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entitled 'Military Personnel: DOD Needs Better Controls over 
Supplemental Life Insurance Solicitation Policies Involving 
Servicemembers' which was released on June 30, 2005. 

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Report to Congressional Requesters: 

June 2005: 

Military Personnel: 

DOD Needs Better Controls over Supplemental Life Insurance Solicitation 
Policies Involving Servicemembers: 

GAO-05-696: 

GAO Highlights: 

Highlights of GAO-05-696, a report to congressional requesters: 

Why GAO Did This Study: 

Servicemembers are engaged overseas in hostile actions that threaten 
their lives and possibly the future financial security of their 
families, should they die. To address their financial security needs, 
some servicemembers have purchased additional life insurance to 
supplement that offered by the government. Concerns have been raised, 
though, about solicitation violations, as well as problems in the 
system for setting up payroll allotments for such insurance. The 
Department of Defense (DOD) recently published a revised draft 
directive on solicitation but will not implement the directive until at 
least 90 days following this GAO report. GAO addressed three primary 
issues: (1) the extent to which DOD solicitation regulations are being 
violated; (2) the extent to which DOD personnel are adhering to 
allotment regulations for the purchase of supplemental life insurance; 
and (3) the extent to which the new directive addresses ongoing 
problems in supplemental life insurance solicitation policies.

What GAO Found: 

DOD does not know the extent to which life insurance agents violate on-
installation commercial solicitation regulations and does not actively 
disseminate information on all confirmed violations to other parts of 
DOD or to state insurance regulators. GAO found that violations are 
occurring. For example, in responses to GAO’s 2004 survey of personal 
financial management program managers, one-quarter said prohibited 
practices such as misleading sales presentations had occurred 
occasionally or routinely on their installations in the prior 12 
months. Also, between October 2001 and October 2004, DOD revoked 
agents’ on-installation solicitation approval at least 26 times. The 
reason DOD does not have complete data on violations is that it does 
not have adequate mechanisms for ensuring the systematic tracking of 
violations. The dissemination problem is attributable to a lack of 
oversight by the DOD policy office and an ambiguity in its guidance. 
DOD cannot develop an effective and efficient process for curbing 
violations without maintaining accurate data on the number, types, and 
severity of violations and disseminating confirmed violation data to 
relevant parties. 

DOD cannot determine the extent to which DOD personnel adhere to 
allotment regulations because of problems with DOD’s payroll databases 
and the different ways in which regulations are implemented. DOD’s 
Financial Management Regulations, among other things, restrict who can 
submit an allotment form for supplemental life insurance. GAO could not 
determine the number of servicemembers with supplemental life insurance 
allotments due to database limitations, such as all insurance 
allotments (for example, for life and automobile) sharing the same 
code. Contrary to regulations, GAO found finance personnel accepting 
allotment forms without confirming they came from authorized sources. 
Some said they did this to ensure that policies started promptly. 
Database problems limit DOD’s visibility over prohibited practices, 
such as those for group solicitation and the acceptance of allotment 
forms without proper authorization. In addition, GAO could not 
substantiate the assertion that servicemembers are prevented from using 
allotments to purchase supplemental life insurance and has identified 
reasons why this is probably not a widespread problem.

DOD’s revised directive on commercial insurance solicitation practices 
on DOD installations adds new requirements, but does not fully address 
oversight deficiencies. The revised directive will incorporate the 
interim policy and practices now in place and, to partially address the 
problems cited above, will add requirements for gathering and 
disseminating information on confirmed violations. Those requirements, 
however, will focus on banned agents only, rather than all confirmed 
violations. The result will be DOD’s continuing inability to identify 
the number, types, and severity of all violations, or to recognize 
patterns of violations. The directive will also add requirements that 
installation commanders inquire into alleged violations of the 
solicitation regulation.

What GAO Recommends: 

GAO is making five recommendations to improve DOD’s oversight of its 
solicitation and allotment policies. DOD concurred with GAO’s 
recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-05-696.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Derek Stewart at (202) 
512-5559 or stewartd@gao.gov.

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

DOD Does Not Know the Extent of Solicitation Violations and Does Not 
Disseminate Information on All Confirmed Violations: 

Data on Payroll Allotments for Supplemental Life Insurance Unreliable 
and Procedures for Submitting Such Allotments Are Not Always Being 
Followed: 

DOD's Revised Directive Adds New Requirements, but Does Not Fully 
Address Oversight Deficiencies: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Details on Selected Recent In-Depth Investigations: 

Appendix III: Allotment Forms: 

Appendix IV: Comments from the Department of Defense: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: 14 Practices Prohibited by the DOD Directive on Personal 
Commercial Solicitation on DOD Installations: 

Table 2: Locations and Years That Commanders Banned Agents from an 
Installation--October 2001 through October 2004: 

Table 3: Installations in the United States where GAO Conducted Site 
Visits from July to December 2004: 

Figures: 

Figure 1: Personal Financial Management Program Managers' Perceptions 
of the Frequency with Which Selected Solicitation Prohibitions Were 
Violated on Their Installation from January through December 2004: 

Figure 2: States Where Installation Commanders Banned Agents from 
October 2001 through October 2004, States Reporting Ongoing 
Investigations of Supplemental Life Insurance Solicitation to 
Servicemembers in December 2004, and the Number of Active Duty 
Servicemembers in the States: 

Abbreviations: 

DFAS: Defense Finance and Accounting Service: 

DOD: Department of Defense: 

DODIG: Department of Defense Inspector General: 

SGLI: Servicemembers' Group Life Insurance: 

Letter June 29, 2005: 

Congressional Requesters: 

Military personnel are engaged overseas in hostile actions that 
threaten their lives and possibly the future financial security of 
their families, should they die. As a result, some servicemembers 
purchase additional life insurance to supplement the benefits available 
through the government-offered Servicemembers' Group Life Insurance 
(SGLI) and other programs. In July 2004, we reported on the lump sum 
benefits and annuities available to servicemembers' survivors as well 
as the survivors of personnel employed by federal, state, and large 
municipal governments.[Footnote 1] Recently, legislation was enacted to 
increase the maximum SGLI coverage to $400,000 and the death gratuity 
payment from $12,420 to $100,000.[Footnote 2] With the enactment of 
this legislation, the number of policies and amounts of supplemental 
life insurance sold to servicemembers could change from current levels. 

The Department of Defense (DOD) and the services have regulations to 
govern on-installation solicitation for supplemental life insurance, as 
well as other types of commercial products. Among other things, an 
installation must approve agents before they are allowed to solicit, 
and the agents must agree to abide by regulations that include 
prohibitions of 14 types of practices. Violation of the regulations can 
result in the denial, suspension, or revocation of agents' or 
companies' approvals to solicit on the installation. Hereafter such 
agents are referred to as banned agents. 

Servicemembers who elect to supplement SGLI's coverage may purchase 
their additional coverage using payroll allotments or other types of 
payments such as checks or electronic transfers from checking or 
savings accounts. An important feature of the allotment process is a 
DOD-wide regulation that requires either the servicemembers or their 
representatives with a special power of attorney to submit the 
allotment form for supplemental life insurance. 

Some servicemembers have reported experiencing problems when purchasing 
supplemental life insurance. For example, a soldier described 
misleading sales presentations and other concerns during congressional 
hearings in 2004. Similarly, DOD reports in 1999 and 2000 cited 
problems that included deceptive sales practices, violations of DOD 
policies regarding on-installation insurance solicitation, ineffective 
state insurance regulation programs, and inadequate safeguards in the 
allotment system used to pay for the supplemental life 
insurance.[Footnote 3] Negative effects associated with activities such 
as misleading sales presentations could include servicemembers' 
purchasing a product that either can be bought elsewhere more cheaply 
or does not meet their life insurance needs. 

Recently, a different type of life insurance-related concern has also 
been voiced. Some life insurance officials have asserted that 
servicemembers' chains of command have prevented personnel who wanted 
additional life insurance from actually purchasing it when they 
attempted to set up a payroll allotment.[Footnote 4] If servicemembers 
who truly want supplemental life insurance are prevented from obtaining 
it, they may have less than their desired level of coverage. 

The Office of the Under Secretary of Defense for Personnel and 
Readiness is responsible for developing the policies and procedures 
governing personal commercial solicitation; and the heads of DOD 
components, or their designees, are responsible for ensuring 
implementation of the regulations and compliance with their provisions. 
The Defense Finance and Accounting Service (DFAS) oversees the 
financial management regulations and the payroll computer systems and 
databases. 

In response to earlier problems and recommendations for change, the 
Office of Morale, Welfare, and Recreation Policy--within the Office of 
the Under Secretary of Defense for Personnel and Readiness--has been 
revising the DOD directive that governs the marketing and sale of life 
insurance and other commercial products on DOD installations.[Footnote 
5] The Department of Defense Appropriations Act for Fiscal Year 2005 
contained provisions indicating that the revised directive cannot be 
implemented until at least 90 days after we issue the present report. 

As agreed with your offices, this report addresses three issues: (1) 
the extent to which agents are violating DOD's policies governing the 
solicitation of supplemental life insurance to active duty 
servicemembers on domestic installations; (2) the extent to which DOD 
personnel are adhering to regulations that govern how active duty 
servicemembers establish payroll allotments to purchase supplemental 
life insurance; and (3) the extent to which the new directive addresses 
ongoing problems in supplemental life insurance solicitation policies. 

In conducting this review, we limited the scope of our work to 
supplemental life insurance solicitations occurring on installations in 
the United States and to active duty servicemembers.[Footnote 6] 
Additional emphasis was given to findings pertaining to junior enlisted 
servicemembers because DOD and insurance officials have indicated that 
this subgroup is more likely to encounter problems with the marketing 
and sale of supplemental life insurance as well as with establishing 
payroll allotments for such purchases. Numerous methods were used to 
gather and assess information for this review. We examined DOD, 
service, and selected installation policies on personal commercial 
solicitation on installations and the establishment of allotments for 
supplemental life insurance, as well as oversight management principles 
identified in the Government Performance and Results Act of 
1993.[Footnote 7] We also reviewed GAO, DOD, life insurance industry, 
and other reports. We interviewed officials from DOD, life insurance 
companies and associations, and other organizations such as the 
Consumer Federation of America to identify the many perspectives on the 
issues being studied. In conjunction with our work on another report, 
we sent a survey to all 175 managers of DOD's personal financial 
management programs on installations in the United States.[Footnote 8] 
We also surveyed the insurance commissioners for the 50 states, the 
District of Columbia, and four territories: American Samoa, Guam, 
Puerto Rico, and the Virgin Islands. In addition, we interviewed 
personnel from the state insurance commissioner's office for 4 of the 6 
states in which we conducted site visits to military installations, as 
well as personnel from the state insurance commissioner's office in 
Georgia. We also asked insurance companies and two national insurance 
associations to identify agents and company representatives who could 
be interviewed about solicitation and allotment practices at locations 
near the six installations we visited. 

During our six site visits, we requested materials related to the 
marketing and sale of supplemental life insurance and the establishment 
of allotments for that purpose. Those materials included a list of life 
insurance agents approved for on-installation solicitation, handouts 
distributed to assist servicemembers in determining their need for 
supplemental life insurance, documentation of violations of personal 
commercial solicitation and insurance-related policies, and complaints 
related to insurance solicitation and allotment processing. While on 
site visits, we conducted interviews or focus groups with installation 
leaders; the coordinator for the installation's personal commercial 
solicitation program; servicemembers; legal assistance attorneys from 
the Judge Advocate General corps; finance department personnel who 
managed and processed allotments; family support center staff 
responsible for personal financial management training and counseling 
activities; staff from morale, welfare, and recreation; and 
representatives of on-installation banks and credit unions. We observed 
the methods used to process and enter allotments for supplemental life 
insurance into the pay system. We assessed the reliability of allotment 
databases, and we later note in this report, limitations associated 
with the databases that prevented us from accurately estimating the 
number of allotments or amount of payments for supplemental life 
insurance. We performed our work from May 2004 through May 2005 in 
accordance with generally accepted governmental auditing standards. 
Additional information on our scope and methodology can be found in 
appendix I. 

Results in Brief: 

DOD does not know the extent to which agents are violating DOD's 
regulations governing the solicitation of supplemental life insurance 
to active duty servicemembers on installations in the United States and 
does not actively disseminate information on all confirmed violations 
to other interested parties. DOD had not collected information on the 
number, types, and severity of violations. Data from our survey of all 
DOD personal financial program managers on domestic installations, our 
interviews conducted on six installations, and cases where life 
insurance agents had been banned from installations indicate that 
solicitation violations are occurring. In response to our 2004 survey, 
at least one-quarter of financial program managers responding to our 
survey indicated that five types of prohibited life insurance practices 
(such as providing misleading sales presentations) occasionally or 
routinely occurred on their installation during the preceding 12 
months. Also, at least 26 cases of banning agents for violations 
occurred between October 2001 and October 2004. Prior to our request 
for DOD to determine the number of enforcement actions when agents had 
been banned, DOD had not actively disseminated violation information to 
other parts of DOD or to state regulators. The absence of evaluative 
and reporting requirements in DOD's solicitation directive contributed 
to DOD's failure to assemble and disseminate such data. Failure to 
gather comprehensive information on all violators and disseminate it to 
all parts of DOD and appropriate state regulators limits the military's 
ability to effectively and efficiently identify problem agents or 
companies as well as patterns of violations. 

