Social Security Administration: Policies and Procedures Were in
Place over MMA Spending, but Some Instances of Noncompliance
Occurred (31-AUG-07, GAO-07-986).
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA) created a voluntary outpatient prescription
drug benefit as part of the Medicare program, and appropriated up
to $500 million for the Social Security Administration (SSA) to
fund the start-up administrative costs in meeting its
responsibilities to implement MMA. SSA was given a great deal of
discretion in how to use the funds and the act provided little
detail on how the funds were to be spent. You asked us to review
SSA's costs for implementing MMA to determine (1) how the MMA
funds were expended, (2) what procedures SSA has in place over
the use of those funds, and (3) how SSA complied with those
procedures related to contractor and vendor payments.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-986
ACCNO: A75568
TITLE: Social Security Administration: Policies and Procedures
Were in Place over MMA Spending, but Some Instances of
Noncompliance Occurred
DATE: 08/31/2007
SUBJECT: Accountability
Administrative costs
Allocation (Government accounting)
Cost accounting
Cost analysis
Erroneous payments
Internal controls
Medicare
Noncompliance
Policy evaluation
Policies and procedures
Government purchase cards
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GAO-07-986
* [1]Results in Brief
* [2]Background
* [3]The Majority of Reported Costs Incurred Using MMA Funds Cons
* [4]SSA Had Policies and Procedures for Tracking MMA Funds but T
* [5]SSA Did Not Effectively Communicate MMA-Related Guidance Res
* [6]SSA Asset Accountability Policies and Procedures Were Not Co
* [7]Some Credit Card Purchases Were Not Properly Approved or Sup
* [8]Conclusions
* [9]Recommendations for Executive Action
* [10]Agency Comments and Our Evaluation
* [11]GAO Contact
* [12]Acknowledgments
* [13]GAO's Mission
* [14]Obtaining Copies of GAO Reports and Testimony
* [15]Order by Mail or Phone
* [16]To Report Fraud, Waste, and Abuse in Federal Programs
* [17]Congressional Relations
* [18]Public Affairs
Report to the Committee on Finance, U.S. Senate
United States Government Accountability Office
GAO
August 2007
SOCIAL SECURITY ADMINISTRATION
Policies and Procedures Were in Place over MMA Spending, but Some
Instances of Noncompliance Occurred
GAO-07-986
Contents
Letter 1
Results in Brief 2
Background 3
The Majority of Reported Costs Incurred Using MMA Funds Consisted Of
Personnel-Related and Contractor Expenses, and Indirect Costs 6
SSA Had Policies and Procedures for Tracking MMA Funds but They Were Not
Complied with Consistently 9
Conclusions 13
Recommendations for Executive Action 14
Agency Comments and Our Evaluation 14
Appendix I Objectives, Scope, and Methodology 17
Appendix II Comments from the Social Security Administration 19
Appendix III GAO Contact and Staff Acknowledgments 23
Tables
Table 1: SSA's Reported Cost Outlays Covered by the Medicare Trust Funds
for 5 Years Ended in Fiscal Year 2006 6
Table 2: Breakdown of SSA's Reported MMA Administrative Costs by Category
6
Table 3: Breakdown of Completed Tasks under MMA by Major Provision, as of
February 2007 8
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separately.
United States Government Accountability Office
Washington, DC 20548
August 31, 2007
The Honorable Max Baucus
Chairman
The Honorable Charles Grassley
Ranking Member
Committee on Finance
United States Senate
The Congress passed the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),^1 which represented the most significant
expansion of the Medicare program since its enactment in 1965. The act was
established to (1) provide for a voluntary program for prescription drug
coverage under the Medicare^2 program (referred to as Medicare Part D),
(2) modernize the Medicare program, (3) allow a deduction to individuals
for amounts contributed to health savings security accounts and health
savings accounts, (4) provide for the disposition of unused health
benefits in cafeteria plans and flexible spending arrangements, and (5)
for other purposes. The MMA included an appropriation of $500 million for
the Social Security Administration (SSA) to fund the start-up
administrative costs to implement MMA. SSA was given a great deal of
discretion in how to use the funds as the act provided little detail on
how the funds were to be spent. You asked us to review SSA's use of MMA
funds to implement MMA activities to determine (1) how those funds were
expended, (2) what procedures SSA has in place over the use of those
funds, and (3) how SSA complied with those procedures related to
contractor and vendor payments.
We reviewed MMA and discussed its impact with SSA to obtain an
understanding of SSA's responsibilities under the act. We also reviewed
the policies and regulations SSA had to track and report the use of MMA
funds implementing MMA provisions, as well as additional guidance
established by SSA officials to track the spending of MMA funds for MMA
implementation. We obtained cost and other information on SSA's
implementation activities from officials in the agency's headquarters in
Baltimore, Maryland. In addition, we discussed specific cost information
with officials and staff in headquarters and field offices that were
responsible for particular transactions. To obtain specific cost and
program information, as well as information related to specific financial
statement issues, we reviewed our reports and reports from SSA's
independent financial statement auditors. We also tested individual
transactions for adequate supporting documentation, authorization, and
evidence of purchase and receipt, as well as accountability of assets
purchased with MMA funds. We provided SSA a draft of this report for
review and comment. SSA provided written comments, which are reprinted in
appendix II. SSA also provided technical comments, which we have
incorporated as appropriate. We conducted our work in Washington, D.C. and
Baltimore, Md., from March 2006 through June 2007 in accordance with
generally accepted government auditing standards. Appendix I provides a
detailed description of our scope and methodology.
