Health Care Fraud and Abuse Control Program: Results of Review of
Annual Reports for Fiscal Years 2002 and 2003 (29-APR-05,	 
GAO-05-134).							 
                                                                 
Because of the susceptibility of health care programs to fraud	 
and abuse, Congress enacted the Health Care Fraud and Abuse	 
Control (HCFAC) program as part of the Health Insurance 	 
Portability and Accountability Act of 1996 (HIPAA) Pub. L. No.	 
104-191. HIPAA requires that the Departments of Health and Human 
Services (HHS) and Justice (DOJ) issue a joint annual report to  
Congress on amounts deposited to the Federal Hospital Insurance  
Trust Fund and amounts appropriated from the trust fund for the  
HCFAC program. It also requires GAO to submit reports biennially.
This, our final report required by law, provides the results of  
our review of amounts reported as (1) deposits to the trust fund,
(2) appropriations from the trust fund and justification for	 
expenditure of such amounts by HHS and DOJ, and (3) savings	 
resulting from expenditures from the trust fund. We also report  
on the repeated late issuance of the annual HCFAC report as well 
as the status of our prior recommendations.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-134 					        
    ACCNO:   A22919						        
  TITLE:     Health Care Fraud and Abuse Control Program: Results of  
Review of Annual Reports for Fiscal Years 2002 and 2003 	 
     DATE:   04/29/2005 
  SUBJECT:   Appropriated funds 				 
	     Fraud						 
	     Health care programs				 
	     Program abuses					 
	     Program evaluation 				 
	     Reporting requirements				 
	     Trust funds					 
	     Accountability					 
	     Medicaid						 
	     Medicare						 
	     Budget outlays					 
	     DOJ/HHS Health Care Fraud and Abuse		 
	     Control Program					 
                                                                 
	     Federal Hospital Insurance Trust Fund		 

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GAO-05-134

United States Government Accountability Office

GAO

                       Report to Congressional Committees

April 2005

HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM

       Results of Review of Annual Reports for Fiscal Years 2002 and 2003

GAO-05-134

[IMG]

April 2005

HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM

Results of Review of Annual Reports for Fiscal Years 2002 and 2003

                                 What GAO Found

Our review of the HCFAC program for fiscal years 2002 and 2003 determined
the following:

o  	Amounts reported as trust fund deposits --$766 million (fiscal year
2002) and $243 million (fiscal year 2003)--were appropriate. The sources
of these deposits were primarily penalties and multiple damages and
criminal fines collected from health care fraud cases.

o  	Amounts reported as appropriations from the trust fund for HCFAC
activities-$209 million (fiscal year 2002) and $240 million (fiscal year
2003) --were consistent with HIPAA. The HHS/OIG received funds within the
minimum and maximum amounts allowed by HIPAA to carry out Medicare and
Medicaid antifraud activities. The expenditures charged against HCFAC
funds by HHS and DOJ for fiscal years 2002 and 2003 were reasonable but
the HHS/OIG did not record time charges in its workload systems for all
staff that worked on HCFAC activities. Also, DOJ did not record all fiscal
year 2003 expenditures in its accounting system so they could be readily
identified as HCFAC related. Failure to properly record staff hours and
expenditure data could hinder DOJ and HHS in monitoring the uses of HCFAC
funds.

o  	Some reported cost savings--$19.9 billion (fiscal year 2002) and $20.8
billion (fiscal year 2003) can be considered savings to the trust fund,
resulting from trust fund expenditures for the HCFAC program, but most can
not. For example, $1.5 billion of the cost savings for fiscal year 2002
and $3.9 billion for fiscal year 2003 are the result of HHS/OIG
recommendations and other initiatives since the HCFAC program was created.
However, the remaining cost savings continued to be largely the result of
actions that predate the HCFAC program and cannot be associated with
expenditures from the trust fund for HCFAC.

o  	HIPAA requires that HHS and DOJ issue to Congress a joint HCFAC report
on January 1 of each year. However, DOJ and HHS have issued the last three
reports late and the length of the delay has increased each year. HHS and
DOJ cited onerous internal review processes as the reason for late
issuance.

Joint HCFAC Report Issue Dates for Fiscal Years 2001, 2002, and 2003
Number of Report fiscal year Mandated date of report Actual date of report
months late

                       2001 January 1, 2002 April 2002 4

                     2002 January 1, 2003 September 2003 9

                      2003 January 1, 2004 January 2005 12

Source: GAO based on the joint HCFAC reports for fiscal years 2001, 2002,
and 2003.

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Amounts Reported As Deposits to the Trust Fund Were

Appropriate
Amounts Appropriated from the Trust Fund Were Consistent with
HIPAA and Reported Expenditures Were Reasonable
Some Reported Cost Savings Are Related to Trust Fund
Expenditures for HCFAC, but Most Are Not
Repeated Delays in Issuing the HHS and DOJ Joint HCFAC Reports

Impact Relevance of Data
Conclusions
Recommendations for Executive Action
Agency Comments and Our Evaluation

                                       1

                                      3 5

                                       8

10

17

18 19 19 20

Appendix I Scope and Methodology

Appendix II Status of Prior-Year Recommendations

Appendix III	Comments from the Department of Health and Human Services

Appendix IV Comments from the Department of Justice

Appendix V GAO Contact and Acknowledgments

Related GAO Products 35

  Tables

Table 1: Amounts Appropriated For HCFAC, Fiscal Years 1997
through 2003 7

Table 2: HHS/OIG Funding Sources-Unaudited 13 Table 3: Joint HCFAC Report
Issue Dates for Fiscal Years 2001,

2002, and 2003 18

  Figures

Figure 1: Reported Fiscal Years 2002 and 2003 Deposits to the Trust Fund
Pursuant to HIPAA (Dollars in millions) 9 Figure 2: Reported Fiscal Years
2002 and 2003 Allocations (Dollars in millions) 11

Abbreviations

HCFAC Health Care Fraud and Abuse Control program
HIPAA Health Insurance Portability and Accountability Act
HHS Department of Health and Human Services
DOJ Department of Justice
OIG Office of the Inspector General
CMS Centers for Medicare and Medicaid Services
OAS Office of Audit Services
OEI Office of Evaluations and Inspections
OI Office of Investigations
OMP Office of Management and Policy
USAO United States Attorneys Office
FTE full-time equivalents
CBO Congressional Budget Office

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office Washington, DC 20548

April 29, 2005

Congressional Committees

Congress enacted the Health Care Fraud and Abuse Control (HCFAC) program
as part of the Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, to help combat fraud and abuse in health care
programs, including the Medicare and Medicaid programs. Since 1990, we
have designated Medicare a high-risk program, vulnerable to exploitation
in part because of its sheer size-estimated fiscal year 2004 outlays were
$297 billion with net improper payments of $20 billion, covering more than
41 million elderly and disabled enrollees. In addition, in 2003 we
designated Medicaid a high-risk program, in part because of concerns about
the quality of fiscal oversight needed to prevent inappropriate program
spending-fiscal year 2003 costs were about $274 billion.

HCFAC, which is administered by the Department of Health and Human
Services (HHS) and the Department of Justice (DOJ), established a national
framework to coordinate federal, state, and local law enforcement efforts
to detect, prevent, and prosecute health care fraud and abuse in the
public and private sectors.