DOD cannot determine the extent to which DOD personnel adhere to 
allotment regulations because of problems with DOD's payroll databases 
and the different ways regulations are implemented. Database 
constraints prevented us from determining the number of servicemembers 
using supplemental life insurance allotments or the amount of money 
being paid to companies. We were unable to develop reliable estimates 
because of database quality concerns that we have previously documented 
as well as problems with the allotment forms. These problems limit the 
visibility that DOD and the installations have over the perceived need 
by servicemembers for supplemental life insurance. Second, contrary to 
DFAS regulations, some finance personnel have accepted forms to start 
the allotments without verifying that the person submitting the form 
was authorized to do so. Finance personnel said they do so to ensure 
that policies start promptly, but starting allotments without 
servicemembers' awareness can negatively affect members' finances and 
their unit's morale and readiness. The DOD solicitation directive 
discusses a 7-day "cooling-off" period between when E1s, E2s, and E3s 
sign a supplemental life insurance application and when finance 
personnel certify the allotment. But ambiguity in the requirement and 
the use of generic allotment forms can result in inconsistent 
enforcement of this requirement. Finally, some insurance officials 
maintain that chains of command prevent servicemembers from purchasing 
life insurance by not processing their allotments. We were unable to 
substantiate that assertion, based on our inability to obtain 
sufficient participation in our servicemember focus groups. 
Servicemembers may have decided not to purchase a particular policy for 
other reasons such as buyer's remorse or finding a more economically 
priced policy. 

DOD's revised directive on personal commercial solicitation on DOD 
installations adds new requirements, but does not fully address 
oversight problems. The draft directive incorporates existing interim 
guidance on financial education and current procedures pertaining to 
advertising and commercial sponsorship by solicitors. The draft 
directive also adds new requirements for gathering and disseminating 
data on solicitation violations, including maintaining a list of banned 
agents and disseminating such information to state regulators. However, 
the focus of the new requirements is on banned agents only. As was 
noted earlier, however, gathering and disseminating only the 
information concerning violations severe enough to cause the banning of 
agents will prevent DOD from identifying the number, types, and 
severity of all confirmed violations, or to recognize patterns of 
violations. The proposed new requirements also include having 
installation commanders inquire into any alleged violations of the 
solicitation regulation, and having insurance agents provide 
servicemembers with a DOD-wide questionnaire to evaluate their 
solicitation experience. The installation commander's inquiries could 
improve DOD's oversight of solicitation violations if an additional 
requirement existed for reporting all confirmed violations to higher- 
level commands. The questionnaire may be of limited value because it 
documents interactions that were not described as problems during our 
site visits--that is, insurance agents complying with requirements by 
soliciting in one-on-one prearranged appointments with servicemembers. 
An additional change in the directive, requiring insurance agents to 
clearly identify insurance products, could result in servicemembers' 
having better information for making decisions on purchasing 
supplemental life insurance. 

We are making five recommendations to improve DOD's policies and 
practices regarding supplemental life insurance solicitation on bases 
in the United States and the allotment process to purchase such 
products. Our recommendations pertain to enhancements to oversight 
requirements for evaluation and reporting violations, clarifications of 
ambiguous requirements, and improvements to the procedures used for 
allotments to purchase supplemental life insurance. In commenting on a 
draft of this report, DOD concurred with our recommendations. 

Background: 

DOD's directive on personal commercial solicitation establishes the 
policies and practices governing supplemental life insurance sales on 
installations in the United States and overseas.[Footnote 9] Each 
service provides additional policies and practices regarding on- 
installation commercial solicitation, and some installations further 
specify how these DOD and service policies and practices will be 
implemented locally.[Footnote 10] Importantly, DOD and the service 
policies do not cover supplemental life insurance solicitation that 
occurs off an installation. For example, servicemembers can obtain life 
insurance through the Internet or from companies that advertise in 
private-sector publications aimed at military personnel. Also, some 
life insurance agents might sell supplemental life insurance off the 
installation after (1) the agents initially generated leads on 
potential customers through on-installation efforts such as sponsorship 
of morale, welfare, and recreation events; or (2) other types of 
initial contacts that include offering servicemembers a free meal at a 
local restaurant. 

Although the steps used to obtain permission to solicit on an 
installation may vary, the DOD directive notes that solicitors must 
meet the following requirements: be duly licensed, have the permission 
of the installation commander, and have made a specific appointment 
with a servicemember and conduct it in family quarters or other areas 
designated by the installation commander. The supplemental life 
insurance products offered on installations in the United States must 
comply with the insurance laws for the applicable state, contain no 
restrictions by reason of military service or occupation unless the 
restrictions are clearly stated on the face of the contract, plainly 
indicate any extra premium charges if they are imposed for reasons of 
military service or occupation, and contain no variation in the amount 
of death benefit or premium based on the length of time the contract 
has been in force unless the variations are clearly described therein. 

In addition to specifying requirements for the solicitors and the life 
insurance products, the DOD directive identifies the 14 prohibited 
practices, shown in table 1.[Footnote 11] Committing any of the 
prohibited practices can result in an agent or an agent's affiliated 
insurance company being banned. Among the other grounds for banning 
agents are failure to be duly licensed to sell insurance products under 
applicable federal, state, or local municipal laws; personal misconduct 
while on the installation; possession or attempted possession of 
allotment forms or their facsimiles;[Footnote 12] and substantiated 
complaints or adverse reports regarding goods or services and the 
manner in which they are offered. 

Table 1: 14 Practices Prohibited by the DOD Directive on Personal 
Commercial Solicitation on DOD Installations: 

Prohibited Practices: 
* Solicitation of recruits, trainees, and transient personnel in a mass 
or captive audience; 
* Making appointments with or soliciting military personnel who are in 
on-duty status; 
* Soliciting without appointment in areas utilized for housing or 
processing of transient personnel, barracks areas used as quarters, 
unit areas, family quarters, and areas provided by installation 
commanders for appointed interviews; 
* se of official identification cards by retired or reserve members of 
the military services to gain access to installations for the purpose 
of soliciting; 
* Procuring, attempting to procure, or supplying roster listings of DOD 
personnel for commercial solicitation purposes; 
* Offering unfair, improper, and deceptive inducements to purchase or 
trade; 
* Using rebates to facilitate transactions or to eliminate competition; 
* Using manipulative, deceptive, or fraudulent devices, schemes, or 
artifices, including misleading advertising and sales literature; 
* Using oral or written representations to suggest or give the 
appearance that DOD sponsors or endorses any particular company, its 
agents, or the goods, services, and commodities it sells; 
* Full-time DOD personnel making personal commercial solicitations or 
sales to DOD personnel who are junior in rank or grade; 
* Entering into any unauthorized or restricted area; 
* Using any portion of installation facilities, including quarters, as 
a showroom or store for the sales of goods and services, unless 
otherwise authorized; 
* Using any portion of installation facilities, including quarters, as 
a showroom or store for the sales of goods and services, unless 
otherwise authorized; 
* Advertising addresses or telephone numbers of commercial sales 
activities conducted on the installation, except authorized activities 
conducted by family members of military families residing in military 
housing. 

Source: DOD Directive 1344.7. 

[End of table]

During the past decade, DOD issued two reports that addressed problems 
with on-installation supplemental life insurance solicitation. In March 
1999, the DOD Inspector General (DODIG) found that improper 
solicitation practices occurred at all 11 of the sampled 
installations.[Footnote 13] The improper practices included 
presentations by unauthorized personnel, presentations to captive 
audiences, solicitation during duty hours, solicitation in the 
barracks, and subjecting servicemembers to sales pressure and 
misleading sales presentations. The DODIG noted that the personal 
commercial solicitation directive was adequate but that additional 
controls were needed to administer and enforce the solicitation 
process. Among other things, the DODIG suggested there was a need for 
improved oversight at the installation level, stricter enforcement 
procedures when improper solicitation practices are substantiated, and 
additional interface with state regulatory authorities. In May 2000, a 
report commissioned by the Office of the Under Secretary of Defense for 
Personnel and Readiness reviewed insurance solicitation practices on 
DOD installations and identified many of the same concerns and 
recommendations contained in the DODIG report.[Footnote 14] In 
September 2000, DOD's Office of Force Management Policy established an 
insurance solicitation oversight working group to develop a strategy 
for eliminating prohibited life insurance solicitation practices on DOD 
installations. The working group's recommended improvements were 
included in a draft revision of the directive on personal commercial 
solicitation, and this draft revision was published for public comment 
in August 2003. 

An important step in purchasing supplemental life insurance is making 
the arrangement to pay for it. Some servicemembers pay for the 
insurance with a payroll allotment,[Footnote 15] a process that is 
governed by the DOD's Financial Management Regulation and individual 
service policies and is under the responsibility of DFAS. While the 
process for starting an allotment for supplemental life insurance 
varies across services and installations, it can be summarized in three 
steps: 

1. Servicemembers or their representatives with a special power of 
attorney complete an allotment form and submit it either directly to 
the installation finance office or to the finance office through the 
servicemembers' unit administrative office. 

2. The installation finance office processes the allotment requests and 
electronically submits them to DFAS. 

3. The first monthly payments are made to vendors more than a month 
after the forms are submitted, because the processing of the allotment 
requests takes time and the once-a-month payments result in the need to 
wait for half of the payments to be taken out of each of the 
servicemembers' next two payroll deposits. 

The allotments for all types of commercial insurance are supposed to be 
coded as an AI discretionary allotment when they are entered into a 
DFAS database.[Footnote 16] The procedure for purchasing SGLI with an 
allotment is different from that used to purchase private supplemental 
life insurance with an allotment. One reason is active duty 
servicemembers are automatically insured for the maximum SGLI coverage. 
Servicemembers may subsequently elect to reduce their SGLI coverage, or 
to cancel it entirely. 

DOD's effort to revise the directive began in 2002 after 
reports[Footnote 17] in 1999 and 2000 documented problems with 
supplemental life insurance solicitation on installations and made 
recommendations for improvement. In 2003, DOD obtained public comments 
on a draft directive during a public forum available to interested 
parties. Those comments and other input from sources such as DOD's 
general counsel served as the basis for a draft directive published in 
the Federal Register on April 19, 2005, and discussed during a public 
hearing held on May 6, 2005, to obtain additional comments. 

DOD Does Not Know the Extent of Solicitation Violations and Does Not 
Disseminate Information on All Confirmed Violations: 

DOD does not know the extent to which life insurance agents are 
violating regulations pertaining to on-installation personal commercial 
solicitation, and it does not actively disseminate information about 
all confirmed violations[Footnote 18] to other portions of DOD and 
state insurance regulators. Although many of the sources that we 
contacted for our review identified violations, DOD does not know how 
widespread the violations are because it has not collected information 
on the number, types, and severity of the violations. Even when 
violations have been severe enough to result in commanders banning 
agents from their installation, DOD did not actively provide that 
information to other installations or to state insurance regulators. 
The absence of evaluative and reporting requirements in the 
solicitation directive, as well as ambiguity in the directive about the 
dissemination of information, are some of the reasons for these 
situations that limit DOD's ability to provide oversight of 
supplemental life insurance solicitation on installations and prevent 
violators from having access to servicemembers on installations. 

DOD Does Not Know the Extent to Which Life Insurance Agents Have 
Violated Solicitation Policies on Domestic Installations: 

Because of the absence of evaluation and reporting requirements, DOD 
has not collected the data that it needs to monitor the number, types, 
and severity of life insurance agents' violations of DOD's regulations 
regarding on-installation solicitation. But data from our review 
suggest that the violations are not restricted to a few installations. 
Our data regarding alleged violations of the 14 prohibited practices 
identified in DOD's commercial solicitation directive came from 
multiple sources: perceptions expressed in a DOD-wide survey and 
numerous interviews at six installations; information on the number and 
geographical dispersion of cases where installation commanders had 
banned agents during the past 3 years because of violations; and a 
review of in-depth documentation for four of the cases serious enough 
to result in banning agents. 

A survey of personal financial management program managers[Footnote 19] 
on installations in the United States indicated that six types of 
prohibited solicitation practices were perceived to have occurred with 
varying frequency on their installations during the prior 12 
months.[Footnote 20] More than one-third of the managers indicated that 
misleading sales presentations regarding supplemental life insurance 
had occurred occasionally or routinely on their installations, and more 
than one-quarter said that four of the other five prohibited practices 
had occurred at least occasionally (see fig. 1). In interviews 
conducted during our visits to six installations, multiple sources--for 
example, solicitation coordinators, legal assistance attorneys, 
servicemembers, and insurance agents--indicated that the types of 
violations shown in figure 1 had occurred on their installations. For 
three or more of the six installations, multiple sources told us of 
agents inappropriately using their military retiree credentials to gain 
access to servicemembers for life insurance solicitation purposes, life 
insurance agents possessing or processing allotment forms, and life 
insurance agents participating in military-sponsored training. The 
installations had little or no documentation to show that the 
violations identified in the interviews had been reported or 
investigated. 

Figure 1: Personal Financial Management Program Managers' Perceptions 
of the Frequency with Which Selected Solicitation Prohibitions Were 
Violated on Their Installation from January through December 2004: 

[See PDF for image] 

[End of figure] 

After we asked DOD if it had a list of insurance agents and companies 
whose solicitation privileges had been withdrawn, DOD requested the 
information from the services and installations.[Footnote 21] As of 
April 2005, DOD's request for information identified 51 cases that 
occurred on installations in the United States from April 1998 through 
October 2004. Some installations supplied information on enforcement 
actions that did not result in the banishment of agents or companies. 
Table 2 provides information on 26 cases in which commanders banned 
agents--25 from DOD's list and one additional case we later identified-
-from October 2001 through October 2004.[Footnote 22] Examining only 
the more recent cases minimizes the possibility that a case would have 
been the basis for findings in the 1999 and 2000 DOD reports on 
supplemental life insurance. Table 2 shows that the 26 cases occurred 
on 11 installations in eight states. Our analysis additionally revealed 
that agents from one life insurance company were involved in 9 (about 
35 percent) of the 26 cases, and agents from another company were 
involved in 6 (about 23 percent) of the cases. 

Table 2: Locations and Years That Commanders Banned Agents from an 
Installation--October 2001 through October 2004: 

State: California; 
Installation, listed by separate action: Beale Air Force Base; 
Year: 2003. 

State: California; 
Installation, listed by separate action: Beale Air Force Base; 
Year: 2003. 

State: California; 
Installation, listed by separate action: Camp Pendleton Marine Corps 
Base; 
Year: 2003. 

State: California; 
Installation, listed by separate action: Camp Pendleton Marine Corps 
Base; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Benning; 
Year: 2004. 

State: Georgia; 
Installation, listed by separate action: Fort Gordon; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Gordon; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Gordon; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Gordon; 
Year: 2003. 