^1Public Law 108-173 (Dec. 8, 2003).
^2Medicare is a health insurance program for people 65 years of age or
older, certain people under 65 with disabilities, and people of all ages
with End-Stage Renal Disease (ESRD is permanent kidney failure requiring
dialysis or a kidney transplant). There are currently about 43 million
Medicare beneficiaries.
Results in Brief
SSA spent $500 million of MMA appropriated funds from December 2003
through January 2006 on MMA implementation activities. The majority of the
funding was used for personnel-related expenses, contractors, and indirect
costs. SSA financial reports show that more than half of the funds were
spent on personnel-related costs for staff hours for MMA activities in
SSA's headquarters and field offices. Once the $500 million was spent, SSA
began to use its Limitation on Administrative Expenses (LAE)^3
appropriation to fund the remaining costs of implementing the MMA
activities. SSA used its financial Online Accounting and Reporting System
(SSOARS)^4 and its cost analysis system (CAS) to track the overall costs
of implementing the MMA provisions. As of February 20, 2007, SSA had
completed work on 16 of the 22 tasks SSA developed to implement provisions
affecting SSA under the act.
SSA had agencywide policies and procedures in place over its cost tracking
and allocation, asset accountability, and invoice review processes. It
also established specific MMA-related guidance to specifically track and
account for costs of implementing MMA. There were some instances where SSA
did not comply with those procedures. SSA did not effectively communicate
the specific MMA-related guidance to all affected staff. As a result,
while SSA subsequently identified and corrected at least $4.6 million of
costs that initially were incorrectly allocated to MMA, it did not correct
the misallocation of approximately $313,000 of credit card purchase
transactions. We also identified transactions, paid for using SSA's
government purchase card, which were not properly approved or were not
adequately supported as MMA-related activities. Although purchase card
transactions represented a small percentage of total MMA implementation
costs, proper approval and support for these transactions is essential to
reduce the risk of improper purchases. In addition, we identified
instances where accountable assets^5 purchased with MMA funds, such as
electronic and computer equipment, were not properly tracked by SSA in
accordance with its policies, raising the risk that equipment could be
lost or stolen without detection.
^3SSA's LAE account in the annual Department of Labor, Health and Human
Services, and Education, and Related Agencies Appropriations Act,
establishes administrative expense limitations for SSA that are funded
from various sources.
^4SSA's SSOARS records, classifies, and summarizes information on SSA's
financial position and operation.
We are making three recommendations to address the issues identified in
the report to enhance SSA's (1) ability to track costs of program
activities, including those paid with special appropriation funds, (2)
controls over its review and approval processes for purchase card
payments, and (3) ability to track accountable assets purchased. In
written comments on a draft of this report, SSA generally agreed with two
of the recommendations and disagreed with one recommendation, stating that
the recommendation was too broad and that SSA's current guidance was
sufficient. By design this recommendation is broad to provide SSA
management flexibility to determine the most appropriate actions needed to
correct issues with authorization and documentation of purchase card
transactions, where we found unacceptably high error rates. These comments
are presented and evaluated in the Agency Comments and Our Evaluation
section of this report and are reprinted in appendix II. SSA also provided
technical comments that we incorporated as appropriate.
Background
MMA enacted and affected a number of activities that SSA identified as
related to its responsibilities. Listed are six provisions enumerated in
MMA affecting SSA, and the Medicare-related functions and activities
undertaken by SSA as a result.
^5Accountable property is equipment purchased with a value of $1,000 to
$99,999, or deemed by SSA to be "sensitive," that is, equipment valued at
less than $1,000, but considered susceptible to loss, such as laptop
computers, projectors, and copiers.
o Prescription Drug Program (Part D) and Low Income Subsidy
(LIS)-In addition to establishing a beneficiary outreach
demonstration project for this provision, SSA is responsible for
developing forms and procedures for LIS including a simplified
application, conducting education and outreach activities, and
processing LIS appeals. In addition, SSA will use computer
matching data for verification of attestations, process
subsidy-changing events, periodically redetermine LIS eligibility,
and deduct Part D premiums when the beneficiary chooses to have
their premium withheld from their Title II benefit payment and the
Centers for Medicare and Medicaid Services (CMS) notifies SSA of
this. SSA was also responsible for transferring premiums withheld
from Title II benefit payments to CMS.
