Centers for Medicare and Medicaid Services: Internal Control Deficiencies Resulted in Millions of Dollars of Questionable Contract Payments

GAO-08-54 Published: Nov 15, 2007. Publicly Released: Dec 20, 2007.
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Highlights

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established a voluntary outpatient prescription drug benefit, which is administered by the Centers for Medicare and Medicaid Services (CMS). CMS relies extensively on contractors to help it carry out its basic mission. Congress appropriated to CMS $1 billion for start-up administrative costs to implement provisions of MMA. Because CMS had discretion on how to use the appropriation, Congress asked GAO to determine (1) how CMS used the $1 billion MMA appropriation, (2) whether CMS's contracting practices and related internal controls were adequate to avoid waste and to prevent or detect improper payments, and (3) whether payments to contractors were properly supported as a valid use of government funds. To address objectives two and three above, our review extended beyond contract amounts paid with MMA funds.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should develop policies and criteria for preaward contracting activities including (1) appropriate use of competition exemptions such as logical follow-on agreements, unusual and compelling urgency, and the Small Business Administration's 8(a) program; (2) analysis to justify contract type selected, as well as, if applicable, verification of the adequacy of the contractor's accounting system prior to the award of a cost reimbursement contract; and (3) consideration of the extent to which work will be subcontracted.
Closed – Implemented
On April 13, 2012, CMS implemented a policy for Contract File Documentation for award decisions, as specified by the Federal Acquisition Regulation (FAR) and Health and Human Services Acquisition Regulation (HHSAR), and included templates for the requirements. In fiscal year 2012, CMS also developed a Quality Assurance Plan (QAP) that includes a contract review checklist for testing the effectiveness of internal controls throughout the acquisition lifecycle.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should develop policies and procedures to help ensure that cognizant federal agency responsibilities are performed, including (1) monitoring Cost Accounting Standards compliance, (2) a mechanism to track contractors for which CMS is the cognizant federal agency, and (3) coordination efforts with other agencies.
Closed – Implemented
On March 1, 2012, CMS issued the Cost/Price Analysis and Contract Audit Desk Guide in accordance with Federal Acquisition Regulation (FAR) requirements. The Department of Health and Human Services (DHHS) assigned CFA responsibilities to the National Institutes of Health, Division of Financial Advisory Services for commercial organizations, and the Program Support Center. Additionally, the guide provides that DHHS remains responsible for CAS administration, determining the adequacy of the contractor's accounting system, and contract administration functions.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should develop agency-specific policies and procedures for the review of contractor invoices so that key players are aware of their roles and responsibilities, including (1) specific guidance on how to review key invoice elements; (2) methods to document review procedures performed; and (3) consideration to circumstances that may increase risk, such as contract type or complex subcontractor agreements.
Closed – Implemented
CMS revised contract review procedures in August 2010 to better define contract invoice review, approval, and payment roles and responsibilities.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should prepare guidelines to contracting officers on what constitutes sufficient detail to support amounts billed on contractor invoices to facilitate the review process.
Closed – Implemented
In August 2010, CMS issued Acquisition Policy 16-02 Invoicing Payment Procedures to clearly define the roles and responsibilities of the Contractor for submission of invoices and the Division of Accounting Operations (DAO), Contracting Officer's Technical Representative (COTR), Contract Specialist (CS), and Contracting Officer (CO) for the review, approval, and payment of invoices.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should establish criteria for the use of negative certification in the payment of a contractor's invoices to consider potential risk factors, such as contract type, the adequacy of the contractor's accounting and billing systems, and prior history with the contractor.
Closed – Implemented
In August 2010, CMS issued "Acquisition Policy Notice 16-02 Invoicing Payment Procedures" requiring positive invoice certification. Additionally, training for the review of invoices was provided to the contracting staffs to emphasize that positive invoice certification would be the new requirement.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should provide training on the invoice review policies and procedures to key personnel responsible executing the invoice review process.
Closed – Implemented
In August 2010, CMS issued "Acquisition Policy Notice 16-02 Invoicing Payment Procedures" This policy provides specific invoice review guidance that is based on contract type (e.g. Cost Reimbursement, Fixed Price) and labor rates or hours worked. Additionally, in both fiscal years 2010 and 2011, CMS provided training to staff on how to look for errors while reviewing invoices.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should create a centralized tracking mechanism that records the training taken by personnel assigned to contract oversight activities.
Closed – Implemented
In July 2011, HHS implemented the "Contracting Workforce Training and Certification Handbook," which requires that all contracting personnel follow its procedures and policies, including entering external completed training in the Federal Acquisition Institute Training Application System (FAITAS). This guidance also provides for using FAITAS for tracking employees through the three levels of Federal Acquisition Certifications in Contracting.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should develop a plan to reduce the backlog of contracts awaiting closeout.
Closed – Implemented
In April 2011, CMS implemented the Cost Audit Team (CAT) Tracker database which is to track requested audits and the status of audits from request to issuance of the audit report. In addition, in September 2012, CMS's Office of Management and Grants (OAGM) issued a draft policy for the "Closeout of Contract Files" that will implement the requirements of the Health and Human Service's Contract Closeout Guide and establish unique internal OAGM procedures for the closeout of contract files(s), in accordance with FAR, and Health and Human Services Acquisition Regulation (HHSAR). When implemented, this policy should provide a plan for reducing the baclog of CMS contract closeouts.
Centers for Medicare & Medicaid Services To improve internal control and accountability in the contracting process and related payments to contractors, the Administrator of CMS should review the questionable payments identified in this report to determine whether CMS should seek reimbursement from contractors.
Closed – Implemented
In September 2011, CMS's Office of Acquisition and Grants Management conducted a comprehensive investigation of the questionable payments for possible recovery and determined that CMS should recover $1.6 million in payments to contractors.

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