Defense Finance and Accounting Service (DFAS)

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Attachment 2

Defense Finance and Accounting Service (DFAS
)


High Dollar Improper Payments to Individuals


Military Retired and Annuitant
Pay


The
Quarter
1, Fiscal Year (FY) 2012
random review of
military retir
ees

and annuitants
examined 450 retired accounts
totaling
$569,767

and 450 annuitant accounts
totaling
approximately $
162,730
.

No high dollar overpayments were identified.


The
Q
uarter
1

random review of confirmed deceased retirees included
9,261

cases for
$
17.3

million
and deceased annuitants included
4,573

cases for $
4.3

million
.
Overall, 57 debts
met the high dollar threshold for $502,539 total overpaid dollars. Of these, 31 were
deceased
retiree debts
totaling $
271,044
, and 26 were
dece
ased annuitant
debts totaling $
231,495
.


The majority of high dollar overpayments
are the result of

payments
continuing to be
made
after
the
date of death
.
This occurs

due to
the

death
notification
being received late.

To
date,
$440,039 (87.6 percent) ha
s been recovered overall, with
$
227,856

(
84.1

percent
)
recovered for Deceas
ed Retired Pay and $
212,183

(
91.7

percent
) recovered for Deceased
Annuitant Pay
.


Military Retired Pay


Prevention and Corrective Action


The Department

s control process to
prevent, identify, and reduce overpayments to
deceased retirees
and annuitants
include
s

a series of periodic eligibility notifications, early
detection data mining efforts, and partnerships with other Federal and state entities. The
Department takes a pro
active approach, routinely comparing retired and annuit
ant

payroll master
file databases to
the
Social Security Administration
Master Death File,

and periodically
comparing records with the Office of Personnel Management

s

files of deceased annuitants.



F
ile comparisons are also conducted with the Department of Veterans Affairs


cemetery
database and with individual states
that have

sizable retiree and annuitant populations (e.g.,
Texas, California, and Florida). Retirees identified as deceased in these
comparisons must
valid
ate their continued eligibility

or the accounts are suspended.






2

High Dollar Improper Payments to Entities (Vendors/Contractors)


For
Q
uarter

1, FY 2012
, there were 447 high

dollar overpayments to entities totaling
$70.2

million
,

with $61.8 million (88
.0

percent
) recovered to date. The primary root causes for
these overpayments were input errors (338 errors at $59.1 million), contractor billing errors
(47

errors at $3.0 million) and progress payment under recoupment errors (10 err
ors at
$5.7

million).


The input errors include entitlement errors, duplicate payment errors, voucher examiner
error
s
,

and duplicate payments due to
both
manual and automated payments

being made
. The
contractor billing errors include contractors submitt
ing duplicate invoices for payment through
manual and electronic means and
other
general contractor
-
related billing errors. The progress
p
ayment under recoupment
errors generate an overpayment due to essentially paying the
contractor more in progress paym
ents th
a
n they were entitled to
; this is

because
the proper
amount was not recouped from the invoice before paying

the contractor.


Preventative Actions and Strategies


DFAS uses the Business Activity Monitoring (BAM) tool which compares the current
invo
ices received in our major entitlement systems to historical paid files. The purpose of BAM
is to identify, monitor, and prevent or reduce transaction errors and duplicate payments and
over/underpayments. BAM identifies potential improper payments before

they are disbursed
,

providing DFAS the capability to prevent an improper payment.


DFAS continues to refine and test additional BAM logic to identify potential improper
over and under recoupment payments prior to disbursement. In addition to the BAM
improvements, DFAS holds continuous training sessions to address these types of complex
payment instructions.
The
Internal Review
division of DFAS
performs periodic duplicate
payment checks for vendor payments and provides results back to the sites for process
improvements and for possible logic changes to the BAM tool.


Some improper paymen
ts are a result of contractor billing errors. As part of
its

contractor
outreach program, DFAS
contacts
contractors to explain the impact of submitting corrective
invoices and how DFAS must receive notification to remove the original invoices from the
ent
itlement systems.