o Medicare Prescription Drug Discount Card Program-SSA will
support CMS administration of this program by providing data from
SSA's records and data obtained from other federal agencies on
potentially eligible Medicare beneficiaries for transitional
assistance.
o TRICARE-SSA will be responsible for enrolling TRICARE^6
beneficiaries into Medicare Part B, calculating their premiums,
and refunding excess premiums paid.
o Medicare Part B Premium-SSA is tasked with implementing Medicare
Part B income-based premium subsidy reductions for beneficiaries
with income above a stipulated level. SSA will also collect the
income-related monthly amount from the Title II benefit payment
and transfer the premiums withheld from Title II benefit payments
to CMS, and process appeals of the initial determination.
o Medicare Advantage (MA) Part C-SSA will compute and collect Part
C premiums when the beneficiary chooses to have premiums deducted
from his or her Title II benefit payment and transfer premiums
withheld from Title II benefit payments to CMS.
o Health Savings Accounts-SSA will obtain information from
employer reports, record the information on SSA's records, and
pass the information to the Internal Revenue Service.
As a result of the enactment of MMA, SSA conducts outreach efforts to
identify individuals entitled to benefits or enrolled under the Medicare
program under Title 18 of the Social Security Act, who may be eligible for
transitional assistance under the Medicare Prescription Drug Discount Card
Program and premium and cost-sharing subsidies under the Prescription Drug
Card Part D Program. SSA continues to have a role in the outreach to
low-income Medicare beneficiaries for payment of Medicare cost-sharing
under the Medicaid program. SSA is also required to verify the eligibility
of applicants for the subsidy under MMA who self-certify their income,
resources, and family size. To determine whether a Medicare beneficiary is
eligible for a subsidy, SSA collects information on whether the individual
has income up to 150 percent of the federal poverty guidelines. SSA has
established a database to maintain the information it collects and shares
information on those eligible and ineligible for subsidies with CMS.
^6TRICARE is the health care plan for the Uniformed Services, retirees,
and their families, and serves a beneficiary population of more than 9.2
million worldwide.
To implement the new responsibilities under MMA, SSA established a
Medicare Prescription Drug Planning and Implementation Task Force in
December 2003. The objectives of the task force included identifying the
potentially eligible population, the number and locations of potential
workloads and staff and material resource needs, and agreeing on specific
responsibilities with other federal government agencies. SSA also
identified the specific tasks to carry out the implementation of the
activities for each of the provisions under MMA, including designing and
managing the planning and implementation processes; issuing regulations;
and developing and implementing communication strategies, budget, appeals
process, subsidy-changing event process, redetermination process, and
strategies for service delivery.
Under MMA, the Congress provided SSA with a $500 million appropriation to
fund SSA's start-up administrative costs to implement MMA, during fiscal
years 2004 and 2005, but later extended this budget authority to fiscal
year 2006. SSA reported that the $500 million for these administrative
costs was exhausted in January 2006, and MMA costs are now funded using
the LAE. LAE is SSA's basic administrative account and is an annual
appropriation financed from the Social Security and Medicare trust funds.
The total amount of SSA administrative costs covered by the Medicare Trust
Funds to fund SSA's Medicare responsibilities has increased with the
enactment of MMA. Prior to the establishment of Part D under MMA, Medicare
did not generally pay for outpatient prescription drugs, but it did
provide health insurance to individuals who are either 65 or older or
disabled. Table 1 reflects SSA's reported administrative cost outlays
covered by the Medicare Trust Funds for implementing MMA activities and
other Medicare activities.
Table 1: SSA's Reported Cost Outlays Covered by the Medicare Trust Funds
for 5 Years Ended in Fiscal Year 2006
Source: SSA, Budget Justification for Appropriations Committees, Fiscal
Years 2004 through 2008, and additional documentation provided by SSA
Office of Budget, Finance and Management.
The Majority of Reported Costs Incurred Using MMA Funds Consisted Of
Personnel-Related and Contractor Expenses, and Indirect Costs
SSA reported spending the $500 million MMA funds from December 2003
through January 2006 on activities to implement the provisions specified
in MMA. SSA's financial reports showed that almost all of the funding
reported was used for personnel-related expenses, contractors, and
indirect costs (see table 2). More than half of the funds were spent on
personnel-related expenses for staff hours used on MMA activities at SSA's
headquarters and field offices. Once the $500 million was spent, MMA costs
were funded by SSA's LAE appropriation. SSA used its financial accounting
and reporting system, SSOARS, and its cost analysis system (CAS) to track
overall costs related to the implementation of MMA legislation. SSA did
not separately track the administrative costs incurred to implement the
individual provisions under MMA legislation because the act did not
specifically require SSA to do so and it was not cost effective to do so.
Table 2: Breakdown of SSA's Reported MMA Administrative Costs by Category
Source: SSA, CAS reports, fiscal years 2004 through 2006.
