SECTION III: OTHER INFORMATION (Section 12-15)

FY 2015 HHS Agency Financial Report

Topics In This Section:  Other Financial Information | Improper Payments Information Act Report (Section 1-10 | 11 | 12-15) | Summary of Financial Statement Audit | Summary of Management Assurances | FY 2015 Top Management and Performance Challenges Identified by the Office of Inspector General (OIG)

12.0 Internal Control Over Payments

Appendix C to OMB Circular A-123, which was updated and released in October 2014, established the requirement that agencies with programs susceptible to significant improper payments and that are reporting improper payment estimates summarize the status of their internal control processes.  The establishment of a robust internal control system can prevent and detect improper payments, and recover any improper payments that were made.  The following tables display HHS’s status of internal control over payments for the high-risk programs that report annual error rate estimates.  The tables include an assessment of the status of internal control over payments against five internal control standards for each program.

Table 3A
FY 2015 Medicare Status of Internal Controls

Internal Control Standards	Medicare FFS	Medicare Part C	Medicare Part D
Control Environment	4	4	4
Risk Assessment	4	4	4
Control Activities	3	3	3
Information and Communication	4	4	4
Monitoring	3	3	3

Legend:
4 = Sufficient controls are in place to prevent Improper Payments (IPs)
3= Controls are in place to prevent IPs but there is room for improvement
2 = Minimal controls are in place to prevent IPs
1= Controls are not in place to prevent IPs

HHS continues to improve and evaluate its internal control activities in the programs susceptible to significant improper payments.  A summary of the efforts by program are described below.

Generally, as described below, the Medicare FFS, Medicare Part C, and Medicare Part D programs have adequate controls in place to prevent improper payments.  HHS’s reporting and analyses of improper payments to determine the nature, extent, magnitude, and root cause(s) of improper payments has led to the implementation of several strategies to identify and reduce such payments and strengthened the control environment.  HHS has implemented effective control activities to prevent improper payments in the Medicare programs—preventive controls—and identify payments after the payments are made—detective controls.  The kinds of key control activities in place to prevent improper payments include:

• MACs administer the Medicare program and HHS provides numerous guidelines and policies to the contractors to ensure effectiveness and efficiency.  In particular, HHS requires that the MACs comply with Chapter 7 – Internal Control Requirements of the Medicare Financial Management Manual that outlines the Control Objectives (including processes such as Information Systems, Claims Processing, Medical Review, Provider Audit and Provider Enrollment) that contractors must follow to assist them in maintaining and strengthening their internal control procedures. 
• HHS follows a strict review and approval process before processing Medicare claims, both manual and automated.  The Medicare claims processing systems track each claim from receipt to final resolution.  The systems check each claim, adjustment, and any other transaction for validity and, in accordance with HHS instructions, rejects such claims, adjustment, or other transaction failing such validity check.  Each claim is adjudicated in accordance with HHS instructions. 
• HHS has developed prior authorization demonstrations for items and services that historically experience high incidences of improper payments, such as PMDs, to ensure that services are provided in compliance with applicable Medicare coverage, coding, and payment rules before the services are rendered and claims are paid.
• HHS follows a strict review and approval process before issuing Medicare Part C and Part D payments.  HHS Plan Payment Validation (PPV) activities are conducted each month to validate payments to MA plans, prescription drug plans, Programs of All-Inclusive Care for the Elderly (PACE), certain demonstrations and cost plans. 
• HHS independently recalculates payments using data from source systems.  Analysis is performed to further validate the accurate application of correct input data for payment calculations.
• HHS uses the NCCI to stop claims that never should be paid, such as a hysterectomy for a man or a prostate exam for a woman.

The kinds of key control activities in place to identify improper payments after the payments are made include:

• For the Medicare FFS program, MACs are responsible for identifying improper payments and adjusting benefit payments as appropriate.  HHS regulations require timely and aggressive efforts to collect overpayments which include locating the debtor, demanding repayment, initiating benefit offset, establishing repayment schedules and referral to Treasury for cross servicing via the Treasury Offset Program (TOP). 
• HHS utilizes various types of contractors including MACs, RACs, SMRC, and CERT contractors to identify and correct Medicare improper payments and promote provider compliance in the Medicare program.  These contractors conduct post payment medical reviews focused on the agency’s improper payment vulnerabilities to ensure that payment is made only for services that meet all Medicare coverage, coding, and medical necessity requirements.
• HHS conducts certification of PDE and risk adjustment data for payment on an annual basis after the end of each coverage year.  In their attestations, MA organizations and Part D sponsors attest to the accuracy, completeness, and truthfulness of the information submitted to HHS and acknowledge that PDE and risk adjustment data directly affects the calculation of their payments and that misrepresentation to HHS may result in federal civil action and/or criminal prosecution.
• HHS performs various financial reviews for the Part C and D programs to ensure the validity of payments made and to calculate risk sharing.  These include but are not limited to the following: (1) monthly reconciliations as part of the plan validation process; (2) risk adjustment reconciliation in which HHS calculates final risk adjustment factors for the year based on newly submitted diagnostic data and any changes in enrollment, long-term institutional and low-income subsidy status; and (3) plan-to-plan (P2P) reconciliation that ensure accurate payments to and by plans. 