State: Georgia; 
Installation, listed by separate action: Fort Gordon; 
Year: 2004. 

State: Kansas; 
Installation, listed by separate action: McConnell Air Force Base; 
Year: 2002. 

State: Illinois; 
Installation, listed by separate action: Naval Station Great Lakes; 
Year: 2001. 

State: Mississippi; 
Installation, listed by separate action: Naval Construction Battalion 
Center Gulfport; 
Year: 2003. 

State: North Carolina; 
Installation, listed by separate action: Fort Bragg; 
Year: 2004. 

State: North Carolina; 
Installation, listed by separate action: Fort Bragg; 
Year: 2004. 

State: Texas; 
Installation, listed by separate action: Fort Bliss; 
Year: 2003. 

State: Virginia; 
Installation, listed by separate action: Fort Eustis; 
Year: 2002. 

State: Virginia; 
Installation, listed by separate action: Fort Eustis; 
Year: 2002. 

State: Virginia; 
Installation, listed by separate action: Fort Eustis; 
Year: 2004. 

State: Virginia; 
Installation, listed by separate action: Naval Amphibious Base Little 
Creek; 
Year: 2003. 

Source: DOD data, and GAO analysis. 

[End of table]

Our review also examined the in-depth documentation for two cases from 
Camp Pendleton, California, and two cases at Fort Benning, Georgia, 
both of which are listed in table 2. The documentation, sometimes more 
than 200 pages, illustrates the situations that led to the violations, 
the types of violations occurring, and the amount of effort required to 
conduct the investigations. The cases are summarized as follows, and 
additional details on each are provided in appendix II. 

* Camp Pendleton: In 2003, an insurance agent requested and obtained 
authorization to teach a class on veterans' affairs benefits and 
financial planning to Marines. During the class, the agent said very 
little about veterans' benefits but spoke at length about investments. 
The agent distributed cards for Marines to provide contact information. 
Using this information, the agent later sold Marines insurance policies 
at their homes and on duty, sometimes without appointments. During the 
meetings, Marines were given the impression that the agent represented 
the Department of Veterans Affairs. This agent's solicitation 
privileges were suspended for 2 years by the installation. 

* Camp Pendleton: In 2003, insurance agents requested and obtained 
permission to teach veterans' affairs classes to Marines fresh from 
boot camp. The classes, with required attendance, started as veterans' 
benefits discussions but shifted to investment sales pitches after non- 
commissioned officers left the classrooms. Agents distributed 
applications, allotment forms, and statements of understanding, 
encouraging participants to sign quickly, not read the forms, leave the 
dollar amount lines blank, and provide signed photocopies of their 
identification cards. The Marines were not allowed to take any 
paperwork with them and were told that copies would be sent to their 
home of record. The agents, including at least one retired Marine, were 
fired by their employer. Refunds were offered to those who purchased 
policies. 

* Fort Benning: In 2003 and 2004, agents accessed soldiers in a basic 
combat training brigade through unit non-commissioned officers for the 
express purpose of providing financial planning classes. In unit 
classrooms, the agents discussed the value of investing. At the end of 
the presentations, soldiers who desired additional information 
completed a form. Weeks later, the agents met with soldiers 
individually or in small groups in the unit's area. The agents were 
fired from the companies they represented, and several officers and 
enlisted personnel involved in arranging the presentations were 
reprimanded. The manager for DOD's personal commercial solicitation 
program said that he was unaware of any other instance where 
enforcement included punishment of installation personnel, but added 
that his office does not track such information. 

* Fort Benning: In 2002, two agents accessed soldiers in the infantry 
training brigade through unit non-commissioned officers for the express 
purpose of providing financial management classes. The classes were 
included on the training scheduled in conjunction with other personal 
financial affairs presentations and were conducted in unit classrooms. 
Non-commissioned officers escorted the soldiers to the classrooms. 
According to the investigation, some of the non-commissioned officers 
had knowledge of the solicitation actions taking place. These agents 
later had their solicitation privileges revoked by the installation, 
and refunds were provided to those who purchased policies. 

DOD-wide, service-specific, and installation-level factors contribute 
to the lack of information on violations. The absence of evaluation and 
reporting requirements in DOD's directive on personal commercial 
solicitation is a primary reason why the services and installations do 
not emphasize assessment and why DOD cannot estimate the extent to 
which life insurance agents are violating the 14 proscribed practices 
and other parts of the directive.[Footnote 23] The absence at the 
installation level of documentation of confirmed violations by life 
insurance agents is also caused by several other factors, including: 
(1) the time it takes for personnel to lodge a complaint and other 
personnel to investigate it; (2) reluctance to get either the agents or 
installation personnel in trouble, especially when the agents appear to 
have the support of someone in the chain of command; and (3) the lack 
of knowledge about permitted and prohibited practices by both 
individuals being solicited and other servicemembers who allow life 
insurance agents to conduct financial training or perform other 
prohibited practices. 

The lack of documentation on confirmed violations can result in 
negative outcomes for both DOD and the life insurance industry. For 
instance, DOD is unable to identify the extent of specific types or 
patterns of problems, such as multiple instances of the same violation 
for agents from a single insurance company. Furthermore, DOD cannot 
determine whether there are many agents violating the regulations on a 
few occasions; a small number of agents violating the regulations on 
many occasions; or many people talking about a relatively few, well- 
publicized violations. Without knowing the extent of the problem, DOD 
cannot develop an effective and efficient strategy for curbing the 
violations. The lack of documentation could also negatively affect the 
life insurance industry and its agents. "Broad brush" complaints create 
a negative image of the industry. Some of the agents we interviewed 
were concerned that the highly publicized cases are painting a negative 
picture of them and their profession, even though they said they had 
not violated the regulations on personal commercial solicitation. 

DOD Does Not Disseminate Information about All Confirmed Violations and 
Enforcement Actions to Other Parts of DOD or to State Life Insurance 
Regulators: 

The DOD policy office responsible for oversight of supplemental life 
insurance solicitation on installations does not routinely disseminate 
information on all confirmed violations to installations, to the 
services, or to state life insurance regulators. Although the DOD 
solicitation directive provides installation commanders with 
discretionary authority to report banned agents to their military 
department, they are not obliged to do so. Specifically, if 
installation commanders believe it is warranted, they can recommend 
extending or lifting actions taken against life insurance agents on 
other installations to their respective military departments. 
Additionally, the Office of the Secretary of Defense for Personnel and 
Readiness could, when appropriate, extend or lift the actions for other 
military departments.[Footnote 24] Notably, the current solicitation 
directive does not require the installation commander to routinely 
report information on all confirmed violations to state insurance 
regulators.[Footnote 25] It merely requires installations to notify 
appropriate state licensing authorities if the grounds for withdrawing 
solicitation privileges involve the eligibility of the agent or company 
to hold a state license or meet other regulatory requirements.[Footnote 
26]

One indication that installation commanders and DOD policy officials 
have had only limited communications about violations was the absence 
of a DOD list of cases where agents had been banned from installations 
for violating the personal commercial solicitation directive. The DOD 
policy office did not generate its list of cases until we requested the 
information for this review. This lack of information sharing occurred 
even when policy violations were severe enough to warrant the banning 
of agents. These communications-related problems continued despite 
three recommendations in the 1999 DODIG report: (1) require that all 
installations in the local area and the services' higher commands be 
notified of "any adverse actions" taken against an insurance agent; (2) 
require the services to track such actions and report the information 
to the office with oversight responsibility; and (3) increase the 
interaction with state life insurance regulators. During our visits to 
six installations, solicitation coordinators told us that they did not 
routinely interact with their counterparts on other installations, but 
several of the insurance agents that we interviewed said they were 
approved to solicit on multiple bases in multiple states. 

We found a similar lack of communication between the various parts of 
DOD and state insurance regulators. In our December 2004 survey of all 
state insurance commissioners' offices, only one state reported that 
DOD had notified it of disciplinary actions taken against a life 
insurance agent during the prior 12 months, even though several of the 
26 cases in table 2 occurred during the same period. Our survey also 
revealed that 100 percent of the life insurance commissioners' offices 
responding to our survey said it would be a good practice if DOD were 
to notify their offices whenever it took a disciplinary action against 
a life insurance agent, and 68 percent said they would like more 
communications with the military. 

Figure 2 shows the states where installation commanders took 26 
enforcement actions to ban agents from October 2001 through October 
2004; states where regulators indicated on our survey that the office 
had an ongoing investigation involving life insurance sales to 
servicemembers; and the number of active duty servicemembers in the 
states. State regulators reported in our survey that they had ongoing 
investigations in nine states: Alaska, California, Colorado, Georgia, 
Illinois, Iowa, Kentucky, New York, and Texas. Regulators' 
investigations were occurring in four states (California, Georgia, 
Kentucky, and Texas) that have at least 30,000 servicemembers in them. 
Four states (California, Georgia, Illinois, and Texas) had both an 
ongoing investigation by the state insurance regulators in December 
2004 and an installation where an agent had been banned between October 
2001 and October 2004. 

Figure 2: States Where Installation Commanders Banned Agents from 
October 2001 through October 2004, States Reporting Ongoing 
Investigations of Supplemental Life Insurance Solicitation to 
Servicemembers in December 2004, and the Number of Active Duty 
Servicemembers in the States: 

[See PDF for image] 

Note: We do not display results for the District of Columbia or for the 
four territories because (1) state regulators indicated that they had 
no ongoing investigations or they did not respond and (2) DOD's list 
did not include banned agents in the five locations. 

[End of figure] 

Since the DODIG made recommendations to improve information sharing 6 
years earlier that were not implemented, the absence of oversight by 
the DOD policy office appears to be the primary reason for the past 
lack of DOD-wide information sharing on banned agents and the continued 
lack of information sharing on lesser confirmed violations. Ambiguity 
in the solicitation directive about who should disseminate violations- 
related information to state regulators and the types of information 
that should be disseminated may have contributed to a lack of 
information sharing. Another reason for the lack of contact relates to 
uncertainty regarding the states' ability to govern what occurs on an 
installation. Several state regulatory officials stated that they were 
uncertain about whether they had jurisdiction over life insurance sales 
on military installations. DOD officials informed us that they began 
meeting with the National Association of Insurance Commissioners in May 
2005 to address some of these issues, and legislation[Footnote 27] has 
been introduced in Congress to require greater communication between 
DOD and the association. Additionally, several installation officials 
stated that their office considered the involvement of state regulators 
only for serious complaints or problems that involved life insurance 
products. 

The failure to disseminate information to other parts of DOD or to 
state insurance regulators about agents and companies who violate the 
solicitation policy--especially when the violations were serious enough 
to ban agents--can enable violators to continue operating on other 
installations. State insurance regulators in North Carolina told us 
that by not reporting violations to state regulators, installations 
prevent the state regulators from determining whether further actions, 
such as revocation of licenses, are warranted. Maintaining a list only 
of banned agents does not allow DOD or state regulators to spot 
patterns of violations by agents or companies that may have committed 
multiple lesser violations on multiple installations. If present, such 
patterns would be detectable only when solicitation coordinators are 
able (1) to identify the other installations where the agents or 
companies are approved to operate and (2) to communicate with their 
peers on the other installations about violations committed there by 
the agents or companies. Limited communications between installations 
also hinders the promotion of best practices. For example, other 
installations might be interested in Camp Pendleton's testing of agents 
before approving them for on-installation solicitation. When 
determining whether to ban some agents from Camp Pendleton, 
investigators were able to show that the agents correctly answered test 
questions about prohibited practices--yet still committed the 
prohibited practices. 

Data on Payroll Allotments for Supplemental Life Insurance Unreliable 
and Procedures for Submitting Such Allotments Are Not Always Being 
Followed: 

We could not determine the extent to which servicemembers follow DOD's 
and the services' allotment processing policies when purchasing 
supplemental life insurance because of limitations in the allotment 
databases and the different ways that finance offices were accepting 
forms to start the allotments. Even with DFAS assistance, we could not 
generate reliable monthly estimates of the number of servicemembers 
with, or the amount of money allotted for, supplemental life insurance. 
The unreliability of estimates stemmed from longstanding database and 
computer system constraints, such as the coding used when gathering and 
entering the life insurance allotments into the databases and computer 
problems that we have documented in prior reports. Another problem area 
with supplemental life insurance allotments is the lack of 
certification that occurred when allotment forms were submitted to and 
processed by some finance offices. Contrary to financial management 
regulations, some finance personnel were accepting allotment forms 
through the mail or from individuals without verifying that the 
submitter was either the servicemember or that person's representative 
with a special power of attorney. We could not substantiate insurance 
officials' and agents' assertion that servicemembers were being 
prevented from using allotments to purchase life insurance. Several 
factors suggest that all servicemembers who want to obtain supplemental 
life insurance can do so. 

Databases of Allotment Information Cannot Be Utilized to Monitor 
Servicemembers' Use of or Perceived Need for Supplemental Life 
Insurance: 

We, with assistance from DFAS, attempted but could not determine with 
sufficient reliability either the number of servicemembers who have 
allotments for supplemental life insurance products or the number of 
dollars that servicemembers pay as allotments to life insurance 
companies each month. Although DOD's Financial Management 
Regulation[Footnote 28] supplies the primary guidance governing the 
procedures used to gather allotment information and then electronically 
enter and store the information, each service has a policy and 
procedures directing how to implement the DOD regulations. Among other 
things, the military services' policies and procedures specify how 
allotments for supplemental life insurance and other products or 
services are to be coded, the number of discretionary allotments that 
each servicemember is allowed, and which forms can be used to initiate 
allotments. Allotments to purchase life insurance are also governed by 
the DOD directive on personal commercial solicitation. The directive 
requires a 7-day cooling-off period between the time when E1s through 
E3s sign a supplemental life insurance application and the time the 
allotment is certified.[Footnote 29]

A variety of DFAS database-related constraints limit the visibility 
that the DOD solicitation policy office, the services, and 
installations have over servicemembers' use of and perceived need for 
supplemental life insurance. These constraints include the following: 

* Although the databases can be used to identify servicemembers with an 
insurance allotment (an AI code), the allotment could be for 
servicemembers' or family members' life, health, automobile, or other 
insurance. Conversely, other servicemembers' insurance allotments are 
not detectable if they are coded for savings (an AS code) or other 
types of accounts that the servicemembers also have with the company 
providing supplemental life insurance. 

