Military Treatment Facilities: Internal Control Activities Need  
Improvement (25-OCT-02, GAO-03-168).				 
                                                                 
The $24 billion Military Health System provided health care to	 
over 8 million eligible beneficiaries. Although Congress has	 
provided sizeable increases in funding for health care over the  
past few years, the Department of Defense (DOD) has needed	 
supplemental appropriations for 6 of the last 8 fiscal years from
1994 to 2001 because its costs were higher than expected. The	 
growing budgetary pressure increases the risk of not achieving	 
the mission of the organization. DOD's military treatment	 
facilities (MTF) represent over half of DOD's health care	 
expenditures. The three MTF's reviewed have not effectively	 
implemented internal control activities in the areas of 	 
eligibility, billings and collections, expired drugs, personal	 
property management, and government purchase card usage. The	 
three MTFs also did not identify all patients with third party	 
insurance coverage. In addition, they frequently did not bill	 
those insurers even when they knew that such coverage existed,	 
thereby losing opportunities to collect millions of dollars of	 
reimbursements for services. Ineffective physical and financial  
controls over personal property assets and indications of control
breakdowns in the use of government purchase cards existed at the
three facilities.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-168 					        
    ACCNO:   A05419						        
  TITLE:     Military Treatment Facilities: Internal Control	      
Activities Need Improvement					 
     DATE:   10/25/2002 
  SUBJECT:   Health care facilities				 
	     Health insurance					 
	     Hospital care services				 
	     Internal controls					 
	     Military facilities				 
	     Military personnel 				 
	     Beneficiaries					 

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GAO-03-168

                                       A

Report to Congressional Requesters

October 2002 MILITARY TREATMENT FACILITIES

Internal Control Activities Need Improvement

GAO- 03- 168

Lett er

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. 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. 1 We chose Eisenhower Army Medical Center,
Augusta, Georgia; Naval Medical CenterPortsmouth, 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.

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 The following five subsections of this report
outline opportunities for the

Effectively three MTFs covered by this review to improve their financial
or operating

controls and to, in the process, reduce federal costs. DOD auditors* and
Implemented

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 Erroneous eligibility information
contained in DOD information systems Allow for Unauthorized Access
precluded the MTFs from providing reasonable assurance that medical to
Care 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 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 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).

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. 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

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.

beneficiary eligibility information and officials responsible for issuing
the military identification card, and no internal standard operating
procedures. Weaknesses in Billings and

Although the MTFs are authorized to bill insurance companies under the
Collections Prevent Full Third Party Collections program, millions of
dollars are not being collected Recovery of Millions from

each year because patient medical records are incomplete, as is the Third
Party Insurers 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, 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. 4 Air Force Audit Agency, Follow- up, Third Party
Collection Program, Audit Report 00051011 (Washington, D. C.: Apr. 26,
2001).

Table 1: Results of Third Party Billing Selections by MTF and Workload
Type Hospital/ workload Billed Not billed Total Eisenhower

* Admissions 16 0 16  Outpatient visits 10 10 20  Pharmacy 34 6 40

Subtotal 60 16 76

Portsmouth

 Admissions 15 2 17  Outpatient visits 24 16 40 Pharmacy 22 10 32

Subtotal 61 28 89

Wilford Hall

 Admissions 14 1 15  Outpatient visits 17 12 29  Pharmacy 4 27 31

Subtotal 35 40 75

Total 156 84 240

Source: GAO analysis of DOD data.

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. 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 Total
Hospital Billed timely Billed late bills tested

Eisenhower 25 35 60 Portsmouth 23 38 61 Wilford Hall 28 7 35

Tot al 76 80 156

Source: GAO analysis of DOD data.

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.

5 Air Force Audit Agency, Third Party Collection Program *
Pharmaceuticals, Audit Report 01051015 (Washington, D. C.: Aug. 8, 2001).

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 Management at the three facilities did not have the
information needed to

Adequate Management of evaluate the cost of drugs turned in under the
pharmaceutical return goods

Pharmaceutical Return program. Specifically, pharmacy personnel did not
perform inventories of

Goods Program 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. 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 Although internal control standards require
agencies to establish physical Safeguarding and Management control to
secure and safeguard vulnerable assets, internal controls over of Personal
Property Assets 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. 6 Army
Audit Agency, Pharmaceutical Management, U. S. Army Medical Command,
Report

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

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. 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 Pilot TM ); 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 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.

