FEDERAL EMPLOYEES' COMPENSATION ACT: Preliminary Observations on Fraud-Prevention Controls

GAO-12-402 Published: Jan 25, 2012. Publicly Released: Jan 25, 2012.
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What GAO Found

Our work to this point has identified several promising practices that could help to reduce the risk of fraud within the FECA program. The promising practices link back to fraud-prevention concepts contained in GAO’s Fraud Prevention Framework and Standards for Internal Control in the Federal Government, and include agencies’ use of full-time staff dedicated to the FECA program, periodic reviews of claimants’ continued eligibility, data analysis for potential fraud indicators, and effective use of investigative resources. These promising practices have already resulted in successful investigations and prosecutions of FECA-related fraud at some agencies, and could help to further enhance the program’s fraud-prevention controls. However, our preliminary work has also identified several potential vulnerabilities in the program’s design and controls that could increase the risk for fraud. Specifically, we found that limited access to necessary data is potentially reducing agencies’ ability to effectively monitor claims and wage-loss information. In addition, agencies’ reliance on self-reported data related to wages and dependent status, lack of a physician selected by the government throughout the process, and difficulties associated with successful investigations and prosecutions all potentially reduce the program’s ability to prevent and detect fraudulent activity. Labor and employing agencies generally agreed with the preliminary findings presented in this report and provided technical comments, which were incorporated into this report. We plan to follow up on the promising practices and potential vulnerabilities as part of our ongoing work, although our progress has been slowed by difficulties in accessing certain databases.

Why GAO Did This Study

According to the Department of Labor (Labor), in fiscal year 2010 about 251,000 federal and postal employees and their survivors received wage-loss compensation, medical and vocational rehabilitation services, and death benefits through the Federal Employees’ Compensation Act (FECA) program. Administered by Labor, the FECA program provides benefits to federal employees who sustained injuries or illnesses while performing their federal duties. Employees must submit claims to their employing agency, which are then reviewed by Labor. For those claims that are approved, employing agencies reimburse Labor for payments made to their employees, while Labor bears most of the program’s administrative costs. Wage-loss benefits for eligible workers—including those who are at, or older than, retirement age—with total disabilities are generally 66.67 percent of the worker’s salary (with no spouse or dependent) or 75 percent for a worker with a spouse or dependent. FECA wage-loss compensation benefits are tax free and not subject to time or age limits.

Labor’s Office of Workers’ Compensation Programs (OWCP) estimated that future actuarial liabilities for governmentwide FECA compensation payments to those receiving benefits as of fiscal year 2011 would total nearly $30 billion (this amount does not include any costs for workers added to the FECA rolls in future years). In 2010, the United States Postal Service (USPS) Inspector General (IG) reported that USPS alone had more than $12 billion of the $30 billion in estimated actuarial FECA liabilities. In April 2011, the USPS IG testified that USPS had removed 476 claimants from the program based on disability fraud since October 2008 and recovered more than $83 million in judgments. Given the significant projected outlays of the governmentwide FECA program and prior USPS IG findings of fraud, Congress asked us to provide preliminary observations on our ongoing work examining FECA fraud-prevention controls and discuss related prior work conducted by us and other federal agencies.

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