The Medicare program also has various techniques in place to use, share, and communicate information to prevent improper payments and ensure the information is timely, accurate, and reliable.  The source of information, method of distribution, and type of communication can vary widely and includes:

• Each year, HHS establishes program policies, leads special initiatives, oversees compliance, and establishes performance monitoring practices, which are then carried out by the Regional Offices.
• HHS publishes articles in the Medicare Learning Network Medicare Quarterly Provider Compliance Newsletter.  The articles discuss documentation requirements, CERT findings, and common errors.
• Similar to the CBRs, HHS continues to develop and issue Program for Evaluating Payment Patterns Electronic Report (PEPPER) to support hospitals or facilities compliance efforts by identifying where its billing patterns are different from the majority of other providers in the nation.
• HHS has contracted with program integrity contractors known as MEDICs, which primarily assist in outreach, education, data analysis, and case referrals to law enforcement.
• MA Organizations (MAOs) receive regular payment reports to review against their records.  These reports inform the MAO of the payments made for the beneficiaries and/or underlying data which is used by the MARx payment system to make payments.  It includes information on enrollment and enrollee risk scores used for payment.
• PDE Reports, which provides Part D sponsors with reports on the quality, timeliness, and accuracy of PDE data and error resolution efforts.
• PDE Analysis initiative, which addresses data quality issues on accepted PDE records in advance of the Part D payment reconciliation.  PDEs are posted for Part D sponsor review and action, which may include (1) providing a written response with an explanation if the PDE data are valid, or (2) adjusting or deleting the PDE accordingly if the PDE data are invalid.

The Medicare program also conducts a variety of monitoring and assessment activities such as:

• In reference to Chapter 7 – Internal Control Requirements mentioned above - HHS conducts various reviews and attestations to ensure that Medicare contractors are complying with internal control requirements.  First, each Medicare contractor provides assurance that internal controls are in place via their Certification Package for Internal Controls (CPIC).  The CPIC includes a self-certification representation that the contractor’s internal controls are in compliance with Federal Managers’ Financial Integrity Act of 1982 (FMFIA) expectations.  Second, each Medicare contractor will engage an independent public accounting firm who will conduct an assessment of the contractor’s internal controls in accordance with Statement on Standards for Attestation Engagements (SSAE) No. 16 Reporting on Controls at a Service Organization.  This ‘audit’ in addition to other internal control reviews conducted on the contractor, ensures that internal controls are in place and operating effectively.
• HHS performs contractor oversight such as providing broad direction on medical review policy and annual medical review strategies; facilitating compliance with legislation and regulations; conducting continuous monitoring and evaluation of Medicare contractors’ performance; and providing feedback to contractors regarding the Medicare program and medical review issues.
• HHS monitors the MAC performance in recovering overpayments and in documenting and reporting these recovery efforts, as detailed in the Medicare Financial Management Manual.
• HHS conducts a comprehensive MA Oversight Program that is fueled by data provided by the Plan Sponsors and beneficiaries.  The goals of HHS’s oversight strategy are to identify MA program vulnerabilities, assure strict adherence to MA regulatory and program requirements, and detect and prevent fraud, waste, and abuse.  HHS also has a similar Part D oversight program.

HHS continues to improve and evaluate its internal control activities in the Medicare FFS, Medicare Part C, and Medicare Part D programs to prevent improper payments.

Table 3B
FY 2015 Medicaid and CHIP Status of Internal Controls

Internal Control Standards	Medicaid	CHIP
Control Environment	3	3
Risk Assessment	4	4
Control Activities	3	3
Information and Communication	3	3
Monitoring	3	3

Legend:
4 = Sufficient controls are in place to prevent IPs
3 = Controls are in place to prevent IPs but there is room for improvement
2 = Minimal controls are in place to prevent IPs
1 = Controls are not in place to prevent IPs

Since Medicaid and CHIP are state-administered programs, both HHS and states are responsible for ensuring appropriate payments in the Medicaid and CHIP programs.  Generally, as described below, the Medicaid and CHIP programs have adequate controls in place to prevent improper payments.  HHS’s reporting and analyses of improper Medicaid and CHIP payments to determine the nature, extent, magnitude, and root cause(s) of improper payments has led to the implementation of several strategies to identify and reduce such payments and strengthened the control environment.  HHS has implemented control activities to prevent improper payments in the Medicaid and CHIP programs—preventive controls—and identify payments after the payments are made—detective controls.  The kinds of key control activities in place at HHS to prevent improper payments include:

• The Medicaid State Plan is the official Medicaid program contract between a state and HHS and is used to establish and determine what benefits or services are covered, who is eligible for those benefits, and how services are paid.  Changes to the Medicaid State Plan are proposed by states through State Plan Amendments (SPAs) and are reviewed and approved by HHS.  States are not allowed to claim federal-matching funds based upon a SPA until HHS approval. 
• On an annual basis, the Federal Medical Assistance Percentage (FMAP) for each state is obtained from the Federal Register and hard coded into a web-based system to be used on the State’s Quarterly Expense Report to ensure accuracy and prevent overpayment to the states.
• HHS follows a strict review and approval process before issuing quarterly grant awards to states.  The states will submit a Medicaid Program Budget Report to HHS that provides a statement of the state’s Medicaid funding requirements for a certified quarter and estimates for two FYs, and the state must certify that the requisite matching state and local funds are, or will be, available for the certified quarter.  Similarly for CHIP funding, the states will submit a CHIP Program Budget Report.  HHS uses the information to prepare the grant awards to states to ensure that the appropriate level of federal payments for state expenditures are made in accordance with the CHIP legislative provisions and to monitor and evaluate the number of children served by the Medicaid and CHIP programs.
• The HHS Payment Management System (PMS) is responsible for processing Medicaid payments to states.  HHS relies on financial information provided by PMS to account for the payments to states for the Medicaid program.  HHS developed internal controls to ensure that the financial data as provided by PMS is accurately and completely reflected in HHS’s financial records. 
• States are responsible for determining eligibility, enrolling providers and beneficiaries, setting payment rates, contracting with plans, adjudicating claims, and claiming expenditures.  States are also responsible for ensuring that Medicaid and CHIP program operations, including those relating to provider payments, are consistent with the Social Security Act and implementing regulations. 