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. 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. 9 The documentation problems we found suggest that these
issues still exist. 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).

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 internal control weaknesses make medical Purchase
Card Program facilities vulnerable to fraudulent and abusive purchases and
place the

Resulted in Misuse 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, 10 and at five Army sites (one being
Eisenhower), 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
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).

statistical sampling and data mining, 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

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.

Federal Acquisition Regulation. 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. 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
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.

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. 15 Portsmouth lacked advance
approval documentation for 40 of the 50 nonrepresentatively selected
transactions we reviewed, but officials claim that all items purchased and

15 The 95 percent confidence interval extends from 48 percent to 71
percent.

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. 16 Of the 50 nonrepresentatively selected 16 The 95
percent confidence interval extends from 60 percent to 81 percent.

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. 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. 17
The 95 percent confidence interval extends from 17 percent to 38 percent.

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

Because having sound financial and management practices affects the
Executive Action

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

Our Evaluation 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

William M. Solis Director Defense Capabilities and Management

Appendi Appendi xes x 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.

Financial and Operational Information at

Appendi x II

Selected MTFs (Unaudited) Table 3: Fiscal Year 2001 Financial and
Operational Information at Selected MTFs (Unaudited) Wilford Hall Air
Eisenhower Army

Naval Medical Force Medical

Medical Center Center- Portsmouth

Center Augusta, Ga.

Portsmouth, Va. San Antonio, Tex.

Budget allocation * original at 10/ 1/ 00 $92, 565, 000 $210,578, 000
$133, 136, 000 Budget allocation * supplemental 5, 100, 000 39,496, 000
30, 217, 000 Reimbursements earned 7, 202, 000 14,130, 000 11, 411, 000
Budget * overall budget authority at 9/ 30/ 01 104, 867, 000 264,204, 000
174, 764, 000

Obligations at 9/ 30/ 01 Civilian pay 42, 723, 000 63,643, 000 38, 014,
000 Contracts 17, 010, 000 92,507, 000 20, 105, 000 Supplies 40, 721, 000
89,903, 000 78, 374, 000 Equipment 1, 957, 000 1,772, 000 7, 719, 000
Other 2, 456, 000 16,379, 000 30, 552, 000 Full- time equivalent employees

Civilian 954 1, 194 879 Military 1, 178 2, 361 3, 658 Contract 286 643 424
Inpatient admissions 5, 361 17, 612 15, 423 Outpatient visits 596, 247
1,450, 504 854, 292 Pharmacy prescriptions filled 2, 808, 923 2,464, 304
2, 602, 827

Source: GAO presentation of DOD data.

Results of Personal Property Existence

Appendi x II I Test i ng Table 4 displays overall estimated existence
error rates and associated twosided 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 Portsmouth Eisenhower Wilford Hall

Total items sampled 100 100 100 Estimated overall percentage of errors a
31% 4% 17% 95 percent confidence interval 21- 41% 1- 10% 10- 27% Actual
percentage and number of errors in $1,000, 000+ stratum b

11% 0%

88% (100% testing performed) (1 of 9) (0 of 4) (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.

Appendi x I V

Comments from the Department of Defense See comment 1.

See comment 2.

See comment 3.

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.

Appendi x 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.

(192037)

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GAO United States General Accounting Office

Page i GAO- 03- 168 MTF Internal Controls

Contents Letter 1

Results in Brief 3 Background 4 Internal Controls Not Effectively
Implemented 5 Conclusions 21 Recommendations for Executive Action 21
Agency Comments and Our Evaluation 22

Appendixes

Appendix I: Scope and Methodology 25

Appendix II: Financial and Operational Information at Selected MTFs
(Unaudited) 29

Appendix III: Results of Personal Property Existence Testing 30

Appendix IV: Comments from the Department of Defense 31 GAO Comments 38

Appendix V: GAO Contact and Staff Acknowledgments 39 GAO Contact 39
Acknowledgments 39

Tables Table 1: Results of Third Party Billing Selections by MTF and
Workload Type 9

Table 2: Third Party Billing Timeliness for Selected Transactions 10 Table
3: Fiscal Year 2001 Financial and Operational Information at Selected MTFs
(Unaudited) 29

Table 4: Error Rates for Personal Property 30

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

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Appendix I

Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix II

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Appendix III

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Appendix IV

Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix IV Comments from the Department of Defense

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Appendix V

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