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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

April 2005: 

Health Care Fraud and Abuse Control Program: 

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

GAO-05-134: 

GAO Highlights: 

Highlights of GAO-05-134, a report to congressional committees.

Why GAO Did This Study: 

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.

What GAO Found: 

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

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.

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.

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. 

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: 

[See PDF for table]

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

[End of table]

What GAO Recommends: 

We made three recommendations to improve HHS’s and DOJ’s procedures for 
recording HCFAC expenditures and issuing the annual HCFAC report. In 
response, HHS and DOJ stated that they are taking action to improve 
these activities but did not agree on notifying Congress of delays in 
issuing the HCFAC report by the mandated deadline. 

www.gao.gov/cgi-bin/getrpt?GAO-05-134 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Linda Calbom at (202) 
512-8341 or calboml@gao.gov.

[End of section]

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: 

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: 

Tables: 

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

Table 2: HHS/OIG Funding Sources-Unaudited: 

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

Figures: 

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

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

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: 

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 Fund[Footnote 1] 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,[Footnote 2] also 
mandates that we issue a report, no later than January 1, 2004, that 
identifies the 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.[Footnote 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 fund[Footnote 4] 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 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.

Results in Brief: 

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 savings[Footnote 5] 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 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.

Background: 

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: 

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

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

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

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

* 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: 

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

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

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

* 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,[Footnote 6] for restitution, or otherwise 
authorized by law); and: 

* 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).

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

Dollars in millions.

1997; 
Amount: $104.0.

1998; 
Amount: $119.6.

1999; 
Amount: $137.5.

2000; 
Amount: $158.2.

2001; 
Amount: $181.9.

2002; 
Amount: $209.2.

2003; 
Amount: $240.6.

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

[End of table]

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.[Footnote 
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.[Footnote 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.

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

[See PDF for image]

[End of figure]

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.

The Comptroller General's Standards for Internal Control in the Federal 
Government[Footnote 9] 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.

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

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.

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): 

[See PDF for image]

[End of figure]

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: Fiscal year 2002 general; 
Amount: $35,308,000; 
Percentage: 20%.

Appropriation: Fiscal year 2002 HCFAC; 
Amount: $145,000,000; 
Percentage: 80%.

Appropriation: Fiscal year 2002 total; 
Amount: $180,308,000; 
Percentage: 100%.

Appropriation: Fiscal year 2003 general; 
Amount: $36,807,550; 
Percentage: 19%.

Appropriation: Fiscal year 2003 HCFAC; 
Amount: $160,000,000; 
Percentage: 81%.

Appropriation: Fiscal year 2003 total; 
Amount: $196,807,550; 
Percentage: 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.

[End of table]

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 HCFAC-related 
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)[Footnote 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 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. [Footnote 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 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.[Footnote 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.

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 savings[Footnote 13] 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 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.

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

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.

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

Report fiscal year: Fiscal Year 2001; 
Mandated date of report: January 1, 2002; 
Actual date of report: April 2002; 
Number of months late: 4.

Report fiscal year: Fiscal Year 2002; 
Mandated date of report: January 1, 2003; 
Actual date of report: September 2003; 
Number of months late: 9.

Report fiscal year: Fiscal Year 2003; 
Mandated date of report: January 1, 2004; 
Actual date of report: January 2005; 
Number of months late: 12.

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

[End of table]

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.

Conclusions: 

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.

Recommendations for Executive Action: 

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: 

* develop a more expedited review process and: 

* 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 calboml@gao.gov. Additional GAO contacts and 
acknowledgments are provided in appendix IV.

Signed by: 

Linda M. Calbom: 
Director, Financial Management and Assurance: 

List of Committees: 

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

The Honorable Judd Gregg: 
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 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 Bill Thomas: 
Chairman: 
The Honorable Charles Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section]

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.

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

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

* We obtained data from HHS and DOJ reports and electronic databases 
for the various deposits as of September 30, 2002, and September 30, 
2003,[Footnote 14] 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: [Footnote 15]

* 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.

* 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.

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

* 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: 

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

* 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;

* 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: 

* 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.

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

* 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 
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.

* 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.

* 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.

* 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.

* 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 (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.

* 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.[Footnote 16]

* 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: 

* 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;

* 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;

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

* 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: 

* 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;

* 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: 

* 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.

[End of section]

Appendix II: Status of Prior-Year Recommendations: 

Prior-year recommendation: To improve DOJ's accountability for the 
HCFAC program collections, we recommend that the Attorney General: 
* fully implement plans to make all necessary correcting adustments 
for collections transferred to the trust fund in error; 
Status: Closed, implemented; 
Explanation: DOJ determined the amount of the overstatement and 
submitted an adjustment to the Bureau of Public Debt (BPD) in September 
2002. However, in our review of the supporting documentation we 
identified a mathematical error in DOJ's calculations. DOJ agreed with 
the revised amount and submitted the adjustment to BPD in September 
2004.