* Servicemembers are limited to six allotments in total and one 
discretionary allotment per company, even if they have multiple 
accounts (supplemental life insurance, savings, and so forth) with a 
company. 

* DOD and service regulations permit the use of at least seven 
different allotment forms, but forms such as the government-wide 
Standard Form 1199A or DOD-wide DD Form 2558 do not ask whether the 
allotment is for supplemental life insurance. (See app. III for a copy 
of each form.)

* The payroll databases cannot tell how many servicemembers pay 
insurance companies directly by checks, electronic withdrawals from 
personal accounts, and so forth. 

* DFAS maintains separate databases for the different military 
services, and the code used to identify an insurance company is not the 
same for all services. Creating a DOD-wide list requires additional 
work to merge the resulting information. 

DOD was informed about some of these database constraints in the 1999 
DODIG report, in which analysts noted that they could not determine 
what portion of the allotments were made specifically for life 
insurance. 

A major cause of these database-related problems is DOD's systems 
supporting servicemembers' pay. In our earlier reports, we documented 
serious problems with these systems, noting that they were prone to 
error and required manual data reconciliation, correction, and entry 
across nonintegrated systems.[Footnote 30] While a significant system 
enhancement project is under way to improve the administration of 
military pay, DOD is likely to continue operating with existing system 
constraints for several years. The continued use of forms that do not 
require information and coding specific to life insurance could cause 
allotment data to continue to be unreliable for oversight purposes, 
even when the new computer system becomes operational. Information 
obtained during interviews indicated another cause for data 
unreliability. Some interviewees suggested that servicemembers might 
use codes other than AI to avoid the additional requirements 
encountered when starting allotments for supplemental life insurance. 
The additional requirements include the cooling-off period and the 
requirement to submit a paper form for all supplemental life insurance 
allotments, rather than using the electronic MyPay system. 

The absence of data regarding which servicemembers do or do not carry 
supplemental life insurance limits the oversight that DOD policy 
officials and installation solicitation coordinators can exert. For 
example, the inability to obtain accurate data prevents the DOD policy 
office from monitoring increased or decreased perceived needs for 
supplemental life insurance, an important issue now that new 
legislation has been enacted to almost double the lump sum death 
benefits offered through the government. Also, the lack of accurate 
data prevents the solicitation coordinators from easily checking 
whether servicemembers on an installation submitted an unusually large 
number of new allotments for supplemental life insurance during a short 
period, a possible sign of mass solicitation to recruits or trainees or 
other prohibited practices. 

Allotments for Supplemental Life Insurance Have Been Started without 
Verifying Required Authorization and the Elapse of the Cooling-Off 
Period: 

Contrary to regulations, some finance personnel have accepted allotment 
forms to start supplemental life insurance without verifying that the 
person submitting the form is authorized to do so or, if applicable, 
that a cooling-off period has occurred. According to DOD's Financial 
Management Regulation, establishment of, discontinuance of, or changes 
to existing allotments for supplemental life insurance are to be based 
on a written request by a servicemember or someone with a special power 
of attorney on behalf of the servicemember.[Footnote 31] For junior 
enlisted servicemembers, the DOD directive on personal commercial 
solicitation provides an additional requirement: "For personnel in pay 
grades E-1, E-2, and E-3, at least seven days shall elapse for 
counseling between the signing of a life insurance application and the 
certification of an allotment. The purchaser's commanding officer may 
grant a waiver of this requirement for good cause, such as the 
purchaser's imminent permanent change of station."

Nonetheless, DOD personnel and insurance agents indicated that some 
offices accepted allotment forms personally submitted by insurance 
agents or through the mail with only the signature on the form serving 
as proof that the servicemember wanted to start an allotment for 
supplemental life insurance. For example: 

* A life insurance agent is alleged to have submitted allotment forms 
at Fort Bragg for servicemembers who later said they had not wanted the 
policies for which they were paying. 

* Finance office personnel at Naval Station Great Lakes said that about 
half of all insurance allotment forms submitted to and processed by 
their office came from insurance agents. 

* DFAS representatives who process allotments for Marines stated that 
they accepted and processed allotment forms submitted directly from 
Marines through the mail without the required certification. 

* Finance office personnel at Lackland Air Force Base were concerned 
about the high number of mailed allotment forms from insurance 
companies or otherwise on behalf of servicemembers and requested DFAS 
guidance on processing such forms. 

Several reasons were suggested for DOD personnel's acceptance of 
allotment forms that were not submitted personally by the 
servicemembers or their representatives with a special power of 
attorney. DFAS personnel representing the Marines said that they 
accepted and processed mailed insurance allotment forms from Marines 
who, due to their transitional status, were unable to properly certify 
the forms, but wished to promptly initiate policies or to keep policies 
from lapsing. In addition, Air Force personnel said that servicemembers 
have tight training schedules that make it more convenient to mail the 
forms than to hand carry them to the finance office. The Air Force has 
recently clarified its policies to require contacting servicemembers 
and verifying the request when allotment forms are received by mail. 

The causes are different for noncompliance with the requirement to have 
7 days elapse between the time junior enlisted servicemembers sign a 
life insurance application and the time an allotment is certified. On 
allotment forms such as the governmentwide Standard Form 1199A or the 
DOD-wide DD Form 2558, no one is asked to certify that the required 
cooling-off period and, possibly, counseling have occurred. Therefore, 
these forms do not require finance personnel to determine whether the 
full 7 days have elapsed before they certify the allotment. Other 
causes for noncompliance with the required cooling-off period are 
ambiguities in the directive. First, the requirement for a cooling-off 
period may be for all life insurance allotments started by junior 
enlisted servicemembers, but its inclusion in a directive governing 
only on-installation solicitation could cause finance officials to 
interpret the requirement as applying only to those allotments for 
supplemental life insurance sold on an installation to junior enlisted 
servicemembers. Second, it is unclear whether the counseling is 
required or optional during the cooling-off period. Further, the 
directive and the standard allotment forms do not contain procedures 
for documenting whether the counseling took place. Third, it is unclear 
when the commanding officer must sign a waiver for the cooling-off 
period and/or counseling. 

Starting a supplemental life insurance allotment for servicemembers who 
do not want one or were not required to allow the cooling-off period to 
elapse can result in extra expenses for servicemembers who may already 
be financially challenged. Even if servicemembers receive premium 
reimbursements like those promised by insurance companies following the 
incidents at Fort Benning, Fort Bragg, Camp Pendleton, and possibly 
other places, months can pass between the paying for the allotments and 
the reimbursements. During that time, servicemembers are without a 
portion of their income, and this decreased income could result in 
budgeting difficulties and fees for such things as bounced checks and 
late payments. As we pointed out in our April 2005 report on the 
financial conditions of servicemembers and their families,[Footnote 32] 
pressure from creditors, falling behind in paying bills, and bouncing 
two or more checks were negative financial events reported by 
approximately one-eighth to one-fifth of servicemembers on a 2003 DOD- 
wide survey.[Footnote 33] In addition, more than 10 percent of 
servicemembers answered "in over your head" or "tough to make ends meet 
but keep your head above water" when the survey asked them to 
characterize their financial condition. For servicemembers who were 
already having financial difficulties, unplanned allotments and any 
extra expenses could result in debt and bad credit histories for 
servicemembers, as well as adversely affect unit readiness and morale 
as the chain of command attempts to address any resulting financial 
problems. 

Assertion That Servicemembers Are Prevented from Purchasing 
Supplemental Life Insurance Could Not Be Substantiated: 

Some insurance officials and agents asserted that chains of command 
prevent servicemembers from purchasing supplemental life insurance, but 
we were unable to substantiate the assertion. As we have previously 
mentioned, DOD's Financial Management Regulation requires that 
servicemembers or their representative with a special power of attorney 
complete and submit an allotment form if the supplemental life 
insurance is to be purchased with a payroll deduction. Also, the 
previously discussed requirement for a cooling-off period and possibly 
counseling for junior enlisted personnel is important to examining the 
life insurance officials' and agents' assertion. 

During a meeting at the start of our review, officials from insurance 
companies and national insurance associations asserted that some 
servicemembers were being prevented from purchasing supplemental life 
insurance. Also, a firm that sells supplemental life insurance on and 
off multiple installations supplied us with documents[Footnote 34] on 
1,344 servicemembers who completed insurance applications from October 
2002 through September 2004 but did not subsequently start a policy 
through the firm. During site visits to two of the installations where 
the majority of the 1,344 servicemembers were based at the time of 
completing their applications, we attempted to conduct focus groups 
with subgroups of those servicemembers. Our points of contact on the 
installations indicated that many of the servicemembers had rotated to 
other installations or were in training that could not be missed. 

Although we could not determine how representative these 1,344 
applications were of all applications completed without a purchase 
being made, this case study of the experiences at one firm provides 
some insight into the viability of cost-related alternative reasons why 
servicemembers might not follow through with the purchase of 
supplemental life insurance coverage. Our analysis of the 1,344 cases 
showed that 831 applications were for E1 through E3 servicemembers, and 
the per person average monthly cost of the products in the applications 
was $92.[Footnote 35] For those 831 junior enlisted personnel, 3 
percent of the cases contained only an application for life insurance, 
52 percent contained only an application for what an official from the 
firm characterized as "a life insurance product with an accumulation 
fund,"[Footnote 36] and 45 percent included both types of applications. 

Military officials, servicemembers, and insurance officials and agents 
identified reasons--in addition to being actively prevented from 
processing a supplemental life insurance allotment form--why 
servicemembers might not start a policy after completing an 
application. These other reasons included: 

* The counseling supplied during the 7-day cooling-off period could 
have been misinterpreted as an implicit order from the chain of command 
not to purchase the insurance, rather than as advice about the 
advantages and disadvantages of purchasing supplemental life insurance 
or a particular type of coverage. 

* The counseling could have resulted in the servicemember's following 
through on purchasing a supplemental policy but obtaining it from 
another vendor, and possibly at a lower price. 

* Some servicemembers may have developed buyers' remorse when they 
later considered the competing demands on their compensation. 

* Servicemembers may have completed the application because of high 
pressure sales practices, knowing they would not later file an 
allotment form. 

* An allotment may not get started because of a lost or missing 
allotment form. 

Although we were not able to determine whether chains of command were 
intentionally preventing servicemembers from purchasing supplemental 
life insurance, information of four types suggests that the inability 
to purchase supplemental life insurance coverage is probably not a 
widespread problem. First, 85 percent of the state insurance regulators 
in our survey indicated that no insurance company had filed a complaint 
regarding the sale of life insurance to servicemembers on installations 
from October 2003 through December 2004, and the other 15 percent said 
they did not know. Second, most of the insurance agents identified by 
the national insurance associations and interviewed during our six 
installation visits indicated that they had not experienced a problem 
with the allotment process. In contrast, agents for two life insurance 
companies typically reported a problem, and the concerns related 
primarily to the processing of allotments on two installations that 
were served by the firm that supplied us with the more than 1,000 
cases. Third, when we were able to talk with servicemembers identified 
as having completed insurance applications without starting allotments, 
they indicated that they did not purchase the supplemental life 
insurance for reasons other than prevention by the chain of 
command.[Footnote 37] Finally, if servicemembers wanted life insurance 
and were actively prevented by the chain of command from filing 
allotment forms to make the purchase, they could pay the premiums by 
check, electronic withdrawals from other financial accounts, or some 
other means, without further chain of command intervention. 

DOD's Revised Directive Adds New Requirements, but Does Not Fully 
Address Oversight Deficiencies: 

DOD's revised directive on personal commercial solicitation practices 
on DOD installations incorporates new requirements, but does not 
address all oversight problems.[Footnote 38] Numerous changes have been 
proposed. Some interim policy and practices that are currently in place 
have been incorporated into the draft revision. Also, requirements for 
gathering and disseminating information have been proposed, but they do 
not fully address oversight deficiencies. Still other proposed 
requirements address issues such as the type of information that life 
insurance agents will provide to servicemembers to describe the product 
being offered by the agent. 

Draft Directive Proposes to Incorporate Existing Interim Policy and 
Formalized Practices Already in Place: 

One of the larger sets of additions to the draft directive proposes to 
incorporate interim policy that DOD issued in 2002 about on- 
installation financial education presentations.[Footnote 39] Those 
additions generally prohibit representatives of commercial loan, 
finance, insurance, or investment companies from providing such 
presentations. With certain restrictions, the presentations may, 
however, be provided by representatives of the following types of 
organizations: credit unions and banks located on military 
installations,[Footnote 40] nongovernmental, noncommercial 
organizations expert in the field of personal financial affairs, and 
those that are either tax-exempt (under 26 U.S.C. 501(c)(3) or (c)(23)) 
or under a contract with the government. Among other things, 
restrictions require that the presenter and educational materials use 
disclaimers to indicate clearly that they do not endorse or favor any 
commercial supplier, product, or service. Also, the installation 
commander shall consider the company's history of complying with on- 
installation commercial sales instructions if the presenting 
organization is affiliated with a company that sells or markets 
insurance or other financial products. 

An additional change to the draft solicitation directive incorporates 
procedures pertaining to advertising and commercial sponsorship that 
were already in place at some of the installations we visited.[Footnote 
41] For example, the draft directive notes that solicitors are allowed 
to provide commercial sponsorship of DOD morale, welfare, and 
recreation programs or events on installations but are not to contact 
participants without their written permission. Interviews with 
insurance agents and installation personnel during our site visits 
indicated that agents were already generating lists of future contacts 
through the use of forms that program or event participants completed, 
indicating their permission for the future contact. 

Proposed Evaluation, Reporting, and Dissemination Requirements Do Not 
Fully Address Oversight Deficiencies: 

DOD has taken some positive steps to improve its oversight of personal 
commercial solicitation on installations by proposing to add four new 
sets of requirements that pertain to gathering and disseminating 
evaluative data. Each of the requirements has associated problems that 
could limit the usefulness of the gathered and disseminated data. 