HIPAA requires that HHS and DOJ issue a joint annual report to Congress no
later than January 1 of each year on (1) amounts deposited to the Federal
Hospital Insurance Trust Fund1 pursuant to HIPAA for the previous fiscal
year and the source of such amounts and (2) amounts appropriated from the
trust fund for each year and the justification for the expenditure of such
amounts. HHS and DOJ have issued seven joint reports, which covered
HCFAC-related activities for fiscal years 1997 through 2003.

HIPAA, as amended by the Balanced Budget Act of 1997,2 also mandates that
we issue a report, no later than January 1, 2004, that identifies the

1 The Hospital Insurance Trust Fund funds the Medicare Part A program,
which helps pay for hospital, home health, skilled nursing facility, and
hospice care for the aged and disabled.

2 Pub. L. No. 105-33, 111 Stat. 251 (August 5, 1997).

information reported by HHS and DOJ in their fiscal years 2002 and 2003
joint HCFAC report. The law also requires that our report include any
savings resulting from expenditures from the trust fund and any other
aspects of the operation of the trust fund that we consider appropriate.

HHS and DOJ were required to issue the joint HCFAC report for fiscal year
2002 in January 2003 but did not issue the report until September 2003.
Further, the deadline for issuing the fiscal year 2003 joint HCFAC report
was January 2004 but the report was not issued until a year later in
January 2005. Because complete information needed to perform our review
was not available, we could not meet our reporting deadline of January 1,
2004.3

To fulfill our reporting requirements, we assessed the reliability of
information reported by HHS and DOJ for fiscal years 2002 and 2003 as (1)
deposits to the trust fund4 and the sources of such amounts, (2)
appropriations from the trust fund for HCFAC and justification for the
expenditure of such amounts, and (3) savings resulting from expenditures
from the trust fund. We also provide information on issues related to the
repeated late issuance of the HHS and DOJ joint HCFAC report as well as a
summary of the status of recommendations made in our prior reports (See
app. II).

To assess the reliability of information reported by HHS and DOJ in the
joint HCFAC reports for fiscal years 2002 and 2003, we (1) obtained
documentation supporting the various types of deposits and tested selected
deposit transactions on a statistical basis to determine whether the
proper amounts were deposited to the trust fund; (2) reviewed and analyzed
documentation supporting the certification of appropriations from the
trust fund to HHS and DOJ; (3) reviewed the justification for expenditures
included in the HHS and DOJ reports; (4) analyzed DOJ and

3 As we have previously stated in our reports on HCFAC program activities
for fiscal years 1998, 1999, 2000, and 2001, even if the HHS and DOJ joint
report for fiscal year 2003 was issued on time (January 2004), this would
not have provided sufficient time for us to perform our review and to meet
our legislated reporting date of January 2004.

4 As reported in the past, the HHS and DOJ joint reports include other
amounts collected in connection with health care fraud activities,
including recovered OIG audit disallowances and restitution and
compensatory damages. Such amounts for fiscal year 2002 totaled $701
million and $480 million for fiscal year 2003. Because HIPAA does not
require these amounts to be deposited to the trust fund, we did not verify
the reported amounts. According to HHS and DOJ, they are returned to the
trust fund to the extent that they represent repayments to Medicare.

  Results in Brief

HHS methodologies for charging expenditures against HCFAC appropriations;
(5) tested selected expenditure transactions to determine whether the
expenditures were in support of the HCFAC program; (6) reviewed the
supporting documentation related to selected cost savings amounts; and (7)
interviewed HHS, HHS Office of Inspector General (OIG), and DOJ personnel.

We conducted our work from August 2003 through January 2005 in accordance
with U.S. generally accepted government auditing standards. A detailed
discussion of our scope and methodology is contained in appendix I. We
requested comments on a draft of this report from the Secretary of HHS and
the Attorney General or their designees. We received written comments from
the Acting Inspector General of HHS and the Assistant Attorney General for
Administration at DOJ. We have reprinted their responses in appendixes III
and IV, respectively.

The HHS and DOJ joint HCFAC reports for fiscal years 2002 and 2003 stated
that about $766 million in fiscal year 2002 and $243 million in fiscal
year 2003 were deposited into the trust fund pursuant to HIPAA. The
sources of the deposits were primarily penalties and multiple damages and
criminal fines resulting from health care fraud audits, evaluations,
investigations, and litigation. The considerable difference in the
deposits reported for fiscal year 2002 and 2003 was primarily due to large
amounts collected from two cases settled in prior years. Our work
determined that the reported amounts of HCFAC deposits for fiscal years
2002 and 2003 were appropriate. However, we did identify a relatively
minor mathematical error in an adjustment made by DOJ to the amount of
criminal fine deposits reported for fiscal year 2002 in the HCFAC joint
report. This error was not corrected until fiscal year 2004 and therefore
not reflected in the 2003 HCFAC joint report.

We determined that amounts appropriated from the trust fund for HCFAC
activities-$209.2 million in fiscal year 2002 and $240.6 million in fiscal
year 2003-were consistent with HIPAA and that the amount of HCFAC funds
specified in the joint reports was made available to HHS and DOJ. We also
determined that the expenditure of such amounts was reasonable, although
some expenditure data were not properly captured in agency information
systems. For example, staff hours for all staff working on HCFAC
activities were not tracked in HHS/OIG workload tracking systems.
Incomplete data on staff hours could hinder the OIG's ability to monitor
and ensure that staff perform HCFAC-related work as planned. Also, in
recording some fiscal year 2003 HCFAC expenditures in its

accounting system, DOJ did not adhere to its accounting policy, which
requires DOJ components to record all HCFAC expenditures under accounting
codes designated for HCFAC. This lack of specificity in recording HCFAC
expenditures could hinder DOJ's ability to monitor uses of the funds.

For the first time, there were some reported savings to the trust fund,
resulting from trust fund expenditures for the HCFAC program. The joint
HCFAC reports cited cost savings5 of nearly $19.9 billion for fiscal year
2002 and $20.8 billion for fiscal year 2003, as a result of HHS/OIG
recommendations and other initiatives. Of these amounts, about $1.5
billion in cost savings for fiscal year 2002 and $3.9 billion for fiscal
year 2003 resulted from actions taken since the HCFAC program was created.
However, the remaining cost savings relate to actions that predate the
HCFAC program and cannot be associated with expenditures from the trust
fund for HCFAC activities. Further, since audit, evaluation,
investigation, and litigation activities typically span several years,
savings from such activities in fiscal years 2002 and 2003 may not be
realized until future years.

Finally, we experienced significant delays in completing our review of
fiscal years 2002 and 2003 HCFAC activities due to the late issuance of
the HHS and DOJ joint reports that HIPAA requires the agencies to issue by
January 1st of each year. For example, the joint report for fiscal year
2002 was due January 1, 2003, but was not issued until 9 months later in
September 2003. Likewise, the report for fiscal year 2003, due January 1,
2004, was issued 12 months late in January 2005. DOJ and HHS officials
reported that onerous internal review processes have impacted the
timeliness of report issuance. Taking steps to streamline these processes
is needed to ensure that Congress has timely information to use as it
makes decisions on the HCFAC program funding.