Recovery Actions


DFAS conducted detai
led root cause analysis on the three

largest overpayments for this
quarter and identified the following:




Dell Marketing LP


$42.3 million
improper payment
due to payment to the wrong
vendor. DFAS paid the vendor instead of the assignee. DFAS has recouped the
full

amount

and has implemented additional internal controls to prevent
future recurrence
.


3



Bell Helicopter


$3.6 million
total
improper payments
d
ue to a vendor billing error.
DFAS has recouped
the full amount.




Northrop Grumman Systems Corp


$2.4 million

total
improper payments
due
to

technician
input error
. DFAS has recouped $1.8

million

t
o date
. DFAS conducts
monthly
employee
training
sessions to discuss the importance of accurately verifying
all information on contract payments.


DFAS continues to utilize the Accounts Payable
-
Accounts Receivable handoff standard
process for the recognition and collection of improper payments.

The proc
ess provides the
procedures that ensure the proper due diligence is performed
which

include
s
, but

is
not limited to
Contract Debt System (CDS) input, demand letter processing, follow
-
up actions,
and
collection
and transfer of the debt to the D
ebt
M
anagemen
t
O
ffice
.


The

CDS Validation/Reconciliation process ensures debts are properly recorded and
supported by applicable documentation. This process is ongoing and requires e
ach

debt to be
reviewed by
DFAS s
ites every 120 days.


DFAS is improving the collection of
improper

payments by re
-
engineering the internal
o
ffset process. The changes to this process include identifying invoices needing offset at
day 60

instead of

day

180
.


Full Compliance with the Improper Payments Eliminat
ion and Recovery Act


Statistical Sampling of Commercial Payments



DFAS developed and
implemented a

Commercial Pay statistical
sampling and review
plan
to ensure compliance with
the
I
mproper
P
ayments
E
limination and
R
ecovery
A
ct

and
O
ffice of
M
anagement and
B
udget

Circular A
-
123, Appendix C
,

Requirements for Effective
Measurement and Remediation of Improper Payments
.


The standard operating procedures and
generic checklist
standardize

the

post
-
pay review
processes throughout the DFAS Accounts
Payable network
. These now standardized processes allow the technicians

to ascertain accuracy
of contract and vendor payments
,

and support the commercial pay systems reviews
. Full
implementation is

scheduled for completion by September 30, 2012.



4

U.S.
Army Corps of Engineers (USACE)


High Dollar Improper Payments to Entities (Vendors/Contractors)


For
Quarter
1,
FY 2012, there were 17 entities with high

dollar overpayments totaling
$2.7 million
,

with $
2.4

million (
89.1

percent) recovered to date. The primary root causes for
these overpayments were contracting input error, incorrect contractors paid
,

and progress
payment errors
.


Preventative Actions and Strategies


The USACE pre
-
payment examination requirement is an ad
ministrative review that takes
place just prior to
disbursement
. The review is to ensure the voucher contains the necessary
substantiation and documentation for lawful and proper payment. The
Corps of Engineers

Financial Management System (CEFMS) provide
s internal system standards that adhere to
Generally Accep
ted Accounting Principles
.



T
he USA
CE Finance Center
(UFC)
utilizes data
mining as part of the
its
post
-
payment
and recovery audit processes
.

The USACE data mining tool utilizes the power of Oracl
e
programming to search CEFMS and identify potential errors such as duplicate, missing, or
suspicious invoices, as well as specific types of reoccurring payments. The use of a data mining
tool complements the
pre
-
payment

safeguards already built into CEFM
S.
Each day,
the prior
day

s disbursements are loaded into the US
ACE

Enterprise Management Information System
(CEEMIS) where a reconciliation program is run. This program checks payments based on
10

different scenarios.


The USACE samples for the commerc
ial payments reviews are taken randomly from the
CEFMS check register file. This file contains all check/E
lectronic
F
unds
T
ransfer

disbursements
made by the UFC. The sample size is determined using an estimate of the minimum number of
commercial payments

expected to be processed in a year (roughly 374,400). Th
is universe
results in an estimated sample size of 384 and a sampl
ing

interval of 975.

Post
-
payment audits
are conducted quarterly to identify incorrect payments and procedural weaknesses. The sam
ple
procedure provides for a 95

percent

confidence level of plus or minus 2

percent
age points
.


