. Officials 

stated that many of the pieces of medical equipment are portable and 

may move from one location to another with patients. However, for the 

office equipment items, no explanation was provided as to where they 

could be or what had happened to them. Property record errors were not 

limited to low dollar value items. For example, Wilford Hall officials 

told us that a $1 million magnetic resonance imaging scanner 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.[Footnote 8] Internal control standards for the 

federal government require that all transactions be clearly and 

completely documented, and that this documentation be readily available 

for examination. We previously reported that DOD guidance on proper 

documentation and retention was inadequate.[Footnote 9] 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.



Weaknesses in Government Purchase Card Program Resulted in Misuse:



Purchase card program internal control weaknesses make medical 

facilities vulnerable to fraudulent and abusive purchases and place the 

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

ability to buy items or services that may be (1) potentially 

fraudulent, (2) improper, and (3) abusive or questionable increases. 

These purchase card weaknesses are similar to those identified in our 

previous work at two Navy sites in San Diego, California,[Footnote 10] 

and at five Army sites (one being Eisenhower),[Footnote 11] both of 

which found a weak control environment and ineffective internal 

controls, which allowed potentially fraudulent, improper, and abusive 

purchases. The work at Eisenhower is the result of statistical sampling 

and data mining,[Footnote 12] while only data mining was used to review 

purchase card transactions at Portsmouth and Wilford Hall. Because we 
did 

not select statistical samples at these two locations, we cannot 
conclude 

as to the effectiveness of key internal controls. However, our tests 

indicated the same type of control breakdowns as seen in other work, 

indicating that these facilities could have similar problems.



A potentially fraudulent purchase by a cardholder is defined as one 

made that is unauthorized and intended for personal use. Potentially 

fraudulent purchases can also result from compromised accounts in which 

a purchase card or account number is stolen and used by someone other 

than the cardholder to make a potentially fraudulent purchase. At 

Eisenhower, an Army investigation found that a military cardholder 

defrauded the government of $30,000 with purchases of a computer, 

purses, rings, and clothing for personal use and as a result had been 

sentenced to 18 months in prison. The cardholder took advantage of a 

situation wherein the cardholder’s approving official was on temporary 

duty for several months. The cardholder believed that the alternate 

approving official would certify the statement for payment without 

reviewing the transactions or their documentation. These fraudulent 

transactions were not discovered until the resource manager who 

monitored the unit’s budget noticed a large increase in spending by the 

cardholder. The cardholder had destroyed all documentation for the 3-

month period during which these transactions took place. These 

fraudulent transactions might not have occurred if the cardholder had 

known that the approving official would review the transactions. At a 

minimum, prompt approving official review would have detected the 

fraudulent transactions.



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

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

two types of improper purchases--split purchases and purchases from 

nonmandatory sources. Split purchases occur when a cardholder divides a 

single purchase into more than one transaction to avoid the requirement 

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

threshold or to avoid other established credit limits as prohibited by 

the Federal Acquisition Regulation.[Footnote 13] Of the 17 sets of 

transactions reviewed at Wilford Hall that appeared to be split 

purchases, officials could not provide invoices or other third party 

documentation for 15 of these sets of transactions to determine whether 

they were actual split purchases. However, a cardholder and another 

official acknowledged that two of the selected transactions were split 

purchases. For example, one transaction set contained 19 orders that 

were placed to the same vendor on the same day. These 19 orders totaled 

over $7,200. Officials agreed that this set of transactions was a split 

purchase because the buyer knew all the requirements and probably knew 

the total was above the threshold and still placed the orders at one 

time.



Another type of improper purchase occurs when cardholders do not buy 

from mandatory sources of supply. Various laws and regulations require 

the purchase of certain products from designated sources such as the 

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

is a mandatory source of supply for all federal entities.[Footnote 14] 

The JWOD program generates jobs and training for Americans who are 

blind or have severe disabilities by requiring federal agencies to 

purchase supplies and services furnished by nonprofit agencies, such as 

the National Industries for the Blind and the National Institute for 

the Severely Handicapped. At Portsmouth and Wilford Hall, items such as 

day planner refills, other miscellaneous office supplies, and plastic 

utensils were bought from a commercial source when they, or 

substantially similar products, could have been bought from JWOD 

vendors. Further, Portsmouth and Wilford Hall did not have 

documentation to show that the cardholders had checked item 

availability from these vendors before purchasing them elsewhere.