The kinds of control activities in place to identify improper payments after the payments are made include:

• States are required to submit a summary of actual expenditures derived from source documents including payment vouchers, cost reports, and eligibility records.  This information will inform HHS on the disposition of Medicaid grant funds for the quarter and any prior period adjustments.  It also accounts for any overpayments, underpayments, refunds received by state Medicaid agencies, and income earned on grant funds.  HHS conducts a thorough review and approval process of this information.
• HHS will issue state disallowances or deferrals as a result of audits or quarterly reviews. 
• HHS implemented the Comprehensive Medicaid Integrity Program to reduce improper payments by utilizing contractors to review provider activities, audit claims, identify overpayments, and conduct provider education; and provide effective support and assistance to the states in their efforts to combat provider fraud and abuse.
• HHS operates the PERM program to identify Medicaid and CHIP improper payments that do not meet all state, Medicaid and CHIP coverage, coding, and medical necessity requirements.
• States are responsible for determining eligibility, enrolling beneficiaries, and adjudicating claims.  Additionally, states are required to operate a Medicaid fraud and abuse control unit that is separate from the state Medicaid agency unless the state demonstrates that there is minimal fraud in its Medicaid program and that beneficiaries will be protected from abuse and neglect.

The Medicaid and CHIP programs also have various techniques in place to use, share, and communicate information to prevent improper payments and ensure the information is timely, accurate, and reliable.  The source of information, method of distribution, and type of communication can vary widely and includes:

• Each quarter, HHS prepares and issues guidelines and instructions for the preparation of the Quarterly Medicaid Program Budget Report, which states use to provide a statement of the states’ Medicaid funding requirements for a quarter and estimates underlying assumptions for the current FY.  The data in the Medicaid Program Budget Report provides a variety of information that is essential to HHS in determining historical expenditure and estimating trends, and in developing federal Medicaid regulations, policy, and budgets.
• HHS senior officials are briefed monthly on the status of and issues resulting from review of state financial management reviews; including monetary and non-monetary findings, for program compliance and status of progress toward resolution.

The Medicaid and CHIP programs also conduct a variety of monitoring and assessment activities such as:

• HHS performs various financial reviews for the Medicaid program, including quarterly reviews of the states’ submissions of budget and expenditure reports and focused financial management reviews, which are used to perform in-depth and focused analysis of a specific area of a state’s Medicaid program. 
• HHS operates the PERM program to identify Medicaid and CHIP improper payments.  States are required to develop CAPs to address errors identified in the PERM measurements.
• HHS performs audit resolution and reviews audit findings to ensure they conform to existing Medicaid and CHIP regulations and policies.  Following these efforts, HHS initiates the collection of monies due and/or negotiates an agreed upon course of corrective action with the state.

Table 3C
FY 2015 Foster Care and Child Care Status of Internal Controls

Internal Control Standards	Foster Care	Child Care
Control Environment	3	3
Risk Assessment	4	3
Control Activities	4	3
Information and Communication	4	3
Monitoring	4	3

Legend:
4 = Sufficient controls are in place to prevent IPs
3 = Controls are in place to prevent IPs but there is room for improvement
2 = Minimal controls are in place to prevent IPs
1 = Controls are not in place to prevent IPs

Generally, as described below, the Foster Care program has sufficient controls in place to prevent improper payments.  Although, as a Federally funded, state-administered program, HHS does not have management control over state agencies, HHS’s reporting and analyses of improper Foster Care payments to determine the nature, extent, magnitude, and root cause(s) of improper payments has led to the implementation of a number of strategies to identify and reduce such payments and has strengthened the control environment.  These strategies and the associated control environment are tailored to the nature of Foster Care improper payments resulting from administrative and documentation errors rather than from fraud and abuse.  HHS has implemented effective control activities to prevent improper payments in the Foster Care  program—preventive controls—and identify payments after the payments are made—detective controls.  The kinds of key control activities to prevent improper payments include:

• Establishing Foster Care improper payments as an important management priority within HHS, with clear lines of accountability and responsibility within the agency.
• Providing support and feedback to states to support implementation of program improvement efforts, such as instituting specialized eligibility units to prevent eligibility errors or enhancing edits in automated systems to prevent billing errors.
• Working with the judiciary (e.g., through the Court Improvement Program) to enhance understanding of required documentation and timing of judicial hearings to prevent eligibility errors related to judicial determinations.
• Enhancing financial reporting requirements and guidance to auditors to obtain more information and improve the utility of single audit procedures.