Two sets of proposed changes add requirements for gathering and 
disseminating information about violations on banned agents. As we 
noted earlier, continued gathering and disseminating information on 
only those violations severe enough to result in banning an agent will 
result in DOD's continuing to be unable to (1) identify the number, 
types, and severity of all violations and (2) recognize patterns of 
violations. Failure to disseminate information on all confirmed 
violations to all parts of DOD and to state regulators can allow 
violators to continue operating on installations. 

As the result of another proposed addition to the draft directive, 
installation commanders will be required to inquire into any alleged 
violations of the solicitation regulation or questionable solicitation 
practices.[Footnote 42] This step could increase the DOD's oversight of 
the number, types, and severity of confirmed violations occurring 
throughout all military installations if there were also an additional 
requirement to report all confirmed violations to higher-level 
commands. Some factors that could keep the number of inquiries into 
potential violations artificially low are the lack of knowledge about 
which solicitation practices are prohibited, the steps required to 
report a violation, and whom to contact when a suspected violation 
occurs. We reported in April 2005 that only the Army is monitoring the 
completion of required personal financial management training for 
junior enlisted personnel, and it estimated that about 18 percent of 
that group had not received the required training. Our earlier review 
did not assess the amount or the types of life insurance-related 
training provided, but we noted that each service administered its 
personal financial training differently.[Footnote 43] When we 
recommended additional DOD oversight by requiring the services to 
develop and implement plans to monitor the training, the Under 
Secretary of Defense for Personnel and Readiness partially concurred 
with our recommendation but noted that the DOD instruction governing 
personal financial management training had sufficient procedures to let 
the military departments accomplish their responsibilities. 

Another proposed addition to the draft directive would require an 
insurance agent to provide a servicemember with a new DOD-wide 
questionnaire that would contain questions about the servicemember's 
experiences during the prearranged appointment with the agent for 
solicitation.[Footnote 44] The value of information obtained from this 
assessment instrument may be very limited, and might even create an 
erroneous impression of what has occurred during the typical 
solicitation appointments. The questionnaire will document interactions 
that were not described as problem areas during our visits to six 
installations--that is, life insurance agents who were complying with 
the requirement to prearrange one-on-one solicitation meetings. Also, 
the voluntary completion of the forms will result in a lack of 
transparency, since some forms may not be turned in for a variety of 
reasons: For example, they were never distributed by an agent, or the 
servicemembers did not want to take the time to fill in and drop off 
the form. In addition, the directive includes no requirement to submit 
the data to higher levels so that service-wide and DOD-wide information 
can be developed. 

Other Changes Will Result in Better Explanation or Clarification of 
Existing Requirements: 

Another change merits special mention because it could result in 
servicemembers' having better information for making decisions about 
whether or not to purchase a specific amount or type of supplemental 
life insurance coverage.[Footnote 45] All financial products that 
contain insurance features must clearly explain the insurance features 
of those products. The draft regulation elaborates further about 
insurance products, stating that if there is a savings component to an 
insurance product, the agent shall provide the customer written 
documentation, which clearly explains how much of the premium goes to 
the savings component per year, broken down over the life of the 
policy. This document must also show the total amount per year 
allocated to insurance premiums. The customer must be provided a copy 
of this document that is signed by the insurance agent. One problem 
that might be encountered in implementing this proposed requirement is 
the absence of any guidance about what types of information must be 
contained in the written description and who (for example, the 
installation's solicitation coordinator or the National Association of 
Insurance Commissioners) would judge whether the information is 
conveyed clearly. 

Three other changes in the draft also merit mention. First, solicitors 
are prohibited from contacting DOD personnel by calling a government 
telephone or by sending an e-mail to a government computer unless the 
parties have a pre-existing relationship. Second, solicitors with 
military identification cards and/or vehicle decals must present 
documentation issued by the installation authorizing solicitation when 
entering the installation for that purpose. Third, commercial sponsors 
may not use sponsorship to advertise products and/or services not 
specifically agreed to in the sponsorship agreement. 

A DOD official informed us that DOD plans to review the findings and 
recommendations of our report and then request more public comments 
after our report is issued. He also indicated DOD will not publish a 
final revised directive until at least 90 days after the issuance of 
our report, consistent with the provisions of Section 8133 of the 
Department of Defense Appropriations Act for Fiscal Year 2005.[Footnote 
46]

Conclusions: 

DOD cannot identify the extent to which life insurance agents are 
violating solicitation policies or procedures, the types, severity, or 
patterns of violations. A proposed new provision in the draft directive 
would require DOD to maintain and disseminate a master file on banned 
agents, but this new provision will still not provide DOD with a full 
picture of the important but missing data outlined in the prior 
sentence. For example, DOD's current list (1) is not searchable to help 
solicitation coordinators quickly check on agents who want to be 
approved or re-approved for on-installation solicitation, (2) does not 
provide the same information on every case as is evidenced by the 
absence of dates for 6 of the 51 cases, (3) does not identify the 
specific types of violations that occurred--data critical for 
identifying patterns of violations, and (4) probably does not contain 
information on all agents who installation commanders have determined 
violated regulations but have not done something severe enough to be 
banned. The continued absence of these important data will force DOD, 
the services, and installations to take actions based on isolated 
incidents, anecdotes, and other possibly insightful, but non-optimum 
information. DOD has, however, taken a positive step by including a 
requirement in the draft directive to maintain a list of contacts for 
state insurance regulators, but it does not require installation 
commanders to keep state regulators generally informed about all 
confirmed solicitation violations occurring on their installation. This 
ambiguity could result in some relevant violations not getting reported 
to state regulators. Similarly, ambiguity is present in the wording of 
the requirement for the cooling-off period for junior enlisted 
servicemembers who want to purchase supplemental life insurance. While 
DOD's draft directive clarified that the period is 7 calendar days, 
other ambiguities were identified earlier in this report. Failure to 
address these issues during the current revision could result in 
inconsistent enforcement of that requirement. 

The quality of the information in the DFAS payroll databases limits the 
ability of other parts of DOD in their efforts to (1) monitor 
servicemembers' perceived need for supplemental life insurance and (2) 
detect prohibited group presentations as evidenced by large numbers of 
new allotments for supplemental life insurance. Continued reliance on 
multiple generic allotment forms and a generic data entry code that 
does not distinguish different types of insurance products (for 
example, life versus automobile) will perpetuate existing data 
reliability problems. Furthermore, the continued use of generic forms 
to start a supplemental life insurance allotment results in a missed 
opportunity for DOD to institute steps to address solicitation 
requirements whose enforcement has not been assessable. For example, 
DOD has no current forms or other assessment methods for documenting 
that the required cooling-off period for junior enlisted personnel 
occurred, servicemembers received required documents from life 
insurance agents, and the finance or administrative staff who accepted 
the allotment form for supplemental life insurance also verified that 
the person submitting it was either the purchaser or the 
servicemember's representative with a special power of attorney. With 
regard to this last enforcement and documentation issue, our review 
found some noncompliance with the requirement that only servicemembers 
or their representatives with special power of attorney could start 
supplemental life insurance allotments. Even though some of the reasons 
for the noncompliance may be well-meaning, some of the instances where 
finance officials have accepted such allotment forms from unauthorized 
persons have resulted in banning agents, diverting valuable resources 
away from the military mission to conduct investigations, and possibly 
placing servicemembers and their families at financial risk when 
unanticipated allotments begin for unwanted products. Adherence to 
existing regulations would go far to eliminating these negative 
effects. 

Recommendations for Executive Action: 

We are making five recommendations. We recommend that the Secretary of 
Defense direct the Under Secretary of Defense for Personnel and 
Readiness to take the following actions in revising DOD's solicitation 
regulation: 

* Develop and implement, with the services, a DOD-wide searchable 
violations database that uses consistent data elements and coding 
across services. Solicitation coordinators or others at the 
installation would then be required to enter the installation name, 
violating agent's name, insurance company supplying the product, 
type(s) of violation(s), date and type of action taken, and other 
information important for identifying patterns of violations and 
facilitating efficient data collection and dissemination of information 
on confirmed violators to all installations and state insurance 
regulators. 

* Specify in the revised directive that the installation commander is 
responsible for notifying state insurance regulators, the service 
secretariat, and DOD, when the commander has determined that agents or 
companies have violated DOD, service, or installation policies. 
Requiring installation commanders to contact appropriate state 
officials regarding all confirmed violations of DOD's commercial 
solicitation directive increases the likelihood that state insurance 
officials will be provided an opportunity to determine if further 
action such as revocation of a state license is warranted. 

* Clarify the portion of the revised directive that pertains to the 
cooling-off period that must elapse before junior enlisted personnel 
can start an allotment to purchase supplemental life insurance. 
Addressing and eliminating the ambiguities that we have identified 
about what is required versus optional could result in better 
compliance with the directive. 

We recommend that the Secretary of Defense direct the Defense Finance 
and Accounting Service to take the following actions: 

* Determine what current and future modifications should be made to the 
regulations, forms, and procedures used to initiate and electronically 
capture supplemental life insurance allotments so that more useable 
data are available to the DOD, service, and installation offices 
responsible for overseeing supplemental life insurance solicitation. 
This step might include developing and implementing a single code and 
form that would be used for supplemental life insurance allotments and 
to document compliance with requirements that DOD has previously had 
little visibility over. 

* Issue a message to all finance offices and the Defense Finance and 
Accounting Service offices that process allotments for supplemental 
life insurance to remind personnel that DOD's Financial Management 
Regulation indicates that only servicemembers or their designated 
representatives with special power of attorney for the prescribed 
purpose are authorized to start, stop, or modify financial allotments. 
If deviations from the policy are warranted to allow mailed allotment 
forms, the Defense Finance and Accounting Service should specify the 
additional verification required in those situations. 

Agency Comments and Our Evaluation: 

DOD's comments are included in this report as appendix IV. DOD 
partially concurred with our first two recommendations and fully 
concurred with the three remaining recommendations. 

In commenting for DOD, the Principal Deputy for Personnel and Readiness 
raised three issues concerning the thoroughness and accuracy of our 
review. 

First, DOD incorrectly stated that our review was only to look at the 
complaints of the insurance industry and that after we did not 
substantiate these complaints, we instead looked at DOD's oversight of 
commercial insurance solicitation on DOD installations. While we were 
aware of the industry's complaints, we focused our review on broader 
systemic issues, like the implementation of DOD and service poliies, 
procedures, and regulations governing the marketing and sale of 
supplemental life insurance on domestic military installations. 
Focusing on these systemic issues, however, allowed us to determine 
whether the complaints had merit. At every stage during our review, we 
emphasized that we were asked to review compliance with DOD's 
regulations and policies on both the marketing and sale of life 
insurance on installations and the processing of financial allotments 
for such products. For example, in the letter notifying the Secretary 
of Defense that we were beginning our review and at our first meeting 
with DOD and service representatives, we listed the following three 
researchable questions: 

1. What are DOD's and the services' policies and procedures for the 
marketing and sale of life insurance policies to military personnel and 
the processing of financial allotments for military personnel?

2. How do DOD and service regulations affect the marketing and sale of 
life insurance policies and the processing of financial allotments to 
military personnel?

3. How are the processes and procedures for the marketing and sale of 
life insurance policies and the handling of financial allotments, 
especially for commercial products like life insurance policies, 
implemented at Fort Bragg, Fort Lewis, and other military 
installations? 

Our report fully addressed solicitation and allotment issues in 
addition to providing our congressional requesters with an update on 
the revision of DOD's personal commercial solicitation directive, as 
they also requested. Further, DOD stated that our report makes only 
minor mention of the fact that we did not substantiate the insurance 
industry's assertions that servicemembers were being prevented from 
using allotments to obtain life insurance. To the contrary, we devoted 
a section of our report to the issue, but that issue was only one of 
many allotment-related concerns that we addressed in that portion of 
the report. 

Second, DOD expressed concern about our use of survey data in examining 
the extent to which insurance solicitation violations were occurring on 
installations. The most significant reason for using the survey was the 
incompleteness and other problems associated with the data that DOD 
maintains on violations. The problems with those data are addressed 
more fully in our later response to DOD's partial concurrence with our 
first recommendation. Because we were aware that survey data are 
unsubstantiated, we supplemented that information with data gathered 
from other sources such as DOD's list of banned agents and information 
gathered from a wide variety of individuals during our six visits to 
military installations. DOD similarly conduits surveys to monitor other 
personnel issues. For example, the Office of the Under Secretary of 
Defense for Personnel and Readiness conducted a survey of over 75,000 
servicemembers asking for unsubstantiated perceptions about 
racial/ethnic discrimination and harassment[Footnote 47] and these data 
could be combined with compliance-related information from DOD's 
investigations of alleged violations to give the department a more 
complete view of the issue. DOD also stated that we should have 
disclosed the wording used in the survey. The information that DOD 
reviewed in our figure 1 is the exact wording of our survey items. 
Although the wording for the overall question, "During the past 12 
months, how often have the following practices concerning supplemental 
life insurance taken place on the installation?" was changed to a 
declarative sentence to increase readability, our paraphrasing is a 
true representation of what we asked. Finally, the response rate of 75 
percent for our survey of all personal financial management program 
managers on U.S. installations is higher than the rate obtained on 
recent DOD-wide surveys such as the August 2004 survey which had a 
response rate of 40 percent. Given these facts, we believe that our 
discussion about the extent of solicitation policy violations was 
appropriate, especially since DOD had information on only the subset of 
violations serious enough to merit banning an agent from an 
installation. 