To address the issues that we identified in HHS's procedures for recording
staff hours and DOJ's processes for recording HCFAC expenditures, we are
making recommendations to HHS and DOJ to develop additional procedures for
these activities. We are also making a recommendation to help ensure that
the HCFAC reports are issued in a more timely manner. In

5 Cost savings are estimated savings resulting from health care funds not
being expended in future years due to legislative or regulatory changes.
Cost savings differ from collections that are deposited to the trust fund.

Background

commenting on a draft of this report, HHS and DOJ generally agreed with
our recommendations and stated that they are already taking action to
improve procedures for recording staff hours and HCFAC expenditures as
well as procedures for approving the HCFAC report. However, HHS and DOJ
did not agree with our recommendation that they report to Congress delays
in issuing the HCFAC report by the mandated deadline. In their comments,
HHS and DOJ noted that additional reporting, which requires clearance
through both departments would be counterproductive to clearing the annual
HCFAC report and of little value to Congress. We disagree. Congress should
be informed if reports that it may use in making future program funding
and oversight decisions are not expected to be issued by the mandated
report deadline. In addition, the mechanism for reporting such delays
could be as simple as an electronic mail message to all the committees of
jurisdiction and therefore would not cause any undue burden. HHS and DOJ
also provided us with technical comments, which we have incorporated as
appropriate.

HIPAA established the HCFAC program to consolidate and strengthen ongoing
efforts to combat fraud and abuse in health care programs and expand
resources for fighting health care fraud. The Attorney General and the
Secretary of HHS through the HHS Office of Inspector General (HHS/OIG)
administer HCFAC. The HCFAC program goals are to

o  	coordinate federal, state, and local law enforcement efforts to
control fraud and abuse associated with health plans;

o  	conduct investigations, audits, and other studies of delivery and
payment for health care for the United States;

o  	facilitate the enforcement of the civil, criminal, and administrative
statutes applicable to health care;

o  	provide guidance to the health care industry, including the issuance
of advisory opinions, safe harbor notices, and special fraud alerts; and

o  	establish a national database of adverse actions against health care
providers.

HIPAA requires the following types of collections to be deposited in the
trust fund:

o  criminal fines recovered in cases involving a federal health care
offense;

o  	civil monetary penalties and assessments imposed in health care fraud
cases;

o  	amounts resulting from the forfeiture of property by reason of a
federal health care offense;

o  	penalties and damages obtained and otherwise creditable to
miscellaneous receipts of the general fund of the Treasury obtained under
sections 3729 through 3733 of Title 31, United States Code (commonly known
as the False Claims Act), in cases involving claims related to the
provision of health care items and services (other than funds awarded to a
relator,6 for restitution, or otherwise authorized by law); and

o  unconditional gifts and bequests.

Funds for the HCFAC program are appropriated from the trust fund to an
expenditure account, referred to as the Health Care Fraud and Abuse
Control Account (control account) maintained within the trust fund. The
Attorney General and the Secretary of HHS jointly certify that the funds
transferred to the control account are necessary to finance health care
fraud and abuse control activities. Only a portion of the funds collected
and deposited to the trust fund are appropriated to the control account
annually for the HCFAC program.

The maximum amounts that may be appropriated for HCFAC each year are
specified by HIPAA. The maximum amount for fiscal year 1997, the first
year of HCFAC, was $104 million and HIPAA limited the amounts for each of
the fiscal years 1998 through 2003 to an amount equal to the limit for the
preceding fiscal year increased by 15 percent. For each fiscal year after
2003, the amount made available was capped at the 2003 limit (See table
1).

6 A relator is a private citizen who files a qui tam suit on behalf of the
federal government under the provisions of the False Claims Act.

    Table 1: Amounts Appropriated For HCFAC, Fiscal Years 1997 through 2003

Dollars in millions

                                  Year Amount

                                  1997 $104.0

                                  1998 $119.6

                                  1999 $137.5

                                  2000 $158.2

                                  2001 $181.9

                                  2002 $209.2

                                  2003 $240.6

Sources: The annual joint HHS and DOJ HCFAC reports for fiscal years 1997
through 2003.

In addition to the annual limits on the total amount made available for
HCFAC, HIPAA includes annual minimum and maximum amounts that are
earmarked specifically for HHS/OIG activities for the Medicare and
Medicaid programs. For example, of the $240.6 million available in fiscal
year 2003, a minimum of $150 million and a maximum of $160 million were
earmarked for the HHS/OIG to ensure continued efforts by the HHS/OIG to
detect and prevent fraud and abuse in the Medicare and Medicaid programs.

HHS's Centers for Medicare and Medicaid Services (CMS) performs the
accounting for the HCFAC control account. Prior to fiscal year 2003, CMS
set up allotments in its accounting system for each of the HHS and DOJ
entities receiving HCFAC funds. The HHS and DOJ entities accounted for
their HCFAC obligations and expenditures in their respective accounting
systems and reported them to CMS. CMS then recorded the obligations and
expenditures against the appropriate allotments in its accounting system.
However, for fiscal year 2003, HHS changed the method of providing funds
to DOJ from a direct allotment to a reimbursable agreement. This change
requires DOJ components to prepare and submit billing packages to CMS to
obtain reimbursement from DOJ's allotment of the HCFAC funds.

  Amounts Reported As Deposits to the Trust Fund Were Appropriate

HHS and DOJ reported total deposits to the trust fund of about $766
million in fiscal year 2002 and $243 million in fiscal year 2003. On the
basis of our review of a statistical sample of deposit transactions for
fiscal years 2002 and 2003, we determined that the amounts HHS and DOJ
reported as deposits to the trust fund were appropriate.7 As shown in
figure 1, these deposits primarily consisted of penalties and multiple
damages and criminal fines collected as a result of health care fraud
cases.8 The considerable difference in the amount of criminal fines
reported for fiscal year 2002 and 2003 is primarily due to large criminal
fine collections from two major cases settled in prior years. In addition,
the difference in the amount of penalties and multiple damages reported
for fiscal years 2002 and 2003 was primarily due to collections of amounts
from a major case settled in a prior year.

7 See appendix I for statistical sample details.

8 HIPAA also requires that gifts and bequests and amounts resulting from
the forfeiture of property in federal health care cases be deposited to
the trust fund. Gifts and bequests totaled $6,820 for fiscal year 2002 but
no amounts were reported for fiscal year 2003. Also, no amounts were
reported for forfeitures for either year.

Figure 1: Reported Fiscal Years 2002 and 2003 Deposits to the Trust Fund
Pursuant to HIPAA (Dollars in millions)

Dollars

                                     430.5

                                 Criminalfines

y

penaltiesCivil monetar

                                       s

ege

Pltiple damau

m

FY 2002 = 765.8

FY 2003 = 242.5

Source: GAO, based on amounts reported in the Department of Health and
Human Services and The Department of Justice Health Care Fraud and Abuse
Control Program Annual Report for Fiscal Year 2002 (Washington, D.C.:
September 2003) and Department of Health and Human Services and The
Department of Justice Health Care Fraud and Abuse Control Program Annual
Report for Fiscal Year 2003 (Washington, D.C.: January 2005).