The kinds of key control activities in place to identify improper payments after the payments are made include:

• Regular cycle of eligibility reviews, authorized by regulation, conducted by joint federal-state teams on a three-year cycle, to examine eligibility and allowability of federal IV-E payments to states.
• Recovery of all (100 percent) ineligible payments identified in eligibility reviews through disallowance of subsequent federal payment to states.
• Analyses of factors contributing to program improper payments each year, including examination of relative contributions to overall program improper payments.  This yields information regarding priority areas to inform risk assessment and guide corrective action planning.
• Provision of matching funds and technical assistance for the development and enhancement of statewide automated child welfare information system (SACWIS) eligibility and financial management modules designed to improve the consistency, timeliness, and documentation available to support allowability for Title IV-E claims. 

The Foster Care program also has various techniques in place to use, share, and communicate information to prevent improper payments and ensure the information is timely, accurate, and reliable.  The source of information, method of distribution, and type of communication can vary widely and includes:

• Communication and technical assistance to support continuous quality improvement by states, including updates on eligibility criteria and promising practices.
• Timely written report of review findings sent to each state agency following an eligibility review.  This report includes detailed, case-level descriptions of all ineligible payments, underpayments, disallowances, promising practices, areas needing improvement, and next steps for the state.
• Required PIPs, which must identify all planned corrective actions and a timeline for completion, for all states found not in substantial compliance in an eligibility review.  States must also provide regular updates on progress towards completion of the PIP, and complete it in a specified timeframe.
• Annual reports to program leadership summarizing findings across all state eligibility reviews conducted during the year, and identifying common elements related to strengths, areas needing improvement, and innovative practices.

The Foster Care program also conducts a variety of monitoring and assessment activities such as:

• Regular eligibility reviews conducted by joint federal-state teams, governed by a standard review instrument and detailed procedures outlined in the Eligibility Review Guide.
• Secondary reviews of all states found to be not in substantial compliance on a primary eligibility review.
• Validation of incoming review data to ensure data integrity prior to developing annual updated estimates of program error rate and improper payments following OMB-approved methodology for the federally-funded, state-administered Foster Care program.

HHS continues to improve and evaluate its internal control activities in the Foster Care program to prevent improper payments by participating in annual OIG audits of improper payments activities and incorporating audit recommendations as feasible within program regulatory constraints.

Generally, as described below, the CCDF program has adequate controls in place to prevent improper payments.  HHS’s reporting and analyses of improper CCDF payments to determine the nature, extent, magnitude, and root cause(s) of improper payments has led to the implementation of several strategies to help states identify and reduce such payments and strengthened the control environment.  HHS has implemented effective control activities to help states prevent improper payments in the CCDF  program—preventive controls—and identify payments after the payments are made—detective controls.  The kinds of key control activities in place to prevent improper payments include:

• Targeted technical assistance to all states to assist with the reduction of errors.
• States implement system enhancements to provide worker edits (i.e., forcing workers to correct information that is entered incorrectly such as in the wrong format or location) and monitoring reports.
• States design tools to reduce errors, such as calculation tables or spreadsheets.

The kinds of key control activities in place to identify improper payments after the payments are issued include:

• States conduct ongoing case reviews.
• States conduct supervisory, peer, and quality assurance team reviews to support accuracy.

The CCDF program also has various techniques in place to use, share, and communicate information to prevent improper payments and ensure the information is timely, accurate, and reliable.  The source of information, method of distribution, and type of communication can vary widely and includes:

• Annual information brief on error rate data, root causes of errors, and best practices to address the issues.
• Regular cohort training to facilitate methodology implementation, and best practices to address findings.

The CCDF program also conducts a variety of monitoring, technical assistance, and assessment activities such as:

• Training to implement the error rate measurement methodology.
• Site visits to assist grantees in addressing the root causes of errors and designing their policy and procedure mitigations.

HHS continues to improve and evaluate its internal control activities in the CCDF program to prevent improper payments.

13.0 Recovery Auditing Reporting

HHS developed a risk-based strategy to implement the recovery auditing provisions of IPERA.  Specifically, HHS focuses on implementing recovery audit programs in Medicare and Medicaid, which accounted for 85 percent of HHS’s outlays in FY 2015.  HHS is progressing in recovering improper payments in Medicare and Medicaid and, most importantly, implementing corrective actions to prevent improper payments, as described below.

Medicare FFS RACs

Section 302 of the Tax Relief and Health Care Act of 2006 required HHS to implement the Medicare FFS RAC program in all 50 states no later than January 1, 2010.  The current RACs are under contract to continue their active recovery auditing work through December 31, 2015.  HHS currently allows the Recovery Auditors to review a variety of claim types with the exception of hospital patient status reviews.  HHS has been working through the procurement process for the next Recovery Auditor contracts since 2013.  Due to multiple pre- and post-award protests delaying the new contracts, HHS withdrew the Request for Proposal for this procurement in June 2015.  HHS has restarted the procurement process and expects to issue revised Requests For Proposal in early FY 2016.

In FY 2015, the Medicare FFS RAC program identified approximately $390.85 million and recovered $359.73 million in overpayments by the end of the FY.  Policy changes regarding the payment and treatment of inpatient hospital claims and a delay in awarding new Medicare FFS contracts resulted in the reduction of the number of FY 2015 reviews compared to previous years.  Meanwhile, amounts that were identified in previous years continued to be collected.  During FY 2015, the majority of Medicare FFS RAC collections were from Diagnosis Related Group validations and DMEPOS provided in inpatient settings.  HHS continues to monitor and make continuous improvements to the Medicare FFS RAC program activities.