Each location had examples of either abusive or questionable purchase 

card transactions. Abusive transactions are those that were authorized, 

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

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

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

short of societal expectations of prudent behavior. One example of an 

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

Wilford Hall that was justified as needed to “take photos for Christmas 

party and other 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.[Footnote 15] 

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.[Footnote 16] 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.[Footnote 17] Of the 50 nonrepresentatively selected 

items reviewed at the other two locations, 20 and 18 lacked invoices or 

other independent documentation at Wilford Hall and Portsmouth, 

respectively. Internal control standards require that transactions be 

clearly documented and that support be readily available for 

examination. A valid invoice to show what was purchased and the price 

paid is a basic transaction document, and a missing invoice is an 

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

case at Eisenhower. Without this independent documentation, supervisors 

and management cannot be certain that the items purchased are 

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

some transactions had no documentation supporting the description, 

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

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

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

transactions were for valid government reasons, they could not provide 

any documentation supporting the purchases. Without a vendor invoice, a 

thorough review is necessary to determine whether the transaction was 

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

independent receiving cannot confirm that all purchased items were 

received if no invoice or other documentation supporting the quantity 

is available.



Conclusions:



Collectively, the weaknesses found and their effects as demonstrated by 

our work indicate the existence of financial management problems at the 

three MTFs. Because selected internal controls at the facilities have 

not been effectively implemented, management at these facilities does 

not have reasonable assurance that only eligible patients are receiving 

care, the government has been properly reimbursed for care from third 

party insurers, personal property and expired drugs can be accounted 

for, and purchase cards are used properly. The same issues and 

recommendations identified in our other work related to purchase card 

usage are also applicable to the MTFs. As a result of these control 

weaknesses, millions of dollars that could be used for patient care may 

be unnecessarily spent for ineligible patients, unused pharmaceuticals, 

or unneeded purchases.



Recommendations for Executive Action:



Because having sound financial and management practices affects the 

ability of program directors and managers to make better decisions and 

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

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

conjunction with the senior management at the three MTFs, as 

appropriate,



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

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

care systems;



* develop and utilize analytical tools for facilitating the 

identification of erroneous records in the eligibility, cost, and 

clinical health care systems such as comparisons between SSA records 

and facility automated medical management records;



* reiterate through correspondence with MTF personnel the importance 

of:



* completing or updating the DOD Form 2569, as required, to document 

whether each health care beneficiary has third party insurance;



* entering patient insurance coverage information into the automated 

medical information system so that more complete and accurate reports 

can be generated to better identify reimbursable care for billing;



* billing third party insurance carriers promptly for admissions, 

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

testing as well as other care not billed; and:



* collecting third party reimbursements due to the government to the 

fullest extent allowed as required by DOD policy;



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

of drugs to be returned to the pharmaceutical return goods contractor 

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

evaluate, based on the management reports provided by the contractor 

and the pharmaceutical prime vendor, the credits received from the 

returns of drugs and net losses of those drugs to use as an indicator 

in determining whether on hand inventory levels are appropriate;



* require property office management to maintain, and have readily 

available, independent documentation supporting the cost and date of 

acquisition for all accountable personal property;



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

personal property items detected during their periodic physical 

inventories, and to adjust the property records accordingly; and:



* review and modify the existing processes and requirements to improve 

documentation of purchase card transaction approvals, independent 

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

quantities.



Agency Comments and Our Evaluation:



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

with our recommendations and identified corrective actions planned and 

underway related to eligibility for health care and collections from 

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

and the Executive Director of the TRICARE Management Activity have 

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

comments are reprinted in appendix IV. DOD also provided additional 

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

the end of appendix IV.