SSA reported that it spent approximately $261 million on personnel-related
expenses, which consisted of salaries and related benefits for both newly
hired and existing SSA employees. As a result of MMA, SSA hired and
trained more than 2,200 new employees at its field offices and 500 at
headquarters to handle the additional workload created by SSA's new
responsibilities under MMA. Personnel-related expenses included salaries
for current SSA employees who were also involved in activities related to
implementing MMA, including the new Medicare Part D responsibilities. Many
of these employees may have been engaged in work on other SSA programs
during the same time. SSA used CAS to prorate these employees' salaries
and related expenses based on the amount of time employees charged to MMA
and various other SSA responsibilities.
SSA reported indirect costs of approximately $117 million for MMA
implementation. During each year, SSA incurred administrative costs in
support of the various programs. For example, SSA makes rental payments
for most of the approximately 1,300 regional field offices it has located
around the country and staff in these offices perform duties related to
all of the programs administered by SSA, including MMA. In order to
allocate these administrative costs to each of its programs, SSA used its
cost analysis system, CAS, to charge certain types of costs either
proportionally or in full against the MMA appropriation. SSA charges both
direct and indirect costs to its programs^7 either by directly charging
specific program-related amounts to the affected program in SSOARS or
using CAS to allocate personnel-related and general administrative costs
that apply to more than one SSA program. CAS accounts for work-years and
costs for each program administered by SSA by specific subfunctions within
the SSA programs. It is a centralized, computer-based system that uses
data from the financial reporting system to break out costs at SSA by
program and major functions. The main objective of CAS is to distribute
costs equitably across programs and among the various trust funds and
general funds. However, SSA stated that systems modifications to enable
tracking MMA administrative costs by each of the MMA provisions were not
required by the legislation and that it would not have been cost effective
to modify the system.
^7Direct costs are those that can be specifically identified with a
program, such as salaries and benefits, materials, and supplies to carry
out the program. Indirect costs cannot be specifically identified with a
program because they are agencywide expenses, including things such as
general administrative expenses, technical support, and operations and
maintenance.
SSA reported that $119.6 million in MMA funds went to contractors,
vendors, and other government agencies that provided various goods and
services necessary for SSA to meet its responsibilities under MMA. Some of
the largest reported expenditures included
o $34.2 million paid to one contractor for software systems
development and support;
o $23 million paid to one contractor for telephone-based
beneficiary outreach and information distribution;
o $18.6 million to the United States Postal Service for mass
mailings and other paper-based information distribution;
o $11.4 million to one contractor for computer hardware and
software upgrades; and
o $6.5 million to the Government Printing Office for the design
and production of informational mailings, posters, and other
printed materials.
The remaining expenditures to other contractors, vendors, and government
agencies for goods and services charged to the MMA implementation
appropriation included additional computer hardware, software development,
and information systems support, as well as installation and
reconfiguration of MMA service centers workstations.
As of February 2007, SSA reported it had completed 16 of the 22 tasks for
implementing six provisions of MMA. SSA is continuing its implementation
of the remaining six tasks using LAE funding. Table 3 provides a breakdown
of the 22 tasks by major MMA provision.
Table 3: Breakdown of Completed Tasks under MMA by Major Provision, as of
February 2007
Source: SSA.
SSA Had Policies and Procedures for Tracking MMA Funds but They Were Not
Complied with Consistently
SSA had agencywide policies and procedures in place over its cost tracking
and allocation, asset accountability, and invoice review and approval
processes. SSA also established specific guidance to charge and allocate
its costs to implement MMA. However, those policies and procedures were
not always complied with consistently. We found that SSA did not
effectively communicate the specific MMA-related guidance to all relevant
staff. This ineffective communication resulted in millions of dollars of
costs being misallocated to MMA. Some of these misallocations were
subsequently detected by SSA and corrected during SSA's review process. In
the area of purchase card transactions, which represented
0.5 percent of the $500 million, we found some instances where credit card
purchases had not yet been correctly allocated to MMA. In addition, we
found that some purchases made with credit cards were not properly
supported or reviewed and may not have been a proper use of MMA funds.
Finally, noncompliance with SSA policies and procedures over asset
accountability resulted in inadequately tracked accountable assets that
were purchased with MMA funds.
SSA Did Not Effectively Communicate MMA-Related Guidance Resulting in
Misallocation of Costs to MMA
In order to track costs associated with the development and implementation
of SSA's MMA-related activities, SSA used existing processes and
applications, such as CAS, expanded existing processes, such as
establishing unique common accounting numbers (CAN) for MMA-related costs,
and implemented new processes, such as the online time recording system
for MMA-related time spent by administrative staff. In addition, SSA
developed specific cost accounting principles for each of its major
offices which, when appropriately applied, would enable the offices to
allocate nonpersonnel costs among MMA-related activities and across other
SSA operating activities. However, the lack of a formal process to ensure
that this critical information was communicated to the appropriate level
within the SSA offices resulted in misallocation of costs to MMA.