In addition to using the Medicare FFS RACs to identify overpayments, HHS also uses Medicare FFS RAC findings to prevent future improper payments.  For example, in FY 2015, HHS released four Provider Compliance Newsletters that offered detailed information on 17 findings identified by the Medicare FFS RACs.  Also, HHS used these findings to implement local and/or national system edits as internal controls to prevent improper payments.  More information on the Medicare FFS RAC program can be found on  CMS's website.

Medicare Secondary Payer RACs

The Medicare Secondary Payer (MSP) RAC began full recovery operations at the end of FY 2013 and operates as the MSP Commercial Repayment Center (CRC).  The CRC reviews HHS information regarding beneficiaries that had or have primary coverage through an employer-sponsored Group Health Plan (GHP).  When that information is incomplete, Medicare FFS may mistakenly pay for services as the primary payer.  The CRC recovers these mistaken payments from the entity that had primary payment responsibility (typically the employer or other plan sponsor, insurer, or claims processing administrator).  The debtors for these MSP debts do not have formal appeal rights, but do have the opportunity to dispute the debt through the established “defense” process.

In FY 2015, the CRC identified approximately $292.20 million and collected $149.60 million in mistaken payments.  In FY 2016, the CRC workload will expand to include the recovery of certain Non-Group Health Plan (NGHP) conditional payments where an NGHP entity has or had primary payment responsibility.  More information on the CRC can be found on CMS's website.

Medicare Part C and Part D RACs

Section 6411(b) of the Affordable Care Act expanded the RAC program to Medicare Parts C and D.  As part of the procurement process to secure a Medicare Part C RAC, HHS posted a Request for Quote in June 2014; however, no responses were received as a result of that solicitation.  HHS continues its implementation efforts and anticipates awarding a Part C RAC contract in 2016.

The Part D RAC became fully operational in FY 2012, and is currently reviewing prescription drug event data for calendar years 2010 through 2013.  Since its launch, the Part D RAC recouped overpayments made as a result of prescriptions written by excluded or unauthorized providers or filled at excluded pharmacies.  The Part D RAC recouped approximately $5.2 million in FY 2015.  Additionally, in FY 2015, the Part D RAC identified improper payments for improper refills of Drug Enforcement Agency (DEA) scheduled drugs for calendar years 2010 through 2011.  Notifications of improper payment were sent to plan sponsors in February 2015, totaling approximately $2.8 million and recoupments are expected to occur in FY 2016.

More information on the Medicare Part C and Part D RAC programs can be found on CMS's website.

State Medicaid RACs

Section 6411(a) of the Affordable Care Act required states to submit assurances by December 31, 2010 that their programs meet the statutory requirements to establish State Medicaid RAC programs.  States were required to implement RAC programs by January 1, 2012.  Thus, FY 2015 is the third full federal FY of reporting State Medicaid RAC recoveries.  As states continue to implement their State Medicaid RAC programs, State Medicaid RAC federal-share recoveries totaled $57.71 million in FY 2015.  State Medicaid RAC federal-share recoveries include overpayments collected, adjusted, or refunded to HHS, as reported by states on the CMS-64.

HHS regulations align the State Medicaid RAC requirements to existing Medicare FFS RAC program requirements, where feasible, and provide each state the flexibility to tailor its RAC program where appropriate.  As of the end of FY 2015, 47 states and the District of Columbia had implemented Medicaid RAC programs, but one of those states ended its RAC program when HHS approved an exception due to high managed care penetration.  Four states currently have HHS-approved exceptions to Medicaid RAC implementation due to small beneficiary populations or high managed care penetration.

HHS provides guidance as the States administer the Medicaid RAC program.  In September 2012, HHS launched a tool to encourage transparency and monitoring called the State Medicaid RACs At-A-Glance website.  The website contains state-reported information on each State’s Medicaid RAC program, the name of each RAC vendor and Medical Director, and contact information for the state program integrity staff.

Recovery Auditing Reporting Tables

OMB Circular A-136 requires agencies to provide detailed information on their recovery auditing programs, as well as other efforts related to the recapture of improper payments.  Some of our programs have results to report in this area and those results are included in the following tables.  If a program is not listed on a certain table, it is because they do not yet have results in that area.

Table 4 
Improper Payment Recaptures with and without Audit Programs  
FY 2015 (in Millions)