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

distribution of this report until 15 days from the date of this letter. 

At that 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.



Gregory D. Kutz

Director

Financial Management and Assurance:



Signed by Gregory D. Kutz



William M. Solis

Director

Defense Capabilities and Management:



Signed by William M. Solis



[End of section]



Appendix I: Scope and Methodology:



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.



[End of section]



Appendix II: Financial and Operational Information at Selected MTFs 

(Unaudited):



Table 3: Fiscal Year 2001 Financial and Operational Information at 

Selected MTFs (Unaudited):



Budget allocation - original at 10/1/00; Eisenhower Army Medical Center

Augusta, Ga.: $92,565,000; Naval Medical Center-Portsmouth 

Portsmouth, Va.: $210,578,000; Wilford Hall Air Force Medical Center

San Antonio, Tex.: $133,136,000.



Budget allocation - supplemental; Eisenhower Army Medical Center

Augusta, Ga.: 5,100,000; Naval Medical Center-Portsmouth 

Portsmouth, Va.: 39,496,000; Wilford Hall Air Force Medical Center

San Antonio, Tex.: 30,217,000.



Reimbursements earned; Eisenhower Army Medical Center

Augusta, Ga.: 7,202,000; Naval Medical Center-Portsmouth 

Portsmouth, Va.: 14,130,000; Wilford Hall Air Force Medical Center

San Antonio, Tex.: 11,411,000.



Budget - overall budget authority at 9/30/01; Eisenhower Army Medical 

Center, Augusta, Ga.: 104,867,000; Naval Medical Center-Portsmouth 

Portsmouth, Va.: 264,204,000; Wilford Hall Air Force Medical Center

San Antonio, Tex.: 174,764,000.



Obligations at 9/30/01.



Civilian pay; Eisenhower Army Medical Center, Augusta, Ga.: 42,723,000; 

Naval Medical Center-Portsmouth,Portsmouth, Va.: 63,643,000; 

Wilford Hall Air Force Medical Center, San Antonio, Tex.: 38,014,000.



Contracts; Eisenhower Army Medical Center, Augusta, Ga.: 17,010,000; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 92,507,000; 

Wilford Hall Air Force Medical Center, San Antonio, Tex.: 20,105,000.



Supplies; Eisenhower Army Medical Center, Augusta, Ga.: 40,721,000; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 89,903,000; 

Wilford Hall Air Force Medical Center, San Antonio, Tex.: 78,374,000.



Equipment; Eisenhower Army Medical Center, Augusta, Ga.: 1,957,000; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 1,772,000; 

Wilford Hall Air Force Medical Center, San Antonio, Tex.: 7,719,000.



Other; Eisenhower Army Medical Center, Augusta, Ga.: 2,456,000; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 16,379,000; 

Wilford Hall Air Force Medical Center, San Antonio, Tex.: 30,552,000.



Full-time equivalent employees.



Civilian; Eisenhower Army Medical Center, Augusta, Ga.: 954; Naval 

Medical Center-Portsmouth, Portsmouth, Va.: 1,194; Wilford Hall Air 

Force Medical Center, San Antonio, Tex.: 879.



Military; Eisenhower Army Medical Center, Augusta, Ga.: 1,178; Naval 

Medical Center-Portsmouth, Portsmouth, Va.: 2,361; Wilford Hall Air 

Force Medical Center, San Antonio, Tex.: 3,658.



Contract; Eisenhower Army Medical Center, Augusta, Ga.: 286; Naval 

Medical Center-Portsmouth, Portsmouth, Va.: 643; Wilford Hall Air Force 

Medical Center, San Antonio, Tex.: 424.



Inpatient admissions; Eisenhower Army Medical Center, Augusta, Ga.: 
5,361; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 17,612; Wilford Hall 
Air 

Force Medical Center, San Antonio, Tex.: 15,423.



Outpatient visits; Eisenhower Army Medical Center, Augusta, Ga.: 
596,247; 

Naval Medical Center-Portsmouth, Portsmouth, Va.: 1,450,504; Wilford 
Hall 

Air Force Medical Center, San Antonio, Tex.: 854,292.