In January 2004, SSA initiated a process to expand on its cost accounting
process to track and report the cost of implementing the MMA-related
activities. The Deputy Commissioner for Finance, Assessment, and
Management issued a series of three memoranda to senior officials
containing policies and procedures for reporting time spent and updating
cost accounting principles associated with MMA planning and implementation
efforts. These memoranda included accounting codes and procedures for
tracking costs specific to implementing MMA activities, reporting formats
for MMA-related costs, and updated cost accounting principles for LAE and
MMA allocations.
In May 2005 the Deputy Commissioner for Finance, Assessment, and
Management issued a memorandum to the deputy commissioners and other key
officers for all SSA offices, which reemphasized the need to properly
account for MMA-related costs, provided updated cost accounting principles
for costs associated with the planning and implementation of MMA, and
requested SSA-wide assistance in accurately applying these principles. The
updated cost accounting principles were included in a table that was
attached to the memorandum. The table provided specific guidance for each
office on the cost principle methodology to apply for specific types of
costs in order to allocate the costs between the component's regular
resource allocations and the MMA funding. In addition, the memorandum
requested that each component identify an individual who would aid in
ensuring these principles were appropriately applied.
We met with SSA staff to discuss the policies and procedures in place to
disseminate these critical memoranda within SSA. We found that not all
staff responsible for MMA activities were aware of the guidance. We were
told that there was no specific guidance related to the dissemination of
key management memoranda. The May 2005 memorandum was addressed to the
deputy commissioners of each of SSA's major offices, and it clearly stated
the importance of applying the principles described. We obtained
information and documentation from the individuals identified as the
contact employee for each component to aid in the effort. We found that
there was no mechanism in place to help ensure that all memoranda were
disseminated to all relevant staff at SSA's headquarters and field
offices.
Timely and thorough communication of operational procedures is critical in
ensuring that an agency is able to perform its responsibilities
effectively. Our Standards for Internal Control in the Federal Government
state that for an entity to run and control its operations, it must have
relevant, reliable, and timely communications relating to internal as well
as external events. Information is needed throughout the agency to achieve
its internal control objectives. Operating information is also needed to
determine whether the agency is achieving its compliance requirements
under various laws and regulations. Pertinent information should be
identified, captured, and distributed in a form and time frame that
permits people to perform their duties efficiently. Effective
communications should occur in a broad sense with information flowing
down, across, and up through the organization.
As a result of the ineffective communication of MMA-related guidance, at
least $4.6 million of costs were initially incorrectly allocated to MMA.
SSA's offices went through a process to review the allocation of the
charges between MMA and LAE appropriation activities, and make appropriate
adjustments. The offices identified numerous transactions and adjusted the
transaction amounts to reflect the appropriate allocation of costs between
MMA and the LAE appropriation. In total they identified transactions
totaling more than $4.6 million that had not initially been properly
allocated to LAE. However, SSA officials agreed that they had probably not
identified all of the transactions that had not been properly allocated
and should have been adjusted, such as purchase card purchases.
In addition, during our review of the supporting documentation of MMA
purchase card transactions, we found 48 purchases totaling $375,313 that
had been charged entirely to MMA when a portion of those costs should have
been allocated to other SSA programs. The purchases included more than 160
digital projectors, furniture, and other IT equipment such as routers,
servers, and tape libraries. While some of these items were initially
purchased to carry out MMA-related activities, such as beneficiary
outreach, SSA realized that they would also be used for SSA programs other
than MMA in the future. Therefore, according to the guidance on accounting
for MMA-related expenses, the offices should have charged only one-sixth
of the costs for equipment to MMA, with the remainder of the cost charged
to the LAE appropriation account to be further allocated across other SSA
programs. However, these costs were not allocated as described above and
as a result; SSA over-allocated these costs against the MMA appropriation
by approximately $313,000.
SSA Asset Accountability Policies and Procedures Were Not Consistently Followed
for Assets Purchased for MMA Activities
SSA had policies and procedures for purchasing assets and for maintaining
accountability for those assets. Included were definitions of the types of
assets for which SSA required the requestor to affix bar codes for
identification and record in SSA's asset inventory system. In addition,
SSA issued an acquisition alert on the purchase of accountable sensitive
and personal government property, which reminded purchase card holders
that they were required to provide information to the requestor to ensure
that the purchases were reported to their property management or custodial
officers so that the property was properly bar-coded and entered into
SSA's property system. However, we found in our review of accountable
property purchases that for 21 of 36 transactions that we tested, the
purchasers were not aware of their responsibility to provide the requestor
of the property with information on the property purchased.
The 36 transactions we reviewed included a total of 3,254 accountable
property items with a total cost of approximately $4.2 million. As of May
25, 2007, SSA had not properly identified 317 of these items with bar
codes or included these assets in the asset inventory system. These items
included assets such as information technology network servers and
switches, digital projectors, and other electronic equipment. These items
had a total cost of approximately $1.3 million. As a result, hundreds of
assets purchased with MMA funds were not properly accounted for and SSA
was unable to provide us with bar codes or evidence of inclusion of those
assets in SSA's asset inventory system.