Related to our review of criminal fine deposits, DOJ provided us with
supporting documents related to a $13.0 million adjustment that was
calculated and reported to the Department of the Treasury in September
2002 to correct the amount of criminal fine deposits previously reported
in error. When we reviewed the supporting documents for the adjustment, we
identified a mathematical error of approximately $130,000 in DOJ's
determination of the adjustment. While the amount of error has a minimal
impact on the trust fund balance, we found that DOJ lacked supervisory
review procedures for deposits, which may have contributed to the error
going unnoticed. Lack of supervisory review could result in undetected
material errors to the trust fund in the future.

  Amounts Appropriated from the Trust Fund Were Consistent with HIPAA and
  Reported Expenditures Were Reasonable

The Comptroller General's Standards for Internal Control in the Federal
Government9 state that management review is an important control activity
in helping to ensure that all transactions are completely and accurately
recorded. DOJ officials acknowledged the importance of this control
activity and in response they developed new procedures to ensure proper
review of all adjustments and deposit amounts before reports are sent to
Treasury. In addition, in September 2004, DOJ made the necessary
correction to the amount of criminal fine deposits reported to the trust
fund. However, because the correction of the error was not made until
after the end of fiscal year 2003, the HCFAC joint report for fiscal year
2003 did not include the correction.

In fiscal years 2002 and 2003, $209 million and $240 million,
respectively, were appropriated from the trust fund for performing HCFAC
program activities. On the basis of our review of supporting documents, we
determined that these amounts were consistent with HIPAA and that the
amount of HCFAC funds specified in the joint reports was made available to
HHS and DOJ. We also determined that HHS's and DOJ's expenditure of
amounts appropriated from the trust fund was reasonable. However, we did
note that some data on expenditures were not included in HHS and DOJ
information systems. For example, some staff hours needed to monitor
payroll expenses were not tracked in HHS/OIG workload tracking systems.
Also, DOJ did not record some expenditure data in its accounting system as
HCFAC expenses and therefore could not provide an electronic file of all
nonpayroll expenses from which we could select a statistical sample of
these fiscal year 2003 expenses. We tested nonpayroll expenses, selected
on a nonstatistical basis, from hard copy documents and determined that
they were adequately supported and related to HCFAC. However, having all
data on HCFAC expenses in its accounting system could help managers in
monitoring how HCFAC funds are spent.

9GAO, Standards for Internal Control in the Federal Government
GAO/AIMD-00-21.3.1(Washington, D.C.: November 1999).

    Reported Amounts Appropriated from the Trust Fund for HCFAC and General Uses
    of the Funds Were Consistent with HIPAA

HIPAA specifies the maximum amounts that may be appropriated from the
trust fund each year for HCFAC, as well as a minimum and maximum amount of
the appropriations that must go to the HHS/OIG for Medicare and Medicaid
antifraud activities. For fiscal years 2002 and 2003, HHS and DOJ each
received the maximum amount from the trust fund allowed under HIPAA. In
addition, HHS and DOJ entered into memorandums of agreement to agree on
how much of the HCFAC appropriation each HHS and DOJ unit would receive.
The amount allocated to each unit was included in the HHS and DOJ joint
reports and is depicted in figure 2.

Figure 2: Reported Fiscal Years 2002 and 2003 Allocations (Dollars in
millions)

                                  Dollars 200

                                     160.0

                                      150

                           100 50 0 Inspector General

and Medicaid Services HHS Center for Medicare

                                   components

ys

                       States attorne Division divisions

Components

FY 2002 = 290.2 total

FY 2003 = 240.6 total

Source: GAO, based on amounts included in the fiscal years 2002 and 2003
memorandum of agreement between HHS and DOJ, and the Office of Management
and Budget form SF-132s, Apportionment and Reapportionment Schedule, for
the Health Care Fraud and Abuse Control Account for fiscal year 2002 and
fiscal year 2003.

In accordance with HIPAA, HHS/OIG was allocated amounts within the minimum
and maximum funding allowed by statute-$145 million and $160 million, for
fiscal years 2002 and 2003 respectively. In the HHS and DOJ joint report,
the HHS/OIG, other HHS units, and DOJ provided information related to how
the HCFAC funds were used. The HHS/OIG reported that its fiscal years 2002
and 2003 HCFAC funds were used in carrying out efforts to both detect
health care fraud and abuse and prevent it. These efforts included several
fraud prevention activities that reduced program losses as well as
participation in prosecutions and settlements of cases involving Medicare
and Medicaid fraud, and investigations, audits, and evaluations that
helped reveal vulnerabilities or incentives for fraudulent practices.

Other HHS components also reported on how they had expended their HCFAC
funds including CMS. CMS received $2.7 million in fiscal year 2002 and
$23.4 million in fiscal year 2003. The increase in funding for fiscal year
2003 was in support of several projects including the Medicaid Payment
Accuracy Measurement Project, Medicare/Medicaid Data Analysis Project, and
Medicaid Financial Management initiatives, including Medicaid Audits.

DOJ reported that its funding was used to support its role in civil and
criminal prosecution of health care professionals, providers, and others
as well as its role in recovering funds that federal health care programs
have paid as a result of fraud, waste, and abuse.

    HCFAC Expenditures Were Reasonable but Some Expenditure Data Were Not
    Captured in HHS and DOJ Information Systems

We determined that expenditures charged by HHS and DOJ for HCFAC
activities were reasonable. In evaluating HHS HCFAC expenditures, we
focused on expenditures of the HHS/OIG. The HHS/OIG's payroll and
nonpayroll expenses represented about 96 percent of all HHS expenditures
charged against HCFAC funds for fiscal years 2002 and 2003. We reviewed
the methodology that the HHS/OIG used to charge expenditures against its
HCFAC funding and determined that it was reasonable. The OIG charges a
percentage of its total payroll and nonpayroll expenses to the HCFAC
program. The percentage that is charged each year is based on the relative
proportion of its annual HCFAC funding to its total funding. These amounts
are then monitored throughout the year. As table 2 shows, HCFAC funding
for fiscal years 2002 and 2003 was 80 and 81 percent, respectively, of the
OIG's total funding.

                   Table 2: HHS/OIG Funding Sources-Unaudited

                            Appropriation             Amount       Percentage 
                 Fiscal year 2002 general       $ 35,308,000 
                   Fiscal year 2002 HCFAC       $145,000,000 
                   Fiscal year 2002 total       $180,308,000              100 
                 Fiscal year 2003 general       $ 36,807,550 
                   Fiscal year 2003 HCFAC       $160,000,000 
                   Fiscal year 2003 total       $196,807,550              100 

Source: HHS, Office of Inspector General, Justification of Estimates for
Appropriations Committees for Fiscal Year 2004 and HHS, Office of
Inspector General, Justification of Estimates for Appropriations
Committees for Fiscal Year 2005.

HHS/OIG management takes several steps to help assure that HCFAC funds are
expended on HCFAC-related activities. For one, management meets with its
component offices at the beginning of the year to determine how much of
each component's resources will be devoted to HCFACrelated activities.
Some component offices make plans to devote resources to HCFAC in excess
of the 80-81 percent funding level, while other components plan to devote
less. OIG management evaluates each component's plans in relation to each
component's full-time equivalents (FTE)10 to ensure that OIG resources
overall are spent on HCFAC activities in accordance with the funding
level. In addition, throughout the year, three of the components, Office
of Audit Services (OAS), Office of Evaluations and Inspections (OEI), and
Office of Investigations (OI) track the staff time spent on various
projects in their workload tracking system. The information in each
component's system is summarized and monitored quarterly to ensure that
staff time is being spent on HCFAC in accordance with the funding.