Lastly, DOD maintained that we made a false statement about the 
department not knowing the extent of personal solicitation policy 
violations. DOD's point is incorrect on several grounds. First, early 
in our review in May 2004, we asked DOD officials whether a DOD-wide 
database existed that the services could use to report to DOD insurance 
agents or companies that have had their solicitation privileges 
withdrawn. DOD officials told us that while there was such a system, it 
was up to the services to provide updated information. DOD officials 
said at the time there was no comprehensive information available to 
document such actions. In October 2004--approximately 5 months after we 
asked for a list of all banned agents--DOD provided us with information 
similar to that provided on its Commanders Page Web site as of April 
2005. At the time we received this information, the Director of the 
program that oversees personal commercial solicitation told us that the 
list may not be complete and accurate--which we found to be true--but 
that it provided all of the information that the services had reported. 
Second, DOD's list of banned agents did not include all cases where 
insurance agents or companies were banned. As we reported, personnel at 
Fort Bliss, Texas, indicated that the installation commander had banned 
an agent who was not included on DOD's Commanders Page Web site as of 
April 2005. Third, unless DOD bans every agent who violates in any way 
the solicitation policy regardless of the severity of the violation, 
its data on banned agents are not equivalent to knowing the extent of 
all confirmed violations. 

Regarding DOD's comments about our recommendations, DOD partially 
concurred with our first recommendation to develop and implement a 
searchable violations database, but DOD's explanation of its partial 
concurrence does not identify any additional steps to address the 
deficiencies that we identified with their current procedures. As we 
noted in our report, the monitoring system should focus on all 
confirmed violations of solicitation policies and not just on those 
severe enough to result in agents being banned. By establishing a 
database on all confirmed violations, DOD would have a more complete 
picture of solicitation violation activities to better identify 
patterns, types, and severity of confirmed violations. If patterns are 
found, they could serve as the basis for identifying actions to 
eliminate the recurring or systemic problems. Our proposed database 
would also provide installation solicitation officers with a resource 
to check whether agents requesting solicitation approval or re-approval 
at their installations were involved in prior violations at other 
locations. 

DOD partially concurred with our second recommendation that 
installation commanders notify state insurance regulators of confirmed 
violations of solicitation policies. DOD's position is that such 
reporting by installation commanders should only be required when the 
violations involve the eligibility of the agent to hold a state license 
and to meet other regulatory requirements. We believe that DOD should 
report all confirmed violations to state regulators. Installation 
commanders and their legal advisers may not have the expertise needed 
to determine whether a solicitation violation involved license- 
eligibility or regulatory requirements. Having installation commanders 
report all confirmed violations to state regulators would allow the 
regulators to decide whether further action is appropriate. As we 
pointed out in our report, state insurance officials from North 
Carolina were concerned that DOD's lack of reporting violations 
prevented them from determining whether further actions, such as 
revocation of licenses, are warranted. 

DOD concurred with our third recommendation and stated that it had 
identified an additional ambiguity in the current revised directive 
regarding who is responsible for monitoring and enforcing the cooling- 
off period for supplemental life insurance purchases. DOD's proposed 
revision addresses the concerns that we raised. 

DOD concurred with our fourth recommendation and stated that they will 
consider our proposed changes for a future enhancement of their pay 
system. In addition, DOD said that it will review its regulations and 
forms to determine what current and future modifications should be 
made. 

DOD concurred with our fifth recommendation and stated that it will 
issue a message identifying who can start, stop, or modify allotments 
to all finance offices and Defense Finance and Accounting Service 
offices that process allotments. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will provide copies of this 
report to interested congressional committees and the Secretary of 
Defense. We will also make copies available to others upon request. 
This report will be available at no charge on GAO's Web site at 
[Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-5559 or [Hyperlink, stewartd@gao.gov]. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff members who 
made major contributions to this report are listed in appendix V. 

Signed by: 

Derek B. Stewart: 
Director, Defense Capabilities and Management: 

List of Congressional Requesters: 

The Honorable Tom M. Davis: 
Chairman: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Duncan L. Hunter: 
Chairman: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Christopher Shays: 
Chairman: 
Subcommittee on National Security, Emerging Threats and International 
Relations: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Jim Cooper: 
The Honorable Martin T. Meehan: 
The Honorable Ellen O. Tauscher: 
House of Representatives: 

[End of section]

Appendixes: 

Appendix I: Scope and Methodology: 

In addressing the objectives of our engagement, we reviewed reports 
that had been issued by GAO, DOD, and others, including the life 
insurance industry. We interviewed officials from DOD, life insurance 
companies and associations, and other organizations, such as the 
Consumer Federation of America, to identify the many perspectives on 
the issues being studied. In connection with another report, we 
constructed, pre-tested, and administered insurance-and allotment- 
related survey questions to all 175 installation-level managers of 
DOD's personal financial management programs located in the United 
States.[Footnote 48] We received completed surveys from 131 
installations, yielding an overall response rate of 75 percent, which 
ranged from a low of 62 percent for the Air Force to 93 percent for the 
Marine Corps. We also constructed, pre-tested, and administered an e- 
mail survey to the insurance commissioners for the 50 states, the 
District of Columbia, and four territories: American Samoa, Guam, 
Puerto Rico, and the Virgin Islands. We received completed surveys from 
46 states, the District of Columbia, and one U.S. Territory, yielding 
an overall response rate of 87 percent. We did not receive surveys from 
four states (California, Delaware, Florida, and Idaho) and three 
territories (American Samoa, Guam, and the Virgin Islands). We later 
contacted the four non-responding states to verify if they had any 
investigations on insurance sales practices on military installations, 
and only California responded to our inquiries. In addition, we 
interviewed personnel from the state insurance commissioner's office 
for four of the six states where we conducted site visits to military 
installations, as well as personnel for the commissioner's office in 
Georgia. We also asked insurance companies and two national insurance 
associations to identify agents and company representatives who could 
be interviewed about solicitation and allotment practices at the six 
installations. During site visits, we requested materials related to 
the marketing and sale of supplemental life insurance and the 
establishment of allotments for that purpose. Those materials included 
a list of life insurance agents approved for on-installation 
solicitation, handouts distributed to assist servicemembers in 
determining their need for supplemental life insurance, documentation 
for violations of personal commercial solicitation and insurance- 
related policies, and complaints related to insurance solicitation and 
allotments. While on the site visit, we conducted individual interviews 
or focus groups with the following types of individuals: installation 
leaders; the coordinator for the installation's commercial solicitation 
program; servicemembers; legal assistance attorneys from the Judge 
Advocate General corps; finance department personnel who managed and 
processed allotments; family support center staff responsible for 
personal financial management training and counseling activities; staff 
from morale, welfare, and recreation; and representatives of on- 
installation banks and credit unions. 

We limited our scope to the sale--marketing, solicitation, and 
purchase--of life insurance to active duty servicemembers on 
installations in the United States. Emphasis was given to findings 
pertaining to junior enlisted servicemembers since DOD and insurance 
officials have indicated that this subgroup is more likely to encounter 
problems with the marketing and sale of supplemental life insurance and 
establishment of an allotment for such a purchase. During the course of 
our work, we visited six installations (see table 3). We selected the 
installations based on inputs from DOD and insurance officials, and 
with due consideration for the large number of Army personnel deployed 
to Iraq and Afghanistan. We did obtain additional information on 
completed and ongoing large-scale investigations of violations that 
occurred on other installations: Fort Benning, Georgia, and Fort 
Stewart, Georgia, although we did not conduct site visits to these 
installations. 

Table 3: Installations in the United States where GAO Conducted Site 
Visits from July to December 2004: 

Service: Army; 
Installation: Fort Bragg, North Carolina. 

Service: Army; 
Installation: Fort Campbell, Kentucky. 

Service: Army; 
Installation: Fort Lewis, Washington. 

Service: Navy; 
Installation: Naval Station Great Lakes, Illinois. 

Service: Marine Corps; 
Installation: Camp Pendleton, California. 

Service: Air Force; 
Installation: Lackland Air Force Base, Texas. 

Source: GAO. 

[End of table]

To address the extent to which agents were violating DOD's policies 
governing the solicitation of supplemental life insurance to active 
duty servicemembers on domestic installations, we reviewed and analyzed 
DOD, service, and selected installations' policies and directives 
governing personal commercial solicitation, primary among these was the 
DOD directive on personal commercial solicitation on DOD installations. 
We also reviewed DOD reports on commercial life insurance 
sales;[Footnote 49] materials provided by insurance association and 
company officials, as well as insurance agents; and state government 
announcements such as those from the office of the Georgia state 
insurance commissioner about investigations of and enforcement actions 
against some companies and agents who sold supplemental life insurance 
to servicemembers. We contacted the Federal Trade Commission to 
ascertain whether its Military Sentinel system contained any 
information on complaints or investigations on supplemental life 
insurance sales to servicemembers. We obtained a wide range of 
perspectives about the sale of supplemental life insurance to 
servicemembers during meetings with DOD and service headquarters 
officials, officials from companies and two life insurance associations 
(the American Council of Life Insurers and the National Association of 
Insurance and Financial Advisors), and a representative of the Consumer 
Federation of America. In addition to interviewing staff from the 
insurance commissioners' offices in four of the six states where we 
visited installations and in the state of Georgia, we constructed, pre- 
tested, and administered an e-mail survey to the insurance 
commissioners for the 50 states, the District of Columbia, and four 
territories. We also used responses about supplemental life insurance- 
related issues from a survey of all DOD personal financial management 
program managers, professional staff employed on most installations who 
were responsible for coordinating the financial management training, 
counseling, and other assistance provided to servicemembers. During our 
site visits, we asked that the command point of contact provide us with 
the following types of materials: a list of life insurance agents 
approved for on-installation solicitation, handouts distributed to 
assist servicemembers in determining the need for supplemental life 
insurance, documentation for violations of personal commercial 
solicitation and insurance-related policies, and complaints related to 
insurance solicitation. While on the installation, we conducted 
individual or focus group interviews with the following types of 
installation personnel or offices: installation leadership, the 
coordinator for the installation's commercial solicitation program, 
legal assistance attorneys from the Judge Advocate General corps, and 
family support center staff responsible for financial training and 
counseling activities. We also asked the life insurance associations 
and company officials for the names of agents that we could interview 
while on our site visits. As part of our site visits, we conducted 
interviews with on-installation bank and credit union officials, asking 
about current and planned efforts to offer supplemental life insurance 
through their financial institution. 

To address how effectively DOD personnel are adhering to DOD's 
regulations that govern how active duty servicemembers establish 
payroll allotments to purchase supplemental life insurance, we 
interviewed officials from DFAS at their headquarters and field offices 
associated with each service. We also reviewed and analyzed guidance 
documents governing servicemembers' use of allotments that DFAS, the 
services, and selected installations provided to us. We interviewed 
finance officials at the installations we visited and observed the data 
entry process used to electronically transmit data from the 
installation to the payroll accounting system maintained by DFAS. At 
several installations, we also interviewed officials at administrative 
units that serve as intermediaries in the processing of servicemembers' 
allotments and asked questions as personnel demonstrated the procedures 
used in submitting, processing, and confirming allotment transactions. 

To assess the extent to which the draft revision of DOD's directive 
will address ongoing problems with supplemental life insurance policies 
on DOD installations, we reviewed the Department of Defense 
Appropriations Act for Fiscal Year 2005[Footnote 50] to determine the 
restrictions on when the draft directive could be issued. We conducted 
interviews with DOD program officials to discuss proposed changes, the 
reasons for the proposed changes, and other issues related to the draft 
directive. Also, DOD provided us with a copy of the draft directive as 
of January 2005 so that we could compare and contrast it to the current 
version of the directive. We compared that version to the one printed 
in the April 19, 2005, Federal Register announcement.[Footnote 51] We 
subsequently contacted DOD policy officials to determine whether DOD 
intended to again request comments after our report was issued. 

We performed our work from May 2004 through May 2005 in accordance with 
generally accepted government auditing standards. 

[End of section]

Appendix II: Details on Selected Recent In-Depth Investigations: 

We are providing synopses of the reports that investigators prepared 
after they completed gathering data on alleged violations. We did not 
independently attempt to verify the allegations or the weight of the 
evidence supporting decisions reached by installation commanders. 
Instead, we merely summarize the information provided in the 
investigative reports. 

Installation: Camp Pendleton, California: 

Period when the violations occurred: October through November 2003: 

Description of the violations: An insurance agent approached an officer 
requesting authorization to teach a class on veterans' affairs benefits 
and financial planning to squadron Marines. The officer believed the 
class would benefit Marines and included the agent on the training 
schedule. During the class, the agent spoke little about veterans' 
benefits, focusing more on investments. The agent distributed cards to 
obtain contact information and later met with Marines while they were 
on duty or in their homes to sell them policies. The agent described 
the policy as an investment plan, rather than an insurance policy, 
guaranteed, as stated by the agent, to provide Marines "$500,000 to 
$1,000,000 by the time they reached their sixties." The agent also 
tried to sell the investment plan to Marines without appointments. 
During the meetings, Marines were given the impression that the agent 
was a representative of the Department of Veterans' Affairs and was 
able to assist them in obtaining their benefits. On one occasion, the 
agent tried to obtain a MyPay personal identification number from a 
Marine. 

Investigators determined that these actions violated prohibited 
solicitation practices including providing financial planning and 
insurance classes without prior approval; attempting to solicit or sell 
insurance without an appointment; attempting to sell insurance in an 
unauthorized area; using unfair, deceptive, misleading, or fraudulent 
schemes to encourage sales; and soliciting to trainees. 

Documentation to assess the scope of the problem: The investigation 
report included sworn statements from 12 Marines who met with the agent 
as well as two other Marines approached by the agent. 

Estimated number of affected servicemembers: The initial class included 
15 to 25 Marines, and the agent conducted the class at least one other 
time. 

Actions taken: 

* By the installation: Solicitation privileges for the agent were 
suspended for two years for all Western area Marine Corps 
installations. 

* By the insurance company: The insurance company returned the agent's 
solicitation pass and ceased all operations on the installation with no 
plans of reopening. 

Installation's interaction with state insurance commissioner's office: 
The installation recently provided copies of the investigation to the 
state insurance commissioner. 