Some Credit Card Purchases Were Not Properly Approved or Supported
SSA also has guidance for credit card purchases applicable to
micropurchases and purchases made by contracting officers. According to
SSA policy on micro-purchasing, credit card purchases are limited to
$2,500, must have funds pre-approved, and may not be used to split
purchases into more than one transaction to avoid purchase limits. In
addition, all credit card purchases must be documented, including written
requests, approvals, and proof of purchase and delivery, and maintained by
the cardholders for 3 years.
Over the last several years, inspectors general and we have reported that
some federal agencies do not have adequate internal control over their
purchase card programs. Without effective internal control, management
does not have adequate assurance that fraudulent, improper, and abusive
purchases are being prevented or, if occurring, are being promptly
detected with appropriate corrective actions taken. Supervisory approval
of purchase requests is a principal means of ensuring that only valid
transactions are initiated or entered into by persons acting within the
scope of their authority, and the proper amounts are paid to contractors
and appropriately charged. A supervisory review of purchase requests is
also critical because a supervisor or approving official may be the only
person other than the purchaser who would be in a position to identify an
inappropriate purchase. Therefore, the supervisor's or approving
official's review is a critical internal control for ensuring that
purchases are appropriate and comply with agency regulations. However, we
identified invoices that were paid for questionable amounts without the
appropriate supervisory review and approval. Of the 147 purchase card
transactions we reviewed, we found 45 transactions totaling $63,828 that
did not have proper approval or did not have adequate support for the
propriety of the purchase.
While SSA's micro-purchase card policy requires the purchaser to receive
an approved purchase request before acquiring goods or services, we noted
instances in which the supervisory review or approval was inadequate. We
identified the following 18 transactions totaling $31,914 that were
initiated and completed by cardholders without proper prior approval.
o For 8 transactions totaling $17,454, the approvals on the
request authorization form occurred after the items had already
been purchased by the cardholders.
o For 2 transactions totaling $2,163, the authorizing signatures
were provided on the request authorization form before the request
was signed by the requestor.
o For 2 transactions totaling $3,984, SSA could not provide
evidence that the electronic signatures on the purchase requests
represented valid authorizations.
o For 6 transactions totaling $8,313, SSA did not provide evidence
that the purchase requests, which authorize the purchase of goods
to be made, were approved.
We also found instances where the supporting documentation did not provide
evidence to support that the costs were related to SSA's implementation of
MMA. We found the following 27 transactions totaling $31,914 for which
sufficient supporting evidence was not provided.
o For 6 transactions totaling $7,077, SSA did not provide any
documentation to support the purchases.
o For 21 transactions totaling $24,837, SSA could not provide
sufficient evidence of any relationship between the goods and
services purchased and implementation of MMA. The items purchased
included five wireless headsets, one big-screen television, remote
control devices for PowerPoint presentations, and engraved items.
In addition to being unable to relate these purchases to the
implementation of MMA, we found no evidence these items were
necessary purchases for SSA.
In addition, we found evidence that one cardholder circumvented the $2,500
per transaction purchase authority by submitting four purchase requests
for the purchase of audio and video media (CDs, DVDs, and VHS tapes) from
a single vendor on the same day. As a result, the cardholder ultimately
paid a total of $4,365 for four invoices, which was $1,865 above the
$2,500 purchase authority limit.
Conclusions
SSA had existing policies and procedures in place to track and report the
total costs it incurred to implement MMA provisions and to maintain
accountability and control over its MMA-related activities. However,
procedures and controls over purchase card transactions and asset
accountability could be improved. Although purchase card transactions and
accountable asset purchases represented a small percentage of the total
MMA administrative costs that were paid with MMA funds, having effective
controls in place to ensure the proper approval, support, and
accountability for these transactions is essential to reduce the risk of
improper purchases and improperly accounted for assets.
Recommendations for Executive Action
To enhance SSA's (1) ability to track the costs of program activities
including MMA administrative costs, (2) controls over its review and
approval processes for purchase card payments, and (3) tracking of its
accountable assets, we recommend that the Commissioner of Social Security
o establish procedures to ensure better dissemination of policies
and procedures to all relevant offices and staff;
o establish additional detailed procedures for a purchase card
supporting documentation review and approval process to help
ensure that purchase card payments are properly supported,
allowable, and allocated; and
o reinforce existing policies and procedures for the purchase of
accountable assets to ensure that accountable assets are bar
coded, recorded in SSA's asset inventory system, and inventoried
periodically.
Agency Comments and Our Evaluation
In written comments reprinted in appendix II, SSA generally agreed with
two of our recommendations, but disagreed with one recommendation. SSA
also stated its belief that our report title, SSA Policies and Procedures
Were in Place over MMA Spending, but Some Instances of Noncompliance
Occurred, did not accurately reflect the findings in the report since it
believed there was compliance with its policies and procedures. SSA also
believes our characterization of the cause of SSA's misallocation of costs
to MMA as ineffective communication needs to be modified, and pointed out
that there was no mention of the remaining misallocated credit card
transactions representing only 0.06 percent of the total amount
appropriated. SSA suggested the change in the report title because SSA had
identified and corrected the $4.6 million initially incorrectly allocated
to MMA and the remaining uncorrected instances were insignificant to the
total amount appropriated. However, the areas where policies and
procedures were not complied with also included misallocated credit card
purchases not corrected (which represented more than 10 percent of the
dollar value of the credit card purchases charged to MMA), and maintaining
accountability over assets purchased with MMA funds. Therefore, we
continue to believe that the title of our report accurately characterizes
our findings.