The OIG's Office of Management and Policy (OMP) requests summary reports
from the component offices that include the staff time spent on HCFAC
activities and uses the information in determining if the OIG overall is
performing HCFAC work as planned. The lead OMP staff person said that when
material variances are identified in the amount of staff time

10 FTE employment is the measure of the total number of regular
(nonovertime) hours worked by an employee divided by the number of
compensable hours applicable to each fiscal year. A typical FTE work year
is equal to 2,080 hours. Office of Management and Budget, The Budget for
Fiscal Year 2003, Historical Table (Washington, D.C.: U.S. Government
Printing Office, 2002)

devoted to HCFAC, the components are instructed to adjust the type of work
performed. We reviewed the monitoring reports that the OMP staff prepares
and these reports showed that the amount of time devoted to HCFAC
activities for the OIG as a whole was in line with the planned amount.

We also performed several tests on the information maintained in
components' workload systems as they are relied on in monitoring HCFAC
payroll expenditures. For example, we analyzed the data in the components'
workload tracking systems to determine if the projects identified as HCFAC
were appropriately classified as HCFAC-related in each component. We
analyzed titles and supporting documents for all of the projects in the
workload tracking systems of OAS and OEI-two components that account for
about 55 percent of the OIG staff. We determined that the projects were
appropriately classified as HCFAC or non-HCFAC.

We also compared hours in the OAS, OEI, and OI workload tracking systems
to hours in the payroll system to determine if the components' systems
included hours for all staff. We found that the hours recorded in OAS's
system agreed with hours in the payroll system. However, hours in OI's and
OEI's systems did not agree with the payroll system. The OI system
included approximately 52 percent fewer hours for fiscal year 2002 and 44
percent fewer hours for 2003 than were in the payroll system. OI managers
were aware of the variance and explained that until they recently
implemented a new system, their workload system did not include staff
hours for administrative and supervisory staff. In determining the amount
of staff hours spent on HCFAC-related assignments, OI concluded that
administrative and supervisory time was spent in the same relative
percentages as the staff who recorded their time in the workload system.

In June 2003, OI upgraded its workload tracking system to record hours for
all staff. In addition, OI implemented new procedures to help ensure that
all hours were recorded in its workload system. The procedures include
weekly automatic, system-generated electronic mail messages that are sent
to supervisors informing them of employees that did not record their time
and a reconciliation of hours in the HHS payroll system to hours in the
workload system that is performed during periodic inspections at regional
offices.

The OEI workload tracking system included about 12 percent fewer hours
than the payroll system for fiscal years 2002 and 2003. OEI officials said

that they did not have procedures in place to identify missing hours.
However, they believed that most of the people not entering data into the
workload system were probably managers and administrative personnel whose
hours would probably reflect the same allocation of hours between HCFAC
and non-HCFAC work as those staff recording hours. In addition, the OMP
staff person who monitored staff hours applied the HCFAC and non-HCFAC
hours recorded in the workload system against the total FTEs for OEI to
determine that the OIG as a whole performed HCFAC work as planned.
Therefore, while this issue did not appear to impact the propriety of
HCFAC payroll expenditures during our review period, incomplete staff
hours in the component workload tracking systems could hinder OIG managers
in monitoring the amount of HCFAC work performed in the future. Therefore,
it is critical that all OIG components have procedures in place to ensure
that workload data are complete.

In assessing the reliability of DOJ fiscal year 2002 expenditures, we
tested a statistical sample of the largest category of fiscal year 2002
nonpayroll expenses, which accounted for 69 percent of nonpayroll and 34
percent of DOJ's total fiscal year 2002 HCFAC expenditures. We determined
that nonpayroll expenses were adequately supported and related to HCFAC on
the basis of our review of supporting documentation. 11 In addition, we
reviewed the payroll expenses charged by DOJ's United States Attorneys
Office (USAO) against HCFAC funds that represented 76 percent of DOJ's
fiscal year 2002 HCFAC payroll expenditures and 38 percent of DOJ's total
fiscal year 2002 HCFAC expenditures.

We determined that the USAO methodology for charging salaries to HCFAC was
reasonable. USAO charged the full annual salaries of 160 individuals
against HCFAC program funds in fiscal year 2002 as a surrogate for the 160
FTEs that were funded by the program. USAO managers said that this was
administratively easier than trying to charge a portion of the salary of
all the staff that perform health care fraud and abuse work. To assess the
reasonableness of this approach, we reviewed the hours recorded in the
USAO workload system for fiscal year 2002. According to data in the
system, USAO staff devoted about 587,168 staff hours (282.3 FTEs) to
health care fraud-related activities during fiscal year 2002, which was
about 76 percent more than the 160 FTEs (332,800 hours) funded by the
program. In addition, to ensure that the salaries charged to HCFAC were
reasonable, we compared the average annual salaries for the

11 See appendix I for statistical sample details.

160 staff (i.e., attorneys, paralegals, and administrative staff) charged
to the HCFAC account to the average annual salary for the same positions
USAO-wide. We found that the salaries were generally comparable.

Our review of DOJ's fiscal year 2003 HCFAC expenditures also included a
review of USAO salaries charged against HCFAC funds as these amounts
represented 75 percent of DOJ's fiscal year 2003 HCFAC payroll
expenditures and 49 percent of all fiscal year 2003 HCFAC expenses. USAO
charged the salaries of 162 individuals against HCFAC funding in fiscal
year 2003. Our review procedures were similar to our work on 2002 payroll
expenditures, and we again found the payroll expenditure amounts to be
reasonable.

We also tested a nonstatistical selection of nonpayroll expenses for
fiscal year 2003 from hard copy documentation included in DOJ billing
packages.12 We determined that these expenses were adequately supported
and related to HCFAC. We did not select a statistical sample of fiscal
year 2003 nonpayroll HCFAC expenses because DOJ could not provide an
electronic file of detailed transactions from its accounting system for
all nonpayroll HCFAC expenditures. Only one of the four DOJ components
properly recorded expenditures under the specific HCFAC account class in
the accounting system. DOJ accounting policy, issued March 2003, required
that each DOJ component record expenses charged against HCFAC funds under
a specific HCFAC account class so that they can be readily identified as
related to HCFAC.

Managers for the components that did not follow this accounting policy
told us that they recorded their fiscal year 2003 HCFAC expenses at a
summary level under an account class for general expenses and not under
the HCFAC account class as required because they instead prepared the hard
copy billing packages for reimbursement, which were supposed to provide
details on HCFAC expenditures. However, we found that the billing packages
contained varying levels of detail. Without the full detail recorded in
the accounting system it is difficult to monitor HCFAC expenditures. In
addition, the lack of such expenditure detail could impede DOJ officials'
ability to prepare meaningful budgets to support future HCFAC funding
requests.

12 Billing packages contain documentation to support HCFAC expenditures
that DOJ must submit to CMS for reimbursement of HCFAC expenditures under
the reimbursable agreement for fiscal year 2003.