Pharmacy prescriptions filled; Eisenhower Army Medical Center

Augusta, Ga.: 2,808,923; Naval Medical Center-Portsmouth 

Portsmouth, Va.: 2,464,304; Wilford Hall Air Force Medical Center

San Antonio, Tex.: 2,602,827.



Source: GAO presentation of DOD data.



[End of table]



[End of section]



Appendix III: Results of Personal Property Existence Testing:



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.



Table 4: Error Rates for Personal Property:



Installation: Total items sampled; Portsmouth: 100; Eisenhower: 100; 

Wilford Hall: 100.



Installation: Estimated overall percentage of errors[A]; Portsmouth: 

31%; Eisenhower: 4%; Wilford Hall: 17%.



Installation: 95 percent confidence interval; Portsmouth: 21-41%; 

Eisenhower: 1-10%; Wilford Hall: 10-27%.



Installation: Actual percentage and number of errors in $1,000,000+ 

stratum[B]; (100% testing performed); Portsmouth: 11%; (1 of 9); 

Eisenhower: 0%; (0 of 4); Wilford Hall: 88%; (7 of 8).



[A] An error is defined as DOD officials not locating an item or 

locating an item with a serial number different from that which was 

recorded in the property record.



[B] All but one error that occurred in this $1,000,000+ stratum was due 

to manufacturers’ serial numbers that did not match the facility-

assigned bar codes shown in the records as opposed to missing property. 



Source: GAO analysis of DOD data.



[End of table]



[End of section]



Appendix IV: Comments from the Department of Defense:



THE ASSISTANT SECRETARY OF DEFENSE:



HEALTH AFFAIRS:



WASHINGTON, D.C. 20301-1200:



SEP 27 2002:



Mr. Gregory D. Kutz:



Director, Financial Management and Assurance, U.S. General Accounting 

Office:



Washington, DC 20548:



Dear Mr. Kutz:



This is the Department of Defense (DoD) response to the GAO draft 

report, GAO-02-860, “MILITARY TREATMENT FACILITIES: Internal Control 

Activities Need Improvement,” dated August 8, 2002 (GAO Code 192037).



In general, the DoD concurs with the overall GAO draft report. Specific 

comments and recommendations on the draft report are incorporated into 

our response.



The Department is appreciative of the GAO’s surfacing of the five 

specific areas of MTF operations at the selected MTFs that require 

increased management involvement and oversight. Our comments address 

the GAO’s recommendations and the five areas reviewed (enclosed).



Please feel free to direct any questions regarding this reply to my 

project officers, Major Henri Hammond (functional) at (703) 681-1724 or 

Mr. Gunther Zimmerman (GAO/IG Liaison) at (703) 681-7889 extension 

1229.



Sincerely,



William Winkenwerder, Jr., MD



Signed by E. P. Wyatt for William Winkenwerder



Enclosures: 



1. Response to GAO Recommendations: 

2. Additional Comments:

3. Technical Comments:

4. Air Force Surgeon General Comments:



GAO DRAFT REPORT - DATED AUGUST 8,2002 (GAO CODE 192037):



“MILITARY TREATMENT FACILIITES: INTERNAL CONTROL ACTIVITIES NEED 

IMPROVEMENT”:



DEPARTMENT OF DEFENSE COMMENTS:



To improve financial and management practices to afford program 

directors and managers better decision making tools to make better 

decisions and achieve results, the GAO recommended the Under Secretary 

of Defense for Personnel and Readiness and the Surgeons General, in 

conjunction with the senior management of the three military treatment 

facilities, as appropriate:



RECOMMENDATION 1: Develop a strategy to make short term improvements in 

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

care systems.



DOD RESPONSE: Concur.



RECOMMENDATION 2: Develop and utilize analytical tools for facilitating 

the identification of erroneous records in the eligible, cost and 

clinical health care systems such as comparisons. between Social 

Security Administration records and facility automated medical 

management records.



DOD RESPONSE: Concur.