Prior-year recommendation: To improve DOJ's accountability for the 
HCFAC program collections, we recommend that the Attorney General: 
* ensure that subsequent collection reports submitted to the Department 
of the Treasury are accurate; 
Status: Closed, implemented; 
Explanation: DOJ developed and implemented new procedures for reviewing 
collections reports for accuracy and approving them prior to submission 
to BPD.

Prior-year recommendation: To improve DOJ's accountability for HCFAC 
program expenditures, we recommend that the Attorney General: * make 
correcting adjustments for expenditures improperly charged to the HCFAC 
appropriation; 
Status: Open; 
Explanation: According to DOJ officials, the misposted non-HCFAC 
charge, along with the HCFAC charge that was posted to another account, 
have been corrected in the Financial Management Information System. GAO 
requested, but had not received at the end of fieldwork, documentation 
that supports the correction of the charges.

Prior-year recommendation: To improve DOJ's accountability for HCFAC 
program expenditures, we recommend that the Attorney General: 
* reinforce financial management policies and procedures to minimize 
errors in recording HCFAC transactions; 
Status: Open; 
Explanation: According to DOJ officials, the department is continuing 
its ongoing financial management training efforts to reinforce the 
importance of accurate financial management processing and the 
minimization of data entry and errors. Also, the issue is also 
emphasized in monthly Financial Managers Council meetings and "clean 
audit" training. GAO requested, but had not received at the end of 
fieldwork, documentation to verify whether DOJ staff responsible for 
HCFAC accounting functions have completed the designated training.

Prior-year recommendation: To facilitate providing Congress and other 
decision makers with relevant information on program performance and 
results, we recommend that the Attorney General and the Secretary of 
HHS assess the feasibility of tracking cost savings and expenditures 
attributable to HCFAC activities by the various federal programs 
affected; 
Status: Closed, no longer applicable; 
Explanation: This recommendation is closed because of recent changes to 
HIPAA legislation. HIPAA had required GAO to report on cost savings and 
expenditures attributable to HCFAC activities by the various federal 
programs affected but did not require HHS and DOJ to track cost savings 
and expenditures in this manner. In December 2003, Congress passed 
Public Law 108-173, which amended the HIPAA legislation. The amendment 
removed the language requiring GAO to identify any expenditures from 
the Trust Fund with respect to activities not involving the Medicare 
program.

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.

[End of table]

[End of section]

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

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Office of Inspector General:
Washington, D.C. 20201:

APR 5 2005:

Ms. Linda M. Calbom:

Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
Washington, DC 20548:

Dear Ms. Calbom:

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO's) draft report entitled, "HEALTH CARE 
FRAUD AND ABUSE CONTROL PROGRAM-Results of Review of Annual Reports for 
Fiscal Year 2002 and 2003" (GAO-05-134). The comments represent the 
tentative position of the Department and are subject to reevaluation 
when the final version of this report is received.

The Department provided several technical comments directly to your 
staff.

The Department appreciates the opportunity to comment on this draft 
report before its publication. 

Sincerely,

Signed for: 

Daniel R. Levinson: 
Acting Inspector General:

Enclosure:

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft report in our capacity as the Department's 
designated focal point and coordinator for U.S. Government 
Accountability Office reports. OIG has not conducted an independent 
assessment of these comments and therefore expresses no opinion on 
them.

COMMENTS BY THE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES ON THE 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE'S DRAFT REPORT ENTITLED "HEALTH 
CARE FRAUD AND ABUSE CONTROL (HCFAC) PROGRAM-GAO RESULTS OF REVIEW OF 
ANNUAL REPORTS FOR FISCAL YEAR 2002 AND 2003" (GAO-05-134):

GAO Recommendation 1:

To improve the Department of Health and Human Services' (HHS) 
accountability over HCFAC program expenditures, we recommend that the 
HHS Inspector General require all HHS/Office of Inspector General (OIG) 
components to develop procedures for ensuring that all key staff hours 
spent on HCFAC activities are recorded in its workload tracking 
systems.

HHS Response 1:

HHS concurs with the above recommendation, and has already moved to 
implement it. As noted in the GAO Report, in June 2003, the Office of 
Investigations upgraded its workload tracking system to record hours 
for all staff, and implemented new procedures to help ensure that all 
hours were recorded in their workload system. The Office of Evaluation 
and Inspections more recently updated its Management Information & 
Timesheet system to include an automatic electronic mail message 
alerting staff whenever they are deficient in filling out a timesheet. 
The notifications continue on a daily basis until the staff person 
updates the required timesheet.