Recovery Actions


USACE conducted detailed root cause analysis on the three largest overpayments for this
quarter and identified the following:




JAMCO

Ventures, LLC


Total overpayments of
$
981,961

w
ere

due to an error with
the language of the contract.


U
FC

has recouped the majority of this overpayment.
There is $
200

remaining
to be returned by the contactor. The language of the contract
read that DFA
S should be the paying office.
DFAS and USACE both made the
payment.
UFC

notified the district

s contracting office of this error. The district is
making modifications on the contracts to reflect U
FC

as the
proper
paying office.

5



USA Environmental


Tota
l overpayments of
$506,
516

were

due to a pay estimate
being entered for duplicate services. This entire amount has been recouped.


U
FC

stressed to the district the importance of reviewing documentation thoroughly to
ensure payments are not being duplicated.




AT&T
Government
Solutions, Inc


$230
,
218

overpayment

was due to the district
not following the contract payment information. DFAS and USACE made the same
payment on one contract. U
FC

will hold any documentation requesting payments on
this contract. The district has been informed of this issue.

Recoupmen
t had not
occurred as of
March

31,

2012.


USACE continues to utilize multiple processes for the recognition and collection of
improper payments.

The processes provide the procedures to ensure proper due diligence is
performed. The processes include, but
are not limited to, initiating a demand letter for
collection, collection and transfer of the debt to the Debt Management Office
,
the Treasury
Offset Program
,

and various other follow
-
up actions.



USACE continues to work with
its

customers to improve the
unsolicited refund process
through improved identifica
t
ion and classification of the root causes of improper payments.
Each of these refunds
is

researched to find out what caused the improper payment and then
the
appropriate corrective actions
are
taken.




6

TRICARE Management Activity


Military Health Benefits


High Dollar Improper Payments to Entities (Vendors/Contractors)


Preventative Actions and Strategies

For Quarter 1, FY 2012, there were five entities with high dollar overpayments totaling
$615,628
, with $
10,229

(
1.7

percent) recovered to date. The primary root causes for these
overpayments were not reported due to confidentiality requirements.

The TRICARE Management Activity (TMA) conducts quarterly and semi
-
annual
retrospective contractor complia
nce reviews utilizing a statistically valid sampling approach to
identify overpayments.

The approach samples paid health care claims between $100 and
$100
,000

and a 100 percent review of all paid claims in excess of $100
,000

for the Managed
Care Support,
TRICARE Dual Eligible and Fiscal Intermediary Contract, and TRICARE
Overseas Program purchased care contracts.

In addition, TMA conducts semiannual contractor
compliance reviews for the TRICARE Pharmacy Program and Active Duty Dental Program
purchased car
e contracts.

The sampling approach emphasizes stratums where the greatest
expenditures have occurred in the respective programs.

TMA

s compliance review process t
akes approximately 250 calendar
days to complete.

The process involves an initial review of
claims by an external claims review contractor, a
rebuttal period
,

and a final review determination.

This contractually required process must be
adhered to by TMA contractors.


For reporting purposes, an
e
ntity

is defined as a TRICARE Health Care Delivery
Contractor that is tasked with operating integrated health care delivery system by providing
health, medical, dental, pharmaceutical, and administrative support services to eligible
TRICARE beneficiaries.

Clai
m reviews for Entities A thru E are conducted quarterly, while
claim reviews for Entities F and G are conducted semi
-
annually.

All periodic reviews are
contractually determined.


The primary cause
s

of the overpayment errors in the Military Health Benefits program
include:

incorrect pricing of med
ical procedures and equipment; c
ost
-
share/deductible
miscalculations; authorization and preauthorization requirements not met; and claim payments
made with
out appropriate claim development.


Recovery Actions


TRICARE

s third
-
party contractors are monetarily incentivized through contractual
performance standards to reduce and eliminate improper payments.

The fewer improper
payments errors
,

the less money is
deducted from
their
reimbursement.

In addition, the
TRICARE Operations Manual Chapter 10, Sections 3 and 4, require contractors to recover
overpayments identified in retrospective contractor compliance reviews.