  Some Reported Cost Savings Are Related to Trust Fund Expenditures for HCFAC,
  but Most Are Not

For the first time, some of the reported cost savings can be considered
savings to the trust fund, resulting from trust fund expenditures for the
HCFAC program. The joint reports cited cost savings13 of nearly $19.9
billion for fiscal year 2002 and $20.8 billion for fiscal year 2003, as a
result of HHS/OIG recommendations and other initiatives. Of these amounts,
about $1.5 billion in cost savings for fiscal year 2002 and $3.9 billion
for fiscal year 2003 resulted from actions taken since the HCFAC program
was created. However, the remaining cost savings ($18.4 billion for fiscal
year 2002 and $16.9 billion for fiscal year 2003) continued to be related
to actions that predate the HCFAC program and cannot be associated with
expenditures from the trust fund for HCFAC activities. Further, since
audit, evaluation, investigation, and litigation activities typically span
several years, savings from such activities in fiscal years 2002 and 2003
may not be realized until future years.

As has been the case in the past, most of the audits and evaluations
related to the reported cost savings (i.e., 47 of the 50 audits cited by
the OIG) were done by the OIG before the HCFAC program was created.
However, the HHS/OIG cited cost savings related to three reports that were
issued in fiscal year 2000.

One of the three reports, which consolidated the results of seven HHS/OIG
audits on Medicaid enhanced payments, found that payments to some
providers were not based on the cost of providing services. The report
included recommendations that resulted in changes in program regulations
and administrative actions. For example, in January 2001, CMS issued a
final rule to change Medicaid payment policies, placing limitations on
enhanced payments under Medicaid upper-payment limit requirements for
hospital services, nursing facility services, intermediate care facility
services for the mentally retarded, and clinic services.

In addition, CMS issued a final rule in January 2002 placing additional
limitations on enhanced payments for hospitals. CMS projected that the
regulatory changes would result in cost savings of $79.3 billion over 10
years beginning with about $1.4 billion in fiscal year 2002 and about $3.8
billion in fiscal year 2003. The two other reports issued in fiscal year
2000 that resulted in costs savings of about $100 million for both fiscal

13 Cost savings are estimated savings resulting from health care funds not
being expended in future years due to legislative or regulatory changes.
Cost savings differ from collections that are deposited to the trust fund.

years 2002 and 2003 were related to recovering overpayments to nursing
homes and Medicaid drug rebates. Because the three reports were issued
since the HCFAC program was created and the savings occurred in fiscal
years 2002 and 2003, the savings can be linked to expenditures from the
trust fund.

We reviewed the support for the total cost savings amounts reported by the
HHS/OIG for fiscal years 2002 and 2003. We initially found an
overstatement of $840 million in the amounts included in the draft report
for fiscal year 2003. The overstatement occurred because the HHS/OIG did
not record an adjustment for the revised cost savings amounts issued by
the Congressional Budget Office (CBO). The annual cost savings amounts
reported by the HHS/OIG are based on estimates issued by CBO of savings
that are expected from implementation of health-care-related legislation.
CBO revised its estimate of fiscal year 2003 cost savings that would be
realized from implementation of the Medicare, Medicaid, and SCHIP Balanced
Budget Refinement Act of 1999, but HHS officials did not recognize and
factor in the effect of the adjustment in the fiscal year 2003 draft HCFAC
report. HHS officials explained that the responsibility for preparing the
cost savings amounts had recently been reassigned to another staff person
who had not looked for CBO adjustments. The cost savings amounts were
corrected and restated in the final report.

HIPAA requires that HHS and DOJ issue a joint report on the HCFAC program
for each fiscal year by January 1 of the following calendar year. For
fiscal years 1997 through 2000, the joint HCFAC report was issued on or
close to January 1 of the subsequent year. However, beginning with the
report for fiscal year 2001 the report has been issued late and the length
of the delay has increased each year. See table 3 for the timing of
reports for fiscal years 2001, 2002, and 2003.

  Repeated Delays in Issuing the HHS and DOJ Joint HCFAC Reports Impact
  Relevance of Data

Table 3: Joint HCFAC Report Issue Dates for Fiscal Years 2001, 2002, and
2003

Report fiscal Mandated date of Actual date of Number of year report report
months late

                 Fiscal Year 2001 January 1, 2002 April 2002 4

               Fiscal Year 2002 January 1, 2003 September 2003 9

                Fiscal Year 2003 January 1, 2004 January 2005 12

Source: GAO based on the annual joint HHS and DOJ HCFAC reports for fiscal
years 2001, 2002, and 2003.

Conclusions

Recommendations for Executive Action

The fiscal year 2003 report was more than a year late when it was
released. HHS and DOJ officials told us that the joint reports have been
issued late because of lengthy review processes within each agency. They
have attempted to expedite the process but with little apparent success.
Delays in issuing the HCFAC reports significantly erode the usefulness of
these reports to Congress and others in making decisions about HCFAC
program funding and oversight.

While the information on HCFAC trust fund activity provided in the HHS and
DOJ fiscal years 2002 and 2003 joint reports was reasonable, better
tracking of time charges by HHS/OIG and nonpayroll expenditures by DOJ
would improve their ability to monitor the use of HCFAC funds. In
addition, the usefulness of the fiscal year 2002 and fiscal year 2003
joint annual reports was severely impaired due to their untimely issuance.
Until HHS and DOJ streamline their internal review processes, the annual
joint reports will continue to be delinquent and therefore of limited use
to congressional decision makers and other interested parties.

To improve HHS's accountability over HCFAC program expenditures, we
recommend that the HHS Inspector General require all HHS/OIG components to
develop procedures for ensuring that all key staff hours spent on HCFAC
activities are recorded in OIG workload tracking systems.

To improve DOJ's accountability for HCFAC program expenditures, we
recommend that the Attorney General develop monitoring procedures to
ensure that DOJ components record key HCFAC program expenditure data under
the appropriate HCFAC account class in DOJ's accounting system.

To help ensure that the joint HHS and DOJ HCFAC reports are issued in a
more timely manner, we recommend that the Secretary of HHS and the
Attorney General

o  develop a more expedited review process and

o  	notify congressional committees with oversight responsibility for the
HCFAC program of delays in issuing the joint report within 1 month after
missing the January 1 deadline and provide updates until the report is
issued.

  Agency Comments
  and Our Evaluation

A draft of this report was provided to HHS and DOJ for their review and
comment. Written comments from HHS and DOJ are reprinted in appendixes III
and IV. HHS and DOJ also provided technical comments that we incorporated
as appropriate.

In written comments, HHS concurred with our recommendation that the HHS
Inspector General require all of its components to develop procedures for
ensuring that all key staff hours spent on HCFAC activities are recorded
in its workload tracking systems and noted that it is already moving to
implement such procedures. Similarly, in its written comments, DOJ
concurred with our recommendation for ensuring that DOJ components record
key HCFAC program expenditure data under the appropriate HCFAC account
class in DOJ's accounting system and noted that its Justice Management
Division will meet with the components to assist them in using the
accounting classes designated for HCFAC funds.