GAO Recommendation 2:

To help ensure that the joint HHS and Department of Justice (DOJ) HCFAC 
reports are issued more timely, we recommend that the Secretary of HHS 
and the Attorney General: (1) develop a more expedited review process, 
and (2) report delays in issuing the joint report to congressional 
committees with oversight responsibility for the HCFAC program within 
one month after missing the January I deadline and updates with 
issuance.

HHS Response 2:

HHS concurs with the GAO recommendation to streamline and expedite the 
Annual report. HHS and DOJ will continue working together to improve 
and expedite the approval process within their respective agencies. In 
addition, both Departments will meet in the near future to consider 
changes to the review process that will expedite clearance.

HHS does not agree with GAO's recommendation to report delays. 
Additional reporting, which requires clearance through both 
Departments, would be counterproductive to clearing the Annual report. 
HHS does not believe this notification would provide Congress with any 
substantial information.

[End of section]

Appendix IV: Comments from the Department of Justice: 

U.S. Department of Justice:
Washington, D.C. 2053: 

(202) 514-5343:

APR 4 2005:

Linda M. Calbom: 
Director:
Financial Management and Assurance:
United States Government Accountability Office: 
441 G Street NW:
Washington, D.C. 20548:

Dear Ms. Calbom:

The Department of Justice (DOJ) has received the Government 
Accountability Office (GAO) draft audit report entitled Health Care 
Fraud and Abuse Control Program Results of Review of Annual Reports for 
Fiscal Year 2002 and 2003 (GAO-05-134), and submits the following 
comments in response to the findings and recommendations.

HCFAC Program Expenditures/DOJ:

DOJ concurs with this recommendation. Specific instructions were sent 
to the components in FY 2003 detailing the creation and use of new 
provider and disbursement account classes for HCFAC funds. The 
Department of Justice, Justice Management Division (JMD), will meet 
with the components to assist them in obligating and disbursing funds 
using accounting classes created for HCFAC.

Annual Report Submission:

DOJ concurs with the first part of this recommendation. DOJ will work 
with the components to expedite the report development and compilation 
process. The Department has already reviewed the previous process of 
compiling the report and has instituted the following new procedures: 
developed and distributed a time line containing action items, 
responsible party, and due dates; held bi-weekly meetings to discuss 
the report's progress and made adjustments to the time line as 
necessary; had more frequent communication with HHS and the HHS/OIG 
concerning their report input; and, improved the information gathering 
and validation process for financial data in the report. DOJ believes 
that these changes will shorten the time needed for compilation, 
development and clearance of the FY 2004 HCFAC report and future 
reports.

DOJ does not concur with the second part of this recommendation that 
monthly letters reporting any delays in missing the January 1 st 
deadline be sent to Congress. DOJ believes that adding another 
reporting requirement, that requires clearance through both agencies, 
would be counterproductive to completion and clearance of the report 
itself, and would be of little value to Congressional oversight 
committees. Rather, DOJ, as stated above, proposes to expedite the 
review and approval process, to the extent that source data is 
available and circumstances are within the Department's control.

Open Prior Recommendations:

In the previous Health Care Fraud and Abuse Control Program Report 
(GAO-02-731), the GAO recommended that the Attorney General:

1) Make correcting adjustments for expenditures improperly charged to 
the HCFAC appropriation; and:

2) Reinforce financial management policies and procedures to minimize 
errors in recording HCFAC transactions.

In response to the first open recommendation from GAO-02-731, (make 
correcting adjustments for expenditures improperly charged to the HCFAC 
appropriation), the DOJ concurs. The Department will ensure the 
correcting adjustments have been made to the HCFAC appropriation.

In response to the second open recommendation from GAO-02-731, 
(reinforce financial management policies and procedures to minimize 
errors in recording HCFAC transactions), the DOJ believes this 
recommendation can be closed. Component staff continue to receive 
training on how to properly obligate and liquidate funds as part of the 
Department's `Clean Audit' activities. According to each component, 
their policies and procedures for accounting for HCFAC funds have met 
the audit standards set by the Department's external auditors.

If you have any questions, please contact Richard P. Theis, Acting 
Assistant Director, Audit Liaison Group, Management and Planning Staff. 
If you would like to discuss or receive a briefing, please contact me 
at (202)-514-3101.

Sincerely,

Signed by: 

Paul R. Corts:

Assistant Attorney General for Administration: 

[End of section]

Appendix V: GAO Contact and Acknowledgments: 

GAO Contact: 

Kimberly Brooks, (202) 512-9038, brooksk@gao.gov: 

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.

[End of section]

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FOOTNOTES

[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).

[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.

[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.

[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.

[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.

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

[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)

[11] See appendix I for statistical sample details.

[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.

[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.

[14] 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.

[15] 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. 

[16] At a 63 percent confidence level. 

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