RECOMMENDATION 3: Reiterate through correspondence with military 

treatment facility personnel the importance of a) completing or 

updating the DoD Form 2569, as required, to document whether or not 

each health care beneficiary has third party insurance; b) entering 

patient insurance coverage information into the automated medical 

information system so that more complete and accurate reports could be 

generated to better identify reimbursement care for billing; c) 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 d) collecting third party 

reimbursement due to the government to the fullest extent allowed as 

required by DoD policy.



DOD RESPONSE: Concur. These are appropriate recommendations. All 

possible efforts must be made to ensure this important program is 

properly managed and maintained. DoD also recommends that MTF 

leadership be held accountable for this program. It is evident that 

MTFs with involved and committed leadership, programs are more 

successful.



RECOMMENDATION 4: Require military treatment facility pharmacies to 

maintain a listing of all drugs returned to the contractor for credit 

or disposal and to routinely measure and analyze the type and net loss 

relating to the drugs being returned to determine if adjustments need 

to be made in the volume or type of items being ordered.



DOD RESPONSE: Concur.



RECOMMENDATION 5: Require property office management to maintain, and 

have readily available, independent documentation supporting the cost 

and date of acquisition for all accountable personal property.



DOD RESPONSE: Concur.



RECOMMENDATION 6: Require property office management to promptly report 

the loss of any personal property items directed during their periodic 

physical inventors; and to adjust the property records accordingly.



DOD RESPONSE: Concur.



RECOMMENDATION 7: 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.



DOD RESPONSE: Concur.



GAO DRAFT REPORT - DATED AUGUST 8,2002 (GAO CODE 192037):



“MILITARY TREATMENT FACILIITES: INTERNAL CONTROL ACTIVITIES NEED 

IMPROVEMENT”:



ADDITIONAL COMMENTS:



General Comments:



Page 5. Inadequate Eligibility Controls Allow for Unauthorized Access 

to Care. The GAO identified that erroneous eligibility information 

contained in DoD information systems precluded the military treatment 

facilities (MTFs) from providing reasonable assurance that medical care 

was only provided to eligible beneficiaries. The essence of GAO’s 

comments concentrated on system problems. It is important to re-

emphasize that MTF personnel only confirm and verify data in DEERS to 

check eligibility, not establish nor disestablish entitlement. Specific 

improvements are being fostered internally within the MTFs to check 

eligibility for care and recoup ID cards that are found to be 

fraudulent. These steps will help improve the access to care for only 

those who are eligible.



Page 7. Weaknesses in Billings and Collections Prevent Full Recovery of 

Millions from Third Party Insurers. GAO identified that millions of 

dollars are not being collected each year because patient medical 

records are incomplete, and that patients are not asked to provide 

current information thereby hindering the ability to identify all 

billable care. The Services are addressing this problem by seeking new 

automation products to allow verification of Other Health Insurance 

(OHI), examining business case models to allow medical record 

dictation, regionalization of billings offices, revenue cycle procedure 

manuals, modification to current billing office guidance, and patient 

coding solutions to improve accuracy. These efforts are aimed at 

improving the billing and collection capabilities to foster maximum 

recoupment.



Page 12. Weaknesses Precluded Adequate Management of Pharmaceutical 

Returned Goods Program. GAO identified that Wilford Hall Medical Center 

(WHMC) did not inventory the non-narcotic drugs turned in for pickup by 

a return goods contractor. The GAO further indicated that Wilford Hall 

could not verify the accuracy of credits for returned drugs and credits 

received. Lastly, the GAO indicated that pharmacy officials at Wilford 

Hall told them that it was not cost effective to track non-narcotics 

expired drugs. Comment:Specific findings may have been misstated due to 

lack of complete understanding of local procedures and the fact that 

Wilford Hall Medical Center was transitioning from one material 

information management system to another at the time of the audit.



Page 13. The GAO indicated that they were unable to find the property 

records at Wilford Hall for a $1 million Magnetic Resonance Imaging 

(MRI) scanner. GAO asserts that the MRI was removed from service in 

September 2001 with no documentation available to show what had 

happened to it, or whether or not it had any residual value. Comment: 

Wilford Hall did have documentation available to show that the MRI was 

returned for credit and an inventory loss transaction was processed. 