Regarding our recommendation for ensuring that HCFAC reports are issued in
a more timely manner, HHS and DOJ agreed to develop a more expedited
review process for the HCFAC reports. DOJ commented that it has already
instituted several new procedures that it believes will shorten the time
needed for future reports and HHS stated that it will work with DOJ in
developing changes to the review process. HHS and DOJ, however, did not
agree that they should report to Congress delays in issuing the HCFAC
report by the mandated deadline. In their comments, HHS and DOJ noted that
additional reporting, which requires clearance through both departments,
would be counterproductive to clearing the annual HCFAC report. HHS added
that such notification would not provide Congress with any substantial
information and DOJ added that reporting on delays would be of little
value to congressional oversight committees. Instead, DOJ officials stated
that they propose to expedite the review and approval process, to the
extent that source data are available and circumstances are within the
department's control.

We disagree with HHS's and DOJ's position that Congress would not gain any
value in knowing that the HCFAC report is going to be issued after the
date that Congress mandated in law. Congress should be informed if reports
that it may use in making future program funding and oversight decisions
are not expected to be issued by the mandated report deadline. In
addition, it appears that HHS and DOJ interpreted our recommendation for
reporting delays in issuing the HCFAC report to mean sending Congress a
report that would require a formal clearance process through both
agencies. This was not our intent. HHS and DOJ officials can and should
develop a mechanism for notifying Congress of delays that would

not place an undue burden on their staff or interfere with issuing and
clearing the HCFAC report itself. Such a mechanism could be as simple as
sending an electronic mail message to all the committees of jurisdiction.

DOJ also commented on the status of two remaining open recommendations
from our prior report. We will continue to work with DOJ to obtain
documentation to support the actions that DOJ said it is implementing.

We are sending copies of this report to the Secretary of HHS, the Attorney
General, and other interested parties. Copies will be made available to
others on request. In addition, the report will be available at no charge
on
the GAO Web site at http://www.gao.gov. If you or your staffs have any
questions, please contact me at (202) 512-8341 or by e-mail at
[email protected]. Additional GAO contacts and acknowledgments are
provided in appendix IV.

Linda M. Calbom
Director, Financial Management and Assurance

List of Committees

The Honorable Charles E. Grassley
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable Michael B. Enzi
Chairman
The Honorable Edward M. Kennedy
Ranking Minority Member
Committee on Health, Education, Labor, and Pensions
United States Senate

The Honorable Arlen Specter
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate

The Honorable Joe Barton
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives

The Honorable F. James Sensenbrenner Jr.
Chairman
The Honorable John Conyers Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives

The Honorable William M. Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives

                       Appendix I: Scope and Methodology

To assess the reliability and reasonableness of information reported by
HHS and DOJ in the joint HCFAC reports for fiscal years 2002 and 2003 as
deposits to the trust fund and the sources of such amounts, we did the
following.

o  	We reviewed the joint HHS and DOJ HCFAC reports for fiscal years 2002
and 2003 to identify amounts deposited to the trust fund.

o  	We interviewed HHS and DOJ officials to update our understanding of
procedures related to deposits.

o  We obtained data from HHS and DOJ reports and electronic databases for

the various deposits as of September 30, 2002, and September 30, 2003,1
and selected deposit transactions on a statistical basis to determine
whether the proper amounts were deposited to the trust fund. We assessed
the reliability of the data by (1) performing electronic testing of
required data elements, (2) reviewing existing information about the data
and the system that produced them, and (3) interviewing agency officials
knowledgeable about the data. We determined that the data were
sufficiently reliable for the purposes of this report. The transactions
that we selected on a statistical basis included the following:2

o  	We selected a dollar unit sample of penalties and multiple damages
totaling $276.8 million from a population totaling $322.6 million for
fiscal year 2002, and a dollar unit sample totaling $181.2 million from a
population totaling $229.8 million for fiscal year 2003.

o  	We selected a dollar unit sample of criminal fines totaling $435.5
million from a population totaling $443.5 million for fiscal year 2002 and
a dollar unit sample totaling $1.9 million from a population totaling $2.5
million for fiscal year 2003.

o  	We selected a dollar unit sample of civil monetary penalties totaling
$1.7 million from a population totaling $6.9 million for fiscal year 2002
and

1 HHS penalties and multiple damages and civil monetary penalties were
obtained from electronic databases. DOJ penalties and multiple damages
were obtained from the U.S. Department of Justice FMIS Debt Management
Module Detail Listing to Support Transfer of Funds from the U.S.
Department of Justice Via IPAC. DOJ criminal fines for fiscal years 2002
and 2003 were obtained from the Criminal Fines Report.

2 Samples for the penalties and multiple damages and civil monetary
penalties were selected at a 63 percent confidence level and Criminal
Fines at a 95 percent confidence level.

Appendix I: Scope and Methodology

a dollar unit sample totaling $1.7 million from a population totaling $7.1
million for fiscal year 2003.

o  	We obtained supporting documentation for each sample transaction from
various sources depending on the type of deposit. We traced amounts
reported on the supporting documentation to reports and other records to
confirm that proper amounts were reported as deposits.

To assess the reliability of information reported by HHS and DOJ in the
joint HCFAC reports for fiscal years 2002 and 2003 as appropriations from
the trust fund for HCFAC, we

o  	obtained and reviewed the HIPAA legislation, which includes the
maximum and minimum amounts that can be appropriated from the trust fund
for HCFAC;

o  	obtained and reviewed the HCFAC funding requests for the HHS and DOJ
components to determine whether activities included in the requests were
consistent with the stated purposes of the HIPAA legislation;

o  	obtained the funding decision memorandum detailing how the funds would
be distributed between HHS and DOJ, and obtained related documentation for
fiscal years 2002 and 2003 to verify the HCFAC funds certified by HHS and
DOJ officials; and

o  	compared amounts reported in the joint HCFAC reports to the approved
funding decision memorandum and compared amounts from the decision
memorandum to the OMB documentation (Apportionment Schedule SF-132) to
verify that the amounts were made available.

To assess the reliability of information reported by HHS and DOJ in the
joint HCFAC reports for fiscal years 2002 and 2003 as the justification
for the expenditure of HCFAC funds, we did the following.

o  	We reviewed the justifications provided in the reports and discussed
them with HHS and DOJ officials.

o  	We obtained and analyzed data from the HHS/OIG components' workload
tracking systems on the number of hours recorded as worked on HCFAC
projects. We reviewed these data for obvious errors and completeness and
compared these data for the four selected components with hardcopy
documents we obtained from these components, and to the HHS payroll system
data. When we found discrepancies we brought them to the attention of the
specific component and worked with them to obtain

Appendix I: Scope and Methodology

explanations for the discrepancies before conducting our analyses. On the
basis of this, we determined that the data were sufficiently reliable for
the purposes of this report.

o  	We evaluated the methodology used by the HHS/OIG to charge payroll
expenses against HCFAC funds for fiscal years 2002 and 2003-these expenses
represented 76 percent and 78.6 percent respectively of total HCFAC
expenses. For our evaluation, we (1) obtained the total number of staff
hours recorded in the workload tracking systems for each of the OIG
components and compared the hours in these systems to hours in the HHS
payroll system; (2) obtained a list of HHS/OIG projects and related staff
hours included in the workload tracking systems for two OIG components,
OAS and OEI (staff in OAS and OEI accounted for 55 percent of all OIG
employees), and reviewed the project subjects to assess whether projects
identified as HCFAC were appropriately classified; and (3) for the project
subjects that were unclear, we obtained and reviewed documentation
describing the work performed for the jobs to assess whether the job was
appropriately classified as HCFAC or non-HCFAC.