Installation: Camp Pendleton, California: 

Period when the violations occurred: May through September 2003: 

Description of the violations: Under the guise of presenting 
information on veterans' affairs benefits, two insurance agents 
obtained permission from a commanding officer to provide the classes to 
Marines arriving from boot camp, at which attendance was required. Four 
people conducted the classes, including three insurance agents and the 
wife of one agent. According to participants, the classes started with 
normal veterans' benefit discussions, but shifted into an investment 
and life insurance sales pitch after non-commissioned officers left the 
room. The product was identified as a "can't lose proposition" and 
participants were told that participation would earn them about 
$500,000 in just over 21 years. During the sales pitch, agents 
distributed paperwork, including applications, allotment forms, and 
statements of understanding, to the Marines. Participants were 
encouraged not to read the forms and sign them quickly, leave the 
amounts on the allotment forms blank, provide the insurance company 
representatives access to MyPay personal identification numbers, and 
provide signed photocopies of their identification cards. The agents 
brought portable printers to the meetings to obtain the necessary 
information. The Marines were not allowed to take paperwork with them, 
being told that copies would be sent to their home of record. 

Investigators determined that these actions violated prohibited 
solicitation practices including soliciting military personnel who are 
in an on-duty status; soliciting without appointment in areas utilized 
for the housing and processing of transient personnel and in unit 
areas; using manipulative, deceptive, or fraudulent devices, including 
misleading advertising and sales literature; soliciting recruits, 
trainees, and other personnel while in a "mass" or "captive" audience; 
and violating the requirement that at least seven days elapse between 
the signing of a life insurance application and the certification of an 
allotment for personnel in pay grades E1 through E3. 

Documentation to assess the scope of the problem: The investigation 
report included interviews from 26 Marines in the five classes. 
Additional information, such as direct deposit forms and statements of 
understanding, was also included. 

Estimated number of affected servicemembers: 345: 

Actions taken: 

* By the installation: Solicitation privileges for the agents were 
revoked for Camp Pendleton and all Western region Navy and Marine Corps 
installations. 

* By the insurance company: The insurance company shut down its 
operations at Camp Pendleton and has no plans to reopen. The company 
terminated the three agents involved, at least one of whom was a 
retired Marine. Refunds were provided to 110 Marines before the June 8, 
2004 cutoff date. 

Installation's interaction with state insurance commissioner's office: 
The investigation report recommended the California Department of 
Insurance be notified of the report results. The installation recently 
provided copies of the report to the state insurance commissioner. 

Installation: Fort Benning, Georgia: 

Period when the violations occurred: December 2003 through July 2004: 

Description of the violations: Four agents, two who were on Fort 
Benning's list of authorized insurance and investment agents, gained 
access to soldiers in the Basic Combat Training Brigade through unit 
non-commissioned officers under the pretext of providing financial 
planning or financial management classes. The agents conducted their 
briefings in unit classrooms, discussing the value of investing and 
providing examples of wealth accumulation. At the end of these 
presentations, soldiers wanting additional information were asked to 
complete an informational form. Following up on leads generated from 
the forms, the agents returned to the unit area a few weeks later and 
met individually or in a small group with soldiers. These follow-on 
meetings, involving the use of laptop computers and direct deposit 
forms, took place in unit classrooms or unit dayrooms. Fort Benning 
officials found that officers and non-commissioned officers contributed 
to the solicitations and a number of drill sergeants knew of the 
insurance presentations in the unit area. 

Investigators determined that these actions violated prohibited 
solicitation practices including soliciting during enlistment or 
induction processing or during basic combat training; soliciting to 
mass, group, or captive audiences; and misusing the allotment of pay 
system. 

Documentation used to assess the scope of the problem: The 
investigation report included sworn statements from a number of 
soldiers who met with the agents. Additional information, such as 
direct deposit forms, was also obtained. 

Estimated number of affected servicemembers: 377: 

Actions taken: 

* By the installation: Installation solicitation privileges for the 
agents were revoked. Three officers and seven enlisted personnel 
involved were reprimanded for failing to adequately safeguard the 
soldiers for whom they had responsibility. 

* By the insurance company: The agents involved were fired from the 
insurance companies they represented. The insurance company from which 
most of the policies appear to have been sold has agreed to provide 
refunds to soldiers. 

Installation's interaction with state insurance commissioner's office: 
The investigation report recommended that findings be shared with the 
state licensing agencies. Installation officials have provided 
information to the state of Georgia regarding these incidents. 

Installation: Fort Benning, Georgia: 

Period when the violations occurred: July 2002 through October 2002: 

Description of the violations: Two agents conducted financial 
management briefings to soldiers in the infantry training brigade. The 
agents gained access to soldiers through unit non-commissioned officers 
under the pretext of providing financial management classes. The 
classes were imbedded into the training schedule with other personal 
and financial affairs presentations and were conducted in unit 
classrooms on the installation. The soldiers were escorted to the 
classrooms by non-commissioned officers, and according to the 
investigation, some of the non-commissioned officers had knowledge of 
the solicitation actions taking place. In addition to the financial 
management classes, one of the agents allegedly made insurance 
presentations in training areas to non-commissioned officers. During 
these presentations, some trainees met with the agent and subsequently 
purchased life insurance policies. 

Investigators determined that these actions violated prohibited 
solicitation practices including soliciting during enlistment or 
induction processing or during basic combat training; soliciting to 
mass, group, or captive audiences; making appointments with or 
soliciting military personnel who are in an "on duty" status; and using 
manipulative, deceptive, or fraudulent devices or schemes to sell 
products, including misleading advertising and sales literature. 

Documentation used to assess the scope of the problem: The 
investigation report included sworn statements from involved non- 
commissioned officers, soldiers who attended the briefings, and Army 
community affairs officials who received complaints from two of the 
soldiers involved. 

Estimated number of affected servicemembers: 906: 

Actions taken: 

* By the installation: Installation solicitation privileges for the two 
agents were revoked. 

* By the insurance company: The agents involved were fired from the 
insurance company they represented. The insurance company offered 
refunds to affected persons, and as of May 2005, about 20 percent of 
the soldiers received refunds. 

Installation's interaction with state insurance commissioner's office: 
Installation officials have provided information to the state of 
Georgia regarding these incidents. 

[End of section]

Appendix III: Allotment Forms: 

[See PDF for image] 

[End of figure] 

[End of section]

Appendix IV: Comments from the Department of Defense: 

OFFICE OF THE UNDER SECRETARY OF DEFENSE: 
PERSONNEL AND READINESS: 
4000 DEFENSE PENTAGON: 
WASHINGTON, D.C. 20301-4000: 

JUN 20 2005: 

Mr. Derek B. Stewart: 
Director: 
Defense Capabilities and Management: 
U.S. Government Accountability Office (GAO): 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Stewart: 

This is the Department of Defense (DoD) response to the GAO draft 
report, "MILITARY PERSONNEL: DoD Needs Better Controls over 
Supplemental Life Insurance Solicitation Policies Involving 
Servicemembers," dated May 27, 2005 (GAO Code 350536/GAO-05-696). 

Congress requested GAO to conduct this audit in response to complaints 
from several insurance companies and a national insurance association. 
These complaints alleged military members were ordered to cancel their 
supplemental commercial insurance and that the Army failed to process 
hundreds of valid insurance allotments. These complaints also alleged 
several military personnel killed while serving in OIF/OEF were ordered 
to cancel their supplemental life insurance policies prior to their 
deaths. The GAO could not substantiate these allegations and this 
report makes only minor mention of that fact. Instead, this report is 
critical of the Department's oversight of commercial insurance 
solicitation on DoD installations. 

The Department believes this report also contains misrepresentations 
and factual errors. The Department is concerned the report uses survey 
data to present unsubstantiated perceptions as fact. The report does 
not disclose the survey questions or how they were presented. However, 
this survey data is used to draw broad conclusions critical of DoD's 
insurance solicitation oversight. The report also claims the Department 
had no record or idea of the extent of personal solicitation policy 
violations until the GAO asked for them. This claim is false. 

The Department has been statutorily prohibited from implementing needed 
changes to personal commercial solicitation policy until 90-days 
following final release of this GAO report. Therefore, the Department 
does not want issuance of this report to be delayed in any way. 
However, the Department requests the concerns identified above be noted 
in the final report. 

Sincerely,

Signed by: 

Charles S. Abell: 
Principal Deputy: 

GAO DRAFT REPORT - DATED MAY 27, 2005 GAO CODE 350536/GAO-05-696: 

"MILITARY PERSONNEL: DoD Needs Better Controls over Supplemental Life 
Insurance Solicitation Policies Involving Servicemembers"

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS: 

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
develop and implement, with the Services, a DoD-wide searchable 
violations database that uses consistent data elements and coding 
across Services in revising DoD's solicitation regulation. (Page 40/GAO 
Draft Report): 

DOD RESPONSE: Partially concur. The GAO recommended the Department's 
database contain any enforcement action ever taken by an installation 
against an insurance company or agent. Although the Department has 
records of personal commercial solicitation enforcement actions taken 
over the past 13 years, the Department's position is this database 
should only include suspensions and barments that are currently in 
force. The Department has already established a DoD-wide database with 
consistent data elements for reporting insurance and financial product 
agents currently barred or suspended from soliciting on DoD 
installations. This information is identified as the Personal 
Commercial Solicitation Report and is posted on the DoD Commanders Page 
Web site at http://www.commanderspage.com. This information is 
accessible by installation officials, military members, State and 
Federal regulators, insurance and investment companies, and the general 
public. The Department's rationale for this approach, versus the GAO's 
recommendation, is to comply with provisions contained in S. 418 and 
H.R. 458, which the Department anticipates will soon become law. 
Section 11 of these identical pieces of legislation would require the 
Department to keep a current list of insurance or securities agents who 
have been barred, banned, or otherwise limited and to inform 
appropriate regulatory agencies of inclusions or removals from the 
list. Therefore, the Department's interpretation of congressional 
intent is that the list should only contain information on agents who 
are currently barred, banned or otherwise limited. ECD: Closed (if GAO 
accepts the DoD's recommended alternative). 

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
specify in the revised directive that the installation commander is 
responsible for notifying state insurance regulators, the Service 
Secretariat, and DoD, when the commander has determined that agents or 
companies have violated DoD, Service, or installation policies. (Page 
40/GAO Draft Report): 

DOD RESPONSE: Partially Concur. The GAO recommends DoD report any 
violation of DoD, Service, or installation policies by insurance agents 
to State insurance regulators. DoD's position is such reporting should 
only be required when the violation involves the eligibility of the 
agent to hold a State license or meet other regulatory requirements or 
if the agent has been barred or suspended from soliciting on the 
installation. Current DoD policy requires installation commanders to 
notify the appropriate regulatory authorities if the grounds for an 
enforcement action taken against a commercial solicitor involve the 
eligibility of the agent or company to hold a State license or meet 
other regulatory requirements (ref: DoDD 1344.7, para 6.5.2.2.) The 
rationale for this policy is that other grounds for DoD enforcement 
actions, such as soliciting without an appointment, soliciting groups 
of trainees, use of a military ID card to gain access to an 
installation to solicit, etc., do not violate State insurance 
regulations and would be of little concern to State insurance 
regulators. Current DoD policy also requires installation commanders to 
notify an agent and their company when solicitation privileges have 
been withdrawn (ref: DoDD 1344.7, para 6.5.2.1.) Furthermore, 
provisions in Section 10 of S. 418 and H.R. 458, would prohibit an 
insurer from entering into or renewing a contractual relationship with 
a producer that solicits or sells life insurance on a military 
installation unless the insurer has implemented a system to report to 
the State insurance commissioner, disciplinary actions taken against 
the producer with respect to the producer's sales or solicitation of 
insurance on a military installation. If this provision becomes law, 
the responsibility for reporting DoD enforcement actions to State 
insurance regulators will rightfully fall upon the insurance companies 
whose agents have been disciplined. If provisions in Section 11 of S. 
418 and H.R. 458 become law, DoD would be required to issue regulations 
to establish and maintain a list of barred and banned securities and 
insurance agents and to ensure appropriate Federal and State agencies 
responsible for securities and insurance regulation are promptly 
notified upon inclusion in or removal of an agent from the list. DoD 
currently maintains such a list on the Commanders Page Web site, which 
is already accessible to State insurance regulators. Assuming Section 
11 of 5.418 and H. R 458 will become law, the Department intends to 
revise the directive to require installations to notify appropriate 
State insurance or Federal securities regulators when an insurance or 
securities agent has been barred or suspended from soliciting on an 
installation. Finally, changes already proposed in the revised 
directive would require installations to inform the Military Department 
concerned of any denial, suspension, or withdrawal of solicitation 
privileges and require the Military Department to inform the Office of 
the Principal Deputy Under Secretary of Defense for Personnel and 
Readiness. ECD: NLT 120-days following final release of this audit 
report (GAO 05-696). 

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
clarify the portion of the revised directive that pertains to the 
cooling off period that must elapse before junior enlisted personnel 
can start an allotment to purchase supplemental life insurance. (Page 
40/GAO Draft Report): 

DOD RESPONSE: Concur. The GAO identified three ambiguities that 
currently exist in DoD policy regarding the supplemental life insurance 
allotment cooling-off period for enlisted personnel in grades E-3 and 
below. These are: 1) it is not clear if the cooling-off policy only 
applies to supplemental life insurance sold on the installation; 2) it 
is not clear whether counseling is required during the cooling-off 
period; and 3) it is unclear when the commanding officer must sign a 
waiver for the cooling off period and/or counseling. In addition, DoD 
believes there is an additional ambiguity regarding who is responsible 
to monitor and enforce the cooling-off period. To remove these 
ambiguities, paragraph E3.3.2. to Enclosure 3 of the proposed policy 
will be changed to read as follows: "For personnel in pay grades E-1, E-
2, and E-3, in order to provide an opportunity to obtain financial 
counseling, at least seven calendar days shall elapse between the 
signing of a life insurance application and the certification of a 
military pay allotment for any supplemental commercial life insurance. 
Installation Finance Officers are responsible for ensuring this seven-
day cooling-off period is monitored and enforced. The purchaser's 
commanding officer may grant a waiver of the seven-day cooling-off 
period requirement for good cause, such as the purchaser's imminent 
deployment or permanent change of station." ECD: NLT 120-days following 
final release of this audit report (GAO-05-696). 