	Payment Recapture Audits of Contracts					Payment Recapture Audits of Benefits					Total		Overpayments Recaptured Outside of Payment Recapture Audits
Program or Activity	Amount	Amount Recap	CY Recap Rate Note (2)	CY + 1 Recap Rate Target	CY + 2 Recap Rate Target	Amount	Amount Recap	CY Recap Rate Note (1)	CY + 1 Recap Rate Target	CY + 2 Recap Rate Target	Amount	Amount Recap	Amount	Amount Recap
Medicare FFS Error Rate Measurement													$39.71	$30.68
Medicare FFS Recovery Auditors	$390.85	$359.73	92%	85%	85%						$390.85	$359.73
Medicare Secondary Payer Recovery Auditor Note (2)	$292.20	$149.60	51%	85%	85%						$292.20	$149.60
Medicare Contractors Note (3)													$14,523.62	$11,554.30
Medicare Part C Note (4)													$648.84	$648.84
Medicare Part C Recovery Auditors Note (5)
Medicare Part D Note (4)													$11.57	$11.57
Medicare Part D Recovery Auditors	$2.76	$5.16	187%	85%	85%						$2.76	$5.16
Medicare C RADV Audits Note (6)
Medicaid Error Rate Measurement													$4.40	$1.02
CHIP Error Rate Measurement													$1.91	$0.81
Medicaid Integrity Contractors-Federal Share   Note (7)													$22.13	$8.23
State Medicaid Recovery Auditors – Federal Share Note (8)						N/A	$57.71	N/A	N/A	N/A	N/A	$57.71
Foster Care Eligibility Reviews-Post Payment Reviews													$0.99	$0.99
Foster Care OIG Reviews													$0.00	$0.00
Foster Care Single Audits													$0.82	$0.05
Child Care Single Audits													$0.99	$0.00
Child Care Error Rate Measurement Note (9)													$0.14	$0.02
Head Start OIG Reviews													$0.11	$0.00
Head Start Single Audits													$2.55	$0.19
TOTAL	$685.81	$514.49	75%	85%	85%		$57.71				$685.81	$572.20	$15,257.78	$12,256.70

Notes:

• The amount reported in the CY Recapture Rate column is the amount recovered in FY 2015, regardless of the year the overpayment was identified.
• The Medicare Secondary Payer recovery auditor maintains all debts established under prior MSP recovery programs; consequently, the reported collections is the amount recovered in FY 2015, regardless of the year the  mistaken payment was identified.
• This total reflects amounts reported by the Medicare FFS Contractors excluding the amounts reported for the Medicare FFS recovery auditors program and the Medicare FFS Error Rate Measurement program, which are reported separately in this table.     
• The values in the Medicare Part C and Medicare Part D rows represent overpayments reported and returned by Medicare Advantage organizations and Part D sponsors, respectively.
• HHS expects to award a contract for a Medicare Part C RAC program in FY 2016.
• During FY 2015, HHS continued the contract-level RADV audits based on calendar year 2011 and launched the calendar year 2012 audits.  As such, there were no RADV payment amounts identified or recovered in FY 2015.
• For Medicaid, the Medicaid Integrity Contractors (MICs) identified total overpayments which include both the federal and state shares.  However, HHS has reported here only the actual federal share across audits.   
• For state Medicaid recovery auditor programs, states are only required to report the amount of recoveries on the CMS-64, and not amount of improper payments identified or recovery rates or targets.
• The Child Care Error Rate Measurement information reflects overpayments that are identified through the statistical sampling process.  The information reported represents the amount that is subject to disallowance.  For the Child Care Error Rate Measurement Amount Recaptured information, states are required to recover child care payments that are the result of fraud and have discretion as to whether to recover misspent funds that were not the result of fraud, such as in cases of administrative error.  Data reported in FY 2015 represent improper payments recovered by the Year Two states based on improper payments identified in FY 2012.

Table 5  
Disposition of Funds Recaptured Through Payment Recapture Audits
FY 2015 (in Millions)

Program or Activity	Amount Recovered	Type of Payment	Agency Expenses to Administer the Program	Payment Recapture Auditor Fees	Financial Management Improvement Activities	Original Purpose Note (1)	Office of Inspector General	Returned to Treasury
Medicare FFS Recovery Auditors	$359.73	Contract	$75.62	$20.25	N/A	$182.89	N/A	N/A
Medicare Secondary Payer Recovery Auditor	$149.60	Contract	$2.49	$22.06	N/A	$125.05	N/A	N/A
Medicare Part D Recovery Auditors	$5.16	Contract	N/A	$0.62	N/A	$4.54	N/A	N/A
State Medicaid Recovery Auditors – Federal Share Note (2)	$57.71	Benefits	N/A	N/A	N/A	N/A	N/A	$57.71
Total	$572.20		$78.11	$42.93	N/A	$312.48	N/A	$57.71

Notes:

1. Funds included under the “Original Purpose” column were returned to the Medicare Trust Funds after taking into consideration agency expenses to administer the program and recovery auditor contingency fees.  In addition, the Medicare FFS Recovery Auditors “Original Purpose” cell also takes into consideration underpayments to providers that were identified and corrected ($80.96 million).
2. The state Medicaid recovery auditors row only includes information on the federal share of recoveries, which are returned to Treasury.  States do not  report information to HHS on how the state portions of recoveries are used. 

Table 6  
Aging of Outstanding Overpayments Identified in the Payment Recapture Audits
FY 2015 (in Millions)Note (1)

Program or Activity	Type of Payment	CY Amount Outstanding (0 – 6 months)	CY Amount Outstanding (6 months to 1 year)	CY Amount Outstanding (over 1 year)	Amount Determined to Not be Collectable
Medicare FFS Recovery Auditors	Contract	$61.43 Note (2)	$26.16	$1,056.56	N/A
Medicare Secondary Payer Recovery Auditor Note (3) and (4)	Contract	$92.81	$87.68	$0.00	$0.00
Medicare Part D Recovery Auditors	Contract	N/A Note (5)	N/A	N/A	N/A
Total		$154.24	$113.84	$1,056.56	$0.00

Notes:

1. The state Medicaid recovery auditors are not included in this table since states do not report information to HHS that would allow the Department to calculate the aging of overpayment amounts that are currently outstanding.    
2. Under the Medicare FFS recovery auditors program, recovery of identified overpayments cannot begin until the overpayment is at least 41 days old.  Therefore, the CY Amount Outstanding (0-6 months) includes identified overpayments that HHS cannot begin collecting.
3. The Medicare Secondary Payer recovery auditor maintains debts established under prior MSP recovery programs; consequently, collections exclusively related to mistaken payments identified by the MSP recovery auditor does not directly correlate to the amount outstanding. 
4. The amount of outstanding payments identified by the Medicare Secondary Provider recovery auditor included in this table reflect the outstanding balances on debts identified in FY 2015 only as of the end of FY 2015.
5. Recoupments of FY 2015 overpayments will not begin on the Medicare Part D recovery auditors’ overpayments until the appeals process is complete.  The appeals process is ongoing, but is expected to be completed during FY 2016.

14.0 Do Not Pay Initiative

In June 2010, the President issued a Memorandum on Enhancing Payment Accuracy Through a "Do Not Pay List,” which underscored that:

While identifying and recapturing improper payments is important, prevention of payments before they occur should be the first priority in protecting taxpayer resources from waste, fraud, and abuse.  In those cases where data available to agencies clearly shows that a potential recipient of a Federal payment is ineligible for it, subsequent payment to that recipient is unacceptable.  We must ensure that such payments are not made.

So as "to ensure that only eligible recipients receive Government benefits or payments," the President directed the establishment of a "single point of entry" through which agencies would access relevant data - in a network of databases to be collectively known as the "Do Not Pay List"- before determining eligibility for a benefit, grant or contract award, or other federal funding.  Subsequently, the “Do Not Pay List” was codified by IPERIA, which included a requirement for agencies to check relevant databases prior to making an award or payment.  The Presidential memorandum and IPERIA identified the following databases to include in the Do Not Pay (DNP) portal:  the Social Security Administration’s (SSA) Death Master File (DMF), the HHS OIG’s List of Excluded Individuals & Entities (LEIE), the General Service Administration’s System for Award Management (SAM) exclusion records (also referred to as the Excluded Party List System), the Treasury’s Debt Check, the Department of Housing and Urban Development’s Credit Alert Interactive Voice Response System (CAIVRS), and the SSA’s Prisoner Update Processing System (PUPS).  Treasury’s “Do Not Pay” website includes information on currently available and pending data sources in the DNP portal.

Since the Presidential memorandum was issued, and IPERIA was enacted, HHS has worked diligently to implement the DNP initiative.  HHS and CMS established a Computer Matching Agreement (CMA) with Treasury under the DNP initiative in FY 2014.  The CMA allows HHS to match electronic files against restricted content (such as Social Security Number, Date of Birth, or Taxpayer Identification Number (TIN)) in some of the data sources, simultaneously reducing the time to complete the matches while also producing more accurate results.  HHS has continued to receive information through the CMA that was established in FY 2014 and began working to establish additional CMAs in FY 2015.  In addition, several of our Divisions are continuing to use DNP to check for recipients or potential recipients’ eligibility and to prevent the issuance of improper payments.

Treasury-disbursed payments are matched against the DMF and the excluded parties’ elements of SAM in the DNP portal to identify improper payments on a daily basis.  While the Department has identified 530 potential improper payments over the past year as part of these daily matches (as shown in Table 7), there was only one confirmed improper payment for $6,521.00.

Table 7
Results of the Do Not Pay Initiative in Preventing Improper Payments
FY 2015

Number (#) of payments reviewed for possible improper payments	Dollars ($) of payments reviewed for possible improper payments	Number (#) of payments stopped	Dollars ($) of payments stopped	Number (#) of potential improper payments reviewed and  determined accurate	Dollars ($) of potential improper payments reviewed and determined accurate.
Reviews with the IPERIA specified databases Note (1)	1,182,453 Note (2)	$362,611,594,950	0 Note (3)	0 Note (3)	530 Note (4)	$97,753,865 Note (4)
Reviews with databases not listed in IPERIA	N/A	N/A	N/A	N/A	N/A	N/A

Notes:

• This row shows payments that are disbursed through Treasury and matched against IPERIA specified databases.  However, Medicare FFS payments are not disbursed by Treasury but are also matched against databases listed in IPERIA.  HHS is currently developing the systems requirements to automate the capture of this information for Medicare FFS payments, and will report this data in the FY 2016 AFR.
• HHS data included 1,962 payment records which contained missing or invalid information.
• “Payments Stopped” refers to payments for which the agency has implemented Stop Payment Rules or a similar method of disbursement prevention during the pre-payment stage.  It does not include post-payment reclamations, collections, or offsets.
• This includes information on payments that were flagged as potentially improper, but were determined proper after further review.

15.0 Superstorm Sandy Reporting Information

Superstorm Sandy was a major hurricane that struck the United States’ (U.S.) eastern seaboard on October 29, 2012 and caused extensive damage from Florida to Maine, with New Jersey and New York sustaining the most damage.  Sandy was the second costliest hurricane in U.S. history, causing $68 billion worth of damage, draining state funds, and stretching limited resources.

In response to this disaster, Congress passed the Disaster Relief Act, which was signed into law on January 29, 2013 and provided $50.5 billion in aid for Sandy disaster victims and their communities.  HHS received $747 million, allocated among multiple programs across five Divisions:  ACF, ASPR, CDC, SAMHSA, and NIH.  Because funding of this type and magnitude often carries additional risk, the Disaster Relief Act and OMB guidance state that all federal programs or activities receiving funds are automatically considered susceptible to significant improper payments, regardless of any previous improper payment risk assessment results, and are required to calculate and report an improper payment estimate.  Accordingly, HHS developed methodologies to estimate improper payments in the programs that received Disaster Relief Act funding.  Information on the Disaster Relief Act programs’ improper payment methodologies, results, and corrective actions can be found on subsequent pages.

15.10 Head Start

15.11 Head Start Statistical Sampling Process and Results

Head Start received approximately $95 million in Disaster Relief Act funding to provide services, training and oversight, and construction assistance to affected grantees.  Every grantee who spends Superstorm Sandy funds receives an erroneous payments onsite monitoring visit in the quarter following the quarter when funds are spent, or as soon thereafter as possible.  Superstorm Sandy transactions for each quarter are reviewed using a standard onsite monitoring tool to identify potential and actual erroneous payments.  Additional information on Head Start’s statistical sampling process can be found on pages 198 - 199 of HHS’s FY 2014 AFR.

The FY 2015 review period consisted of transactions representing funds expended by grantees between July 1, 2014 and June 30, 2015.  HHS expects FY 2015 to have the largest number of Head Start Superstorm Sandy transactions because during this period, awardees were completing minor repairs and renovations, re-supplying centers and classrooms, providing mental health services, implementing major facilities renovations, and re-building seriously damaged or destroyed centers.

The Head Start gross and net improper payment estimate for FY 2015 is 0.38 percent or $61,626.36.

15.12 Head Start Root Causes and CAPs

Corrective Actions to Address Root Cause
Root Cause: Administrative or Process Error Made by Local Agencies

All of the identified Head Start erroneous payments were administrative or process errors made by the grantees (100 percent).  Most of the identified erroneous payments were caused by human error, such as transposed numbers.  The largest single error amount identified was for $22,772 and was due to an error in the allocation of the salary and fringe benefits for a supervisory employee.  For this error, the grantee neglected to adjust its cost allocation methodology to reflect the change in duties for the employee once her Sandy-related duties ended.  Additionally, some of the erroneous payments were self-identified by the grantee as part of their internal monitoring processes.  Technical assistance to grantees has consequently emphasized the need for ongoing internal monitoring of transactions by grantees and comparison of amounts paid to source documentation.

15.13 Head Start Improper Payment Recovery

All improper payments made to Head Start awardees have been recovered through direct repayment or offset against subsequent Superstorm Sandy awards.

15.20 SSBG

15.21 SSBG Statistical Sampling Process and Results

The SSBG program received $474.5 million in Disaster Relief Act funding to address necessary expenses resulting from Superstorm Sandy.  These expenses include social, health, and mental health services for individuals, and repair, renovation and rebuilding of health care facilities (including mental health facilities), childcare facilities, and other social services facilities.  These SSBG Disaster Relief Act funds were allocated to five states directly affected by Superstorm Sandy: Connecticut, Maryland, New Jersey, New York, and Rhode Island.  HHS selected three of the five states that received SSBG Disaster Relief Act funds (Connecticut, New Jersey, and New York) to calculate improper payment error rates, since their allocations represent 99 percent of all SSBG Disaster Relief Act funds.

Because the states determine the types of services and eligibility for these services, as permitted by the SSBG law and regulations, there is considerable variation among states in their application of these funds.  To account for this variation, HHS developed a two-fold (bifurcated) improper payment methodology to review the use of SSBG Disaster Relief Act funds in Connecticut, New Jersey, and New York.  The two approaches are a case record review process and a vendor payment review process.  The case record review examines payments or benefits provided to or on behalf of individuals, families or households (i.e., cases) based on specific eligibility criteria.  The vendor payment review examines individual payments made to service vendors and assesses if the vendors provided adequate documentation (e.g., applications, authorizations) necessary to meet the eligibility requirements for these payments.

For the FY 2015 review period (July 1, 2014 to June 30, 2015), HHS completed case record and vendor payment reviews in Connecticut, New Jersey, and New York.  HHS consolidated its review findings and calculated a national SSBG Superstorm Sandy Disaster Relief Act error rate from the aggregate findings across all three states.

In FY 2015, HHS used an error rate estimate of 10 percent to determine sample sizes for the case record and vendor payment reviews with a 90 percent confidence interval of +/-2.5 percent.  HHS continued to estimate a base error rate of 10 percent when establishing sample sizes for FY 2015, despite calculating a national SSBG error rate for FY 2014 at 13.48 percent.

FY 2014 improper payment reviews consisted only of a case record review in New Jersey.  This was due both to a lack of applicable expenditures in Connecticut and New York, and to the vendor payment review remaining under development at the time of the FY 2014 improper payment reviews.  A majority of funds in error in FY 2014 (74 percent) were attributed to a single vendor within New Jersey’s Sandy Homeowner and Renter Assistance Program (SHRAP), which accounted for approximately 92 percent of all expenditures reviewed in FY 2014.  Many of the recorded errors were due to missing documentation at the time of the review.  The state ultimately retrieved much of the documentation missing at the time of the review, which would have reduced the calculated error rate to approximately five percent.  However, the state was unable to provide this documentation in time