o  	We analyzed HHS/OIG nonpayroll expenditures charged against HCFAC
funds for fiscal years 2002 and 2003-these represented 20 and 17.4 percent
respectively. We obtained reports from HHS on the amount of HCFAC and
non-HCFAC expenditures by expenditure category (travel, rent, supplies,
etc.) for each fiscal year; we then calculated the percentage charged to
HCFAC and non-HCFAC funds for each category and compared them to the
percentages used by the OIG to allocate expenses against HCFAC funding-80
percent for HCFAC in fiscal year 2002 and 81 percent in fiscal year 2003.

o  	We obtained DOJ expenditure and allotment reports for all five
components that charge activity to the HCFAC program and calculated the
total amount of payroll and nonpayroll expenditures.

o  	We evaluated the methodology used by the U.S. Attorney Offices (USAO)
to charge payroll expenses against the HCFAC fund. These expenses
accounted for 38 percent and 49 percent respectively of total DOJ expenses
charged against fiscal years 2002 and 2003 HCFAC funds and 76 percent and
75 percent respectively of DOJ's total fiscal years 2002 and 2003 HCFAC
payroll expenses. USAO payroll expenses were equal to the annual salaries
for 160 FTEs for fiscal year 2002 and 162 FTEs for fiscal year 2003. We
reviewed the hours recorded in USAO's workload system to ensure that the
office devoted staff time to HCFAC-related activities equal to or greater
than the annual hours of the 160 FTEs for both fiscal years. We compared
the average annual salary for USAO staff positions

Appendix I: Scope and Methodology

(attorney, paralegal, administrative) charged to the HCFAC account to the
average annual salary for the same staff positions USAO-wide to ensure
that the salary amounts charged against HCFAC were reasonable. We
interviewed an agency official knowledgeable about the data obtained from
USAO's workload system to identify any data problems and determined that
the data were sufficiently reliable for the purposes of this report.

o  	We tested a statistical sample of the largest category of nonpayroll
expenses, the Civil component advisory services, which accounted for 34
percent of total DOJ expenses charged against fiscal year 2002 HCFAC funds
and 69 percent of the total nonpayroll expenses. We selected a dollar unit
sample of 19 transactions totaling $13.1 million from a population
totaling $16.5 million and compared the transaction data to supporting
documentation such as invoices and advisory services contracts to make
sure they agreed.3

o  	We tested nonpayroll expenses charged against fiscal year 2003 HCFAC
funds selected on a nonstatistical basis. We did not select a statistical
sample of nonpayroll expenses because DOJ's accounting system did not
identify the complete population of expenditure transactions charged
against HCFAC funds. We modified our methodology and (1) obtained copies
of all billing packages submitted by DOJ to HHS for reimbursement, (2)
selected a nonstatistical sample equal to 50 percent ($6.7 million of a
total $13.4 million) of the total summary amounts listed on each billing
package, and (3) traced and compared the data to supporting documentation,
such as invoices and advisory services contracts.

To assess the reliability of information reported by HHS and DOJ in the
joint HCFAC reports for fiscal years 2002 and 2003 as cost savings, we

o  	obtained the schedule of HHS/OIG Cost Savings 1998-2011 and compared
the data for fiscal years 2002 and 2003 to the HCFAC joint reports;

o  	obtained the fiscal years 2002 and 2003 HHS/OIG semiannual reports and
traced and compared the amounts identified as cost savings to the amounts
reported in the fiscal years 2002 and 2003 HCFAC joint reports;

o  	selected cost saving transactions on a nonstatistical basis, traced
and compared the data to supporting documentation; and

3 At a 63 percent confidence level.

Appendix I: Scope and Methodology

o  	reviewed the dates of reports that the OIG cited as having findings
and recommendations that resulted in the reported cost savings.

    In assessing the status of recommendations made in our prior report, we

o  	reviewed the recommendations included in our prior report and the
comments provided by DOJ on our prior report to identify corrective
actions that had been implemented or were to be implemented in the future;

o  	provided a list of the prior-year recommendations and their status per
DOJ comments to DOJ management and requested supporting documentation for
the corrective actions taken; and

o  	reviewed the supporting documentation to verify that the corrective
actions were implemented and that the corrective actions completely
addressed the recommendations.

We conducted our work from August 2003 through January 2005 in accordance
with U.S. generally accepted government auditing standards. We provided a
draft of this report to HHS and DOJ for their comments. Written comments
from the Acting Inspector General of HHS and the Assistant Attorney
General for Administration at DOJ are included in appendixes III and IV,
respectively. We also received technical comments from HHS and DOJ that
were incorporated as appropriate.

Appendix II: Status of Prior-Year Recommendations

                                   Continued

Appendix II: Status of Prior-Year Recommendations

Source: U.S. General Accounting Office, Medicare: Health Care Fraud and
Abuse Control Program for Fiscal Years 2000 and 2001, GAO-02-731
(Washington, D.C.: June 30, 2002) and information provided by HHS and DOJ.

Appendix III: Comments from the Department of Health and Human Services

Appendix III: Comments from the Department of Health and Human Services

Appendix IV: Comments from the Department of Justice

Appendix IV: Comments from the Department of Justice

Appendix V: GAO Contact and Acknowledgments

GAO Contact Kimberly Brooks, (202) 512-9038, [email protected]

Acknowledgments 	W. Ed Brown, H. Donald Campbell, Lisa Crye, Kelly Lehr,
Kathryn Peterson, and Matthew Wood made key contributions to this report.
Sharon Byrd provided statistical sampling technical assistance.

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Criminal Debt: Actions Still Needed to Address Deficiencies in Justice's
Collection Processes. GAO-04-338. Washington, D.C.: March 5, 2004.

Medicare Home Health: Payments to Most Freestanding Home Health Agencies
More Than Covered Their Costs. GAO-04-359. Washington, D.C.: February 27,
2004.

Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed.
GAO-04-228. Washington, D.C.: February 13, 2004.

Financial Management: Status of the Governmentwide Efforts to Address
Improper Payment Problems. GAO-04-99. Washington, D.C.: October 17, 2003.

Medicare Provider Enrollment: Opportunities to Enhance Program Integrity
Efforts. GAO-03-185. Washington, D.C.: March 17, 2003.

Medicare: Payment for Blood Clotting Factor Exceeds Providers' Acquisition
Cost. GAO-03-184. Washington, D.C.: January 10, 2003.

Related GAO Products

High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 1,
2003.

Medicaid Financial Management: Better Oversight of State Claims for
Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: February 28,
2002.

Medicare: Health Care Fraud and Abuse Control Program for Fiscal Years
2000 and 2001. GAO-02-731. Washington, D.C.: June 3, 2002.

Civil Fines and Penalties Debt: Review of CMS' Management and Collection
Processes. GAO-02-116. Washington, D.C.: December 31, 2001.

Medicare: Reporting on the Health Care Fraud and Abuse Control Program for
Fiscal Years 1998 and 1999. GAO/AIMD-00-51R. Washington, D.C.: December
13, 1999.

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