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Defense Finance and Accounting Service to determine what 
current and future modifications should be made to the regulations, 
forms, and procedures used to initiate and electronically capture 
supplemental life insurance allotments so that more useable data are 
available to the DoD, Service, and installation offices responsible for 
overseeing supplemental life insurance solicitation. This step might 
include developing and implementing a single code and form that would 
be used for supplemental life insurance allotments and to document 
compliance with requirements that DoD has previously had little 
visibility over. (Pages 40 and 41/GAO Draft Report): 

DOD RESPONSE: Concur. Although we concur with the recommendation, we 
are heavily involved in the development of the Forward Compatible Pay 
System, which once implemented, will have the same restrictions of not 
being able to distinguish supplemental allotments from other insurance 
allotments or those that are being deposited into specially established 
financial institution accounts for the purpose of paying premiums. The 
capability does exist in the Forward Compatible Pay System to add 
additional allotment codes to specify more detailed information on the 
type of insurance a Service member is electing; however, due to the 
number of systems that the change would affect and the impact on the 
Forward Compatible Pay System development timeline, this change cannot 
be made at the onset of the Forward Compatible Pay System, but be 
considered for a future enhancement. In addition, we will review the 
regulations and forms to determine what current and future 
modifications should be made. ECD: Forward Compatible Pay System 
schedule is being reassessed. 

RECOMMENDATION 5: The GAO recommended that the Secretary of Defense 
direct the Defense Finance and Accounting Service to issue a message to 
all finance offices and the Defense Finance and Accounting Service 
offices that process allotments for supplemental life insurance to 
remind personnel that DOD's Financial Management Regulation indicates 
that only servicemembers or their designated representatives with 
special power of attorney for the prescribed purpose are authorized to 
start, stop, or modify financial allotments. If deviations from the 
policy are warranted to allow mailed allotment forms, the Defense 
Finance and Accounting Service should specify the additional 
verification required in those situations. (Pages 40 and 41/GAO Draft 
Report): 

DOD RESPONSE: Concur. Military Pay Operations will issue a message to 
all finance offices and the Defense Finance and Accounting Service 
offices that process allotments for supplemental life insurance to 
remind personnel that DoD's Financial Management Regulation indicates 
that only Service members or their designated representatives with 
special power of attorney for the prescribed purpose are authorized to 
start, stop or modify financial allotments. ECD: June 20, 2005. 

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Derek B. Stewart (202) 512-5559: 

Acknowledgments: 

In addition to the individual named above, James Cook, Jack Edwards, 
Lynn Johnson, David Mayfield, Terry Richardson, Arnett Sanders, Cheryl 
Weissman, and Kristy Williams made key contributions to this report. 

[End of section]

Related GAO Products: 

[End of section]

Military Personnel: DOD Comments on GAO's Report on More DOD Actions 
Needed to Address Servicemembers' Personal Financial Management Issues. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-638R] 
Washington, D.C.: May 11, 2005. 

Defense Base Act Insurance: Review Needed of Cost and Implementation 
Issues. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-280R]
Washington, D.C.: April 29, 2005. 

Military Personnel: More DOD Actions Needed to Address Servicemembers' 
Personal Financial Management Issues. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-348] 
Washington, D.C.: April 26, 2005. 

Military Personnel: DOD's Tools for Curbing the Use and Effects of 
Predatory Lending Not Fully Utilized. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-349] 
Washington, D.C.: April 26, 2005. 

Credit Reporting Literacy: Consumers Understood the Basics but Could 
Benefit from Targeted Educational Efforts. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-223] 
Washington, D.C.: March 16, 2005. 

DOD Systems Modernization: Management of Integrated Military Human 
Capital Program Needs Additional Improvements. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-189] 
Washington, D.C.: February 11, 2005. 

Highlights of a GAO Forum: The Federal Government's Role in Improving 
Financial Literacy. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-93SP] 
Washington, D.C.: November 15, 2004. 

Military Personnel: Survivor Benefits for Servicemembers and Federal, 
State, and City Government Employees. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-814] 
Washington, D.C.: July 15, 2004. 

Military Personnel: Active Duty Benefits Reflect Changing Demographics, 
but Opportunities Exist to Improve. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-935] 
Washington, D.C.: September 18, 2002. 

Military Banking: Solicitations, Fees, and Revenue Potential. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-72] 
Washington, D.C.: April 15, 1999. 

(350536): 

FOOTNOTES

[1] See GAO, Military Personnel: Survivor Benefits for Servicemembers 
and Federal, State, and City Government Employees, GAO-04-814 
(Washington, D.C.: July 15, 2004). Additional information on the 
benefits provided to survivors of deceased servicemembers is available 
in Congressional Research Service, Military Death Benefits: Status and 
Proposals, RL32769 (Washington, D.C.: Feb. 16, 2005). 

[2] Emergency Supplemental Appropriations Act for Defense, the Global 
War on Terror, and Tsunami Relief, for the Fiscal Year Ending September 
30, 2005, Pub. L. No. 109-13, sec. 1012-1013 (May 11, 2005). 

[3] See Final Report: Insurance Solicitation Practices on Department of 
Defense Installations (May 15, 2000), and DOD Office of the Inspector 
General, Commercial Life Insurance Sales Procedures in DOD, Report No. 
99-106 (Arlington, Va.: Mar. 10, 1999). 

[4] See, for example, Amy Klamper, "Life Insurance for Troops in Iraq 
Nixed," National Journal (Apr. 3, 2004). 

[5] DOD Directive 1344.7, Personal Commercial Solicitation on DOD 
Installations (Feb. 13, 1986). 

[6] An ongoing GAO effort is examining the characteristics of the 
commercial products being marketed to servicemembers and the regulation 
of those products. 

[7] Pub. L. No. 103-62 (Aug. 3, 1993). 

[8] See GAO, Military Personnel: More DOD Actions Needed to Address 
Servicemembers' Personal Financial Management Issues, GAO-05-348 
(Washington, D.C.: Apr. 26, 2005). 

[9] DOD Directive 1344.7, Personal Commercial Solicitation on DOD 
Installations (Feb. 13, 1986). 

[10] Army Regulation 210.7, Commercial Solicitation on Army 
Installations (Apr. 22, 1986); Secretary of the Navy Instruction 
1740.2D, Solicitation and Conduct of Personal Commercial Affairs (Apr. 
27, 1987) for the Navy and the Marine Corps; and Air Force Policy 
Directive 36-29, Military Standards (June 1, 1996). 

[11] DOD Directive 1344.7, sec. 6.4. 

[12] DOD Directive 1344.7, sec. 6.5. This DOD directive authorizes an 
installation commander to deny or revoke permission to an insurance 
agent or affiliated insurance company in possession of or attempting to 
possess allotment forms or their facsimiles to solicit on military 
installations. 

[13] See DODIG, Report No. 99-106. 

[14] See Final Report: Insurance Solicitation Practices on Department 
of Defense Installations. 

[15] DOD, Financial Management Regulation 7000.14-R, Vol. 7A, 
Definitions, page xliv, indicates that an allotment is the definite 
portion of the pay and allowance of a person in the military service, 
which DFAS is authorized to pay directly to a person or an institution. 

[16] DOD, Financial Management Regulation 7000.14-R, Vol. 7A, Chapters 
41 and 42 (February 2002), contains the policies and procedures for 
allotments. Each military service also has additional allotment 
processing policies and practices. See, for example, Army Regulation 37-
104-4, Military Pay and Allowances Policy and Procedures--Active 
Component, Chapter 24 (Sept. 30, 1994). 

[17] DODIG, Report No. 99-106, and Final Report: Insurance Solicitation 
Practices on Department of Defense Installations. 

[18] Confirmed violations are acts that an installation commander has 
determined, after consideration of the entire record to include any 
information submitted by the insurance company(s) and agent(s) 
involved, are violations of DOD's commercial solicitation policies and 
procedures. 

[19] The personal financial management program manager is a 
professional staff member designated and trained to organize and 
execute financial planning and counseling programs for the military 
community. See GAO-05-348 for additional details on the managers, the 
program, and other findings from the survey. 

[20] The six types of violations used as survey items were based on 
findings from the 1999 DODIG report (see DODIG, Report No. 99-106). The 
report showed that seven types of prohibited practices occurred on the 
studied installations. Because supplemental life insurance solicitation 
was one of many issues covered in our survey, the other types of 
violations were excluded to limit the time required to answer the 
survey. 

[21] After gathering the data for this review, DOD posted information 
about the 51 cases on a DOD Web site. 

[22] It is likely that more than 26 enforcement actions resulted in 
commanders banning agents from their installation during the period of 
interest. DOD acknowledged that its list was probably incomplete; and 
we found an additional case at Fort Bliss, Texas. Also, 6 of the 51 
cases did not include a date for the commander's actions, but the 
actions may have occurred during our restricted period of interest. In 
addition, some of the cases in DOD's list, such as those at Beale Air 
Force Base, California, indicate that events occurred in multiple 
years, but we only counted the events as one case. Finally, since DOD 
told us that its request for information pertained to banned agents 
only, additional cases would probably result if DOD made another 
request for all enforcement actions. 

[23] The Army is the only service with a regulation requiring that 
violations be reported to the service level. 

[24] DOD Directive 1344.7, sec. 6.5.2.4. 

[25] It is important to involve state insurance authorities because in 
accordance with the McCarran Ferguson Act, 15 U.S.C. sec. 1011-1015 
(1948), the life insurance industry generally is regulated under state 
laws. The Military Personnel Financial Services Protection Act, S. 418, 
109th Congress, sec. 6 (2005) was introduced in Congress this year and 
would, if enacted into law, make it clear that state law shall apply to 
insurance activities conducted on military installations. 

[26] DOD Directive 1344.7, sec. 6.5.2.2. 

[27] Military Personnel Financial Services Protection Act, S. 418, 
109th Congress, sec. 6 (2005). 

[28] DOD, Financial Management Regulation 7000.14-R Vol. 7A, Chapters 
41 and 42; DFAS-INM (Army), Part 6, Chapter 1; DFAS-DE (Air Force) 
Manual 7073-1, Chapter 57; DJMS Procedures Training Guide (Navy), Part 
6; DFAS-KC 7220.31-R (Marine Corps), Chapters 23-25 and appendixes N, 
O, P, and Q. 

[29] DOD Directive 1344.7, encl. E3.3.2. 

[30] See GAO, DOD Systems Modernization: Management of Integrated 
Military Human Capital Program Needs Additional Improvement, GAO-05-189 
(Washington, D.C.: Feb. 11, 2005), and GAO, Military Pay: Army National 
Guard Personnel Mobilized to Active Duty Experienced Significant Pay 
Problems, GAO-04-89 (Washington, D.C.: Nov. 13, 2003). 

[31] DOD, Financial Management Regulation 7000.14-R, Vol. 7A, Chapter 
41, sec. 410801. This regulation allows most financial allotments to be 
established though MyPay, DOD's automated payroll program. MyPay allows 
servicemembers to start, stop, or change allotments with financial 
institutions when the funds are directed to be sent to a savings or 
checking account. MyPay is not intended to be used for allotments to 
purchase supplemental life insurance. Use of MyPay to establish a 
supplemental insurance allotment makes it impossible for installation 
officials to monitor or enforce the proper use of insurance allotments 
and other parts of the on-installation personal commercial solicitation 
requirements. 

[32] See GAO-05-348. 

[33] Sampling errors of estimates for servicemembers do not exceed +/- 
5 percentage points. These sampling errors do not include errors due to 
other sources, such as potential bias attributable to the overall 35 
percent response rate. DOD conducted research to assess the impact of 
this response rate on overall estimates. We have no reason to believe 
that potential non-response bias in the estimates not otherwise 
accounted for by DOD's research is substantial for the variables we 
studied in our earlier 2005 report. 

[34] Approximately 65 percent of the files included an allotment form 
with a servicemember's signature. 

[35] At the time that applications were completed, coverage through the 
government-offered SGLI was $16.25 per month for $250,000 of coverage. 
During our review, insurance officials stated that they too offered 
similar term-life policies for approximately the same amount. 

[36] GAO has another review under way that is examining, among other 
things, the quality of the financial products--including supplemental 
life insurance--offered to servicemembers. 

[37] It is impossible to determine whether the installation directed us 
only to servicemembers who chose not to purchase the policies for 
reasons other than active prevention. We did, however, receive written 
statements from two junior enlisted servicemembers and we contacted one 
on his personal cell phone. He confirmed that he did not want the 
policy after completing the application. In addition, to lessen the 
likelihood that other servicemembers would not answer truthfully when 
speaking in a focus group, we administered an anonymous survey before 
the focus group sessions to promote honest responses about each 
individual's experiences in the solicitation and allotment processes. 

[38] 70 Fed. Reg. 20316 (2005). 

[39] 70 Fed. Reg. 20316 (2005), part 50.11 (g). 

[40] The draft directive also requires banks and credit unions 
operating on DOD installations to provide financial counseling services 
as an integral part of their financial service offerings. Banks and 
credit unions operating on DOD installations are subject to additional 
requirements specified in other DOD policies (for example, DOD 
Directive, 1000.11, Financial Institutions on DOD Installations (June 
9, 2000); DOD, Financial Management Regulation 7000.14-R, Vol. 5, 
Chapter 34 (September 2000). 

[41] 70 Fed. Reg. 20316 (2005), part 50.11 (f). 

[42] 70 Fed. Reg. 20316 (2005), part 50.11 (c) (3). 

[43] See GAO-05-348. 

[44] 70 Fed. Reg. 20316 (2005), part 50.11 (a) (iii). 

[45] 70 Fed. Reg. 20316 (2005), part 50.11 app. A. 

[46] Pub. L. No. 108-287, sec. 8133 (Aug. 5, 2004). 

[47] See Defense Manpower Data Center, Armed Forces Equal Opportunity 
Survey, DMDC Report No. 97-027 (Arlington, Va.: August 1999) p. 40. 

[48] See GAO-05-348. 

[49] Final Report: Insurance Solicitation Practices on Department of 
Defense Installations, and DODIG, Report No. 99-106. 

[50] Pub. L. No. 108-287 (Aug. 5, 2004). 

[51] 70 Fed. Reg. 20316 (2005). 

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