Copies of the supporting documentation were provided to the auditor, 

yet it was still identified as an audit finding.



Page 16. Weaknesses in Government Purchase Card Program Resulted in 

Misuse. The Government Credit Card Programs need improvement. The 

TRICARE Management Activity will direct the Military Department 

Surgeons General to identify Government Purchase Card Programs as 

annual assessable units and to include them in their annual statements 

of assurance.



Eligibility Controls for Access to Care:



Based upon a DoD IG audit, Evaluation of the Investigative Environment 

in Which the Defense Enrollment Eligibility Reporting System (DEERS) 

Operates (Project # 7017-9029), the IG recommended in Recommendation 

B,1. “The ASD(HA) direct military treatment facility Commanders to 

comply with existing policy that requires a) 100 percent eligibility 

checks using DEERS prior to treating military personnel or their 

dependents; b) confiscating identification cards from ineligibility 

individuals who seek military medial care and forwarding those cards to 

local authorities; and c) initiate administrative recoupment action for 

costs incurred when suspected ineligible individuals obtain 

unauthorized military medical benefits.”:



To conform to the requirements, the Office of the Assistant Secretary 

of Defense (Health Affairs) has created a new Department of Defense 

Instruction (DoDI) which implements policy for eliminating the 

fraudulent use of Identification Cards (ID) issued to Members of the 

Uniformed Services, their dependents, and other eligible individuals 

for health care provided in the Military Health System (MHS) Medical 

Treatment Facilities (MTFs). The new DoDI also implements policy, 

assigns responsibilities and prescribes procedures for MTFs regarding 

the verification and confiscation of ID Cards.



When issued, the DoDI will outline prescribed procedures to the 

Services and their MTFs for reviewing ID cards to determine eligibility 

for care, procedures for confiscation of fraudulent ID cards, and the 

recoupment of DHP funding spent for the delivery of medical care.



The draft DoDI is currently undergoing Departmental coordination. The 

ASD(HA) has sent the SD Form 106 to the Military Departments for 

review.



Management Control Program:



The TRICARE Management Activity (TMA), the operational component of the 

Assistant Secretary of Defense (Health Affairs), instituted a 

Management Control Program (MCP) in April 2001 to assist in the 

oversight of the MHS and the Defense Health Program (DHP). The TMA MCP 

consists of two distinct oversight initiatives, the TMA Management 

Control Program and the Defense Health Program (DHP) Enterprise 

Management Control Program. The DHP Enterprise program is designed to 

provide the Military Departments with subject areas in which MHS policy 

is issued to the Military Departments for inclusion in the Services 

list of assessable units (AUs) issued to their MTFs. Representatives 

from the three Military Departments meet quarterly as the DHP 

Management Control Program Work Group to review and address management 

control issues relevant to the Services and MTFs. The result is the 

development of DHP AUs forwarded to the Military Departments for 

implementation. AU reviews are consolidated into the Military 

Department’s Annual Statements of Assurance as required by the Federal 

Managers’ Financial Integrity Act (FMFLA).



Third Party Collection Proeram (TPC):



The Department fully supports the findings identified by the GAO 

regarding the loss of funds not being collected under TPC due to 

incomplete patient medical records, inadequate insurance 

identification procedures and weak billing and collecting procedures. 

The corrective actions identified by the GAO should help the Department 

in its continuing education with the Services and MTFs of how the TPC 

can improve.



Government Purchase Card Proeram:



On June 21, 2002, the Deputy Secretary of Defense directed management 

at all levels to ensure the necessary oversight of government charge 

cards and education to eliminate fraud, misuse, and abuse of these 

charge cards. The Executive Director, TMA issued guidance on July

8, 2002 to the TMA Directors providing policy and information on 

responsibilities for the use of Government Charge Cards.