SSA agreed in theory with our recommendation to establish procedures to
better disseminate policies and procedures, but stated its belief that the
recommendation was too broad and did not accurately reflect what needed to
be done. SSA stated that it will provide more specific instructions for
distribution of costs in future guidance. SSA also believed that it had
sufficient dissemination methods for acquisition related issues. Our
recommendation was intentionally broad to provide SSA management
flexibility to determine the most appropriate steps it should take to
ensure the complete dissemination of future guidance. To that end, SSA
including more specific instructions in future memoranda guidance would
provide a corrective action that would be sufficient to address our
recommendation.
SSA disagreed with our recommendation to establish additional detailed
procedures for reviewing and approving supporting documentation for credit
card purchases to help ensure that purchase card payments are properly
supported, allowable, and allocated. SSA stated its belief that our
recommendation was too broad and its guidance for contracting officers and
micro-purchasers is sufficient. While SSA stated its belief that its
guidance is sufficient and that its contracting officers are already aware
of the file documentation required for purchases, we found that 45 of 147
(30 percent) credit card purchases we reviewed did not have proper
authorization or complete documentation. This is an unacceptable error
rate. We agree that our recommendation is broad, but it is intended to
allow SSA the flexibility to determine the most appropriate actions needed
to help ensure that there is sufficient evidence available to determine
that all credit card purchases are properly approved, supported,
allowable, and allocable. SSA pointed out that its current "remote"
reviews of micropurchases made in the regions do not include a full file
review, and that SSA is considering changing this process to include such
reviews.
SSA agreed with our recommendation to reinforce existing policies and
procedures for accountable asset purchases to help ensure that those
assets are bar coded, recorded in SSA's asset inventory system, and
inventoried periodically. SSA also identified its plan to include an
acquisition topics website on one of its intranet pages by September 2007
and listed several actions undertaken since December 2006 to reinforce
existing policies and procedures and to implement an improvement work
plan. SSA also provided additional technical comments, which have been
included in the report as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its date. At that time, we will send copies of this report to the
Commissioner of SSA, and other interested parties. Copies will also be
made available at no charge on GAO's Web site at http://www.gao.gov. If
you have questions concerning this report, please call me on (202)
512-9471. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. GAO staff who
made contributions to this report are listed in appendix III.
Jeanette Franzel
Director, Financial Management and Assurance
Appendix I: Objectives, Scope, and Methodology
To review the costs of the Social Security Administration's (SSA)
implementation of MMA activities, we reviewed the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 and discussed its impact
with SSA to obtain an understanding of SSA's responsibilities under the
act. We also reviewed the policies and regulations SSA established to
track and report MMA-related costs and other information pertaining to its
program activities, as well as additional guidance provided to SSA
officials so that they could track the costs of new MMA-related
activities. We obtained cost and other information on SSA's implementation
activities from SSA officials in the agency's headquarters in Baltimore,
Maryland. In addition, we discussed specific cost information with various
officials and staff in headquarters and field offices who were responsible
for specific transactions. To obtain specific cost and program
information, as well as information related to specific financial
statement issues, we reviewed our reports and reports from SSA's
independent financial statement auditors.
To determine how SSA expended the MMA funds to implement MMA activities,
we obtained annual schedules of amounts charged to MMA for fiscal years
2004 (starting in December 2003), 2005, and 2006. We analyzed the
expenditure data, sorted it by object class, and segregated the amounts
charged to the Limitation on Administrative Expenses appropriation after
the $500 million of MMA funding had been used by SSA. We discussed our
sorted detailed analysis with SSA budget and finance officials. We also
compared expenditure data to audited Social Security Online Accounting and
Reporting System (SSOARS) data and determined that the data were
sufficiently reliable for the purposes of this report.
To determine what procedures SSA had in place over the MMA funds, we
reviewed MMA and SSA policies, procedures, and other guidance and
interviewed key SSA officials for information on the contract procurement,
payroll, cost accounting, budget, and payment processes to obtain a
thorough understanding of each process. We also conducted follow-up
discussions to verify our understanding of all key processes related to
spending MMA funds. We reviewed SSA's independent financial statement
auditors' reports and audit documentation to determine the level of audit
coverage provided in the payroll; property, plant, and equipment; and cost
accounting areas, plus any internal control weaknesses identified. On the
basis of the clean audit opinion on SSA's financial statements and no
related findings, we did not perform testing on the payroll and cost
accounting areas. As a result, we focused our testing of transactions on
contractor and vendor payments.
To determine whether SSA's contractor expenditures were properly supported
as valid uses of MMA funds, we selected and tested a monetary unit sample
of 59 transactions totaling $82.6 million from a population of 20,736
transactions totaling $123.5 million paid from January 2004 through
February 2006.^1 We found no exceptions during testing.^2 We also used
various nonstatistical sampling methods (data mining, document analysis,
and other forensic techniques) to nonstatistically select 208 transactions
to test adequate supporting documentation of requests, authorization,
evidence of purchase and receipt, and applicability to MMA. We discussed
all testing exceptions with the appropriate SSA officials and staff
involved with the specific transaction.
We conducted our work in Washington, D.C., and Baltimore, Md., from March
2006 through April 2007 in accordance with generally accepted government
auditing standards.
^1The sample population consisted of accrued expenditures greater than $0
and excluded 284 Herman Miller expenditures totaling $1.1 million and
3,903 Citibank expenditures totaling $2.5 million. These transactions were
tested separately.
^2We did not find any exceptions during testing, and we are 95 percent
confident that the actual total amount in error associated with the
sampling error inherent in statistical sampling is less than or equal to 5
percent.
Appendix II: Comments from the Social Security Administration
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact
Jeanette Franzel, (202) 512-9471 or [email protected]
Acknowledgments
The following team members made key contributions to this report: Steven
R. Haughton, Assistant Director; William (Ed) Brown; Sharon Byrd; Rich
Cambosos; Marcia Carlsen; Lisa Crye; Leslie C. Jones; Brent J. LaPointe;
Margaret Mills; and Robert Martin.
(190147)
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[25]www.gao.gov/cgi-bin/getrpt?GAO-07-986 .
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Highlights of [26]GAO-07-986 , a report to the Committee on Finance, U.S.
Senate
August 2007
SOCIAL SECURITY ADMINISTRATION
Policies and Procedures Were in Place over MMA Spending, but Some
Instances of Noncompliance Occurred
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) created a voluntary outpatient prescription drug benefit as part of
the Medicare program, and appropriated up to $500 million for the Social
Security Administration (SSA) to fund the start-up administrative costs in
meeting its responsibilities to implement MMA. SSA was given a great deal
of discretion in how to use the funds and the act provided little detail
on how the funds were to be spent. You asked us to review SSA's costs for
implementing MMA to determine (1) how the MMA funds were expended, (2)
what procedures SSA has in place over the use of those funds, and (3) how
SSA complied with those procedures related to contractor and vendor
payments.
[27]What GAO Recommends
GAO made three recommendations to help ensure SSA's (1) ability to track
costs of program activities, including those paid with special
appropriation funds, (2) controls over its review and approval process for
purchase card payments, and (3) tracking of its accountable assets. SSA
generally agreed with two of our recommendations and disagreed with the
one recommendation. GAO reaffirms its position on all of its findings and
recommendations.
SSA spent the $500 million in MMA funds from December 2003 through January
2006 to implement activities outlined in MMA. The majority of costs paid
with MMA funds consisted of personnel-related expenses, contractors, and
indirect costs. More than half of the funds were spent on payroll for
staff hours used on MMA activities in SSA headquarters and field offices
(see table). Once the $500 million was spent, SSA began to use its general
appropriation to fund the remaining costs of implementing MMA activities.
SSA used its cost analysis system to track the total costs of its
implementation of MMA activities. As of February 20, 2007, SSA had
completed implementation of 16 of the 22 tasks for the six provisions
under the act.
SSA had agencywide policies and procedures in place for its cost tracking
and allocation, asset accountability, and invoice review processes. It
also established specific guidance to assign and better allocate SSA's
costs in implementing MMA. There were some instances though where SSA did
not comply with these policies and procedures. SSA did not effectively
communicate the specific MMA-related guidance to all affected staff. SSA
subsequently identified and corrected at least $4.6 million of costs that
initially were incorrectly allocated to MMA, but had not corrected
approximately $313,000 misallocated credit card purchase transactions. In
addition, GAO found instances where accountable assets purchased with MMA
funds, such as electronic and computer equipment, were not being properly
tracked by SSA in accordance with its policies and instances where
purchase card transactions were not properly supported. Although purchase
card transactions and accountable asset purchases represented a small
percentage of total MMA costs, proper approval and support for these types
of transactions is essential to reduce the risk of improper payments.
Breakdown of SSA's Reported Costs Paid with MMA Funds by Category
Source: SSA, Cost Analysis System reports; Fiscal years 2004 through 2006.
References
Visible links
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21. http://www.gao.gov/fraudnet/fraudnet.htm
22. file:///home/webmaster/infomgt/d07986.htm#mailto:[email protected]
23. file:///home/webmaster/infomgt/d07986.htm#mailto:[email protected]
24. file:///home/webmaster/infomgt/d07986.htm#mailto:[email protected]
25. http://www.gao.gov/cgi-bin/getrpt?GAO-07-986
26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-986
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