GAO DRAFT REPORT - DATED AUGUST 8, 2002:



(GAO CODE 192037):



“MILITARY TREATMENT FACILHTES: INTERNAL CONTROL ACTIVITIES NEED 

IMPROVEMENT”:



TECHNICAL COMMENTS:



Page 23. Fourth Recommendation. Recommend rewriting the recommendation 

to read “Require military treatment facility pharmacies and/or medical 

logistics offices to maintain an itemized list of all drugs and 

quantities to be returned to the pharmaceutical return goods contractor 

for credit or disposal. Further, require MTF’s to routinely monitor and 

evaluate, from the management reports provided by the contractor and 

pharmaceutical prime vendor, the credits received from the returns and 

the drugs and net losses of those drugs to determine if on hand 

inventory adjustment are appropriate.” Revised recommendation more 

accurately reflects the current process for controlling returned 

pharmaceuticals and the process to determine the impact on the 

inventory resulting from returns.



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

dated September 27, 2002.



GAO Comments:



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



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

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

was transitioning.



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

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

records were inaccurate at the time of our review.



Appendix V: GAO Contact and Staff Acknowledgments:



GAO Contact:



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



Acknowledgments:



Staff members making key contributions to this report were Shawkat 

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

Garcia, Janine Prybyla, and Sidney Schwartz.



FOOTNOTES



[1] We chose Eisenhower Army Medical Center, Augusta, Georgia; Naval 

Medical Center-Portsmouth, Portsmouth, Virginia; and Wilford Hall Air 

Force Medical Center, San Antonio, Texas, as our case study MTFs. 

Unaudited financial and operational information provided by each of the 

three MTFs is shown in app. II.



[2] Department of Defense, Office of the Inspector General, Beneficiary 

Data Supporting the DOD Military Retirement Health Benefits Liability 

Estimate, Report No. D-2001-154 (Washington, D.C.: July 5, 2001).



[3] A sponsor is the active duty service member or retiree. A sponsor 

may have many other eligible beneficiaries, such as dependent children; 

current and, in certain instances, a former spouse; and others who by 

virtue of their relationship to the sponsor are eligible for care at 

the MTF.



[4] Air Force Audit Agency, Follow-up, Third Party Collection Program, 

Audit Report 00051011 (Washington, D.C.: Apr. 26, 2001).



[5] Air Force Audit Agency, Third Party Collection Program - 

Pharmaceuticals, Audit Report 01051015 (Washington, D.C.: Aug. 8, 

2001).



[6] Army Audit Agency, Pharmaceutical Management, U.S. Army Medical 

Command, Report No. 02-129 (Washington, D.C.: Jan. 25, 2002).



[7] The 95 percent confidence interval extends from 21 percent to 41 

percent for Portsmouth, from 1 percent to 10 percent for Eisenhower, 

and from 10 percent to 27 percent for Wilford Hall.



[8] The 95 percent confidence interval extends from 86 percent to 98 

percent.



[9] U.S. General Accounting Office, Internal Controls: DOD Records 

Retention Practices Hamper Accountability, GAO/AIMD/OSI-00-48R 

(Washington, D.C.: Feb. 4, 2000).



[10] U.S. General Accounting Office, Purchase Cards: Control Weaknesses 

Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-32 

(Washington, D.C.: Nov. 30, 2001).



[11] U.S. General Accounting Office, Purchase Cards: Control Weaknesses 

Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732 

(Washington, D.C.: June 27, 2002), and Purchase Cards: Control 

Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-

844T (Washington, D.C.: July 17, 2002).



[12] In our work, data mining involved the manual or electronic sorting 

of purchase card data to identify and select for further follow-up and 

analysis transactions with unusual or questionable characteristics.



[13] The Federal Acquisition Regulation is the primary source of the 

uniform policies and procedures for acquisition by all executive 

agencies.



[14] Federal Acquisition Regulation, Part 8.7.



[15] The 95 percent confidence interval extends from 48 percent to 71 

percent.



[16] The 95 percent confidence interval extends from 60 percent to 81 

percent.



[17] The 95 percent confidence interval extends from 17 percent to 38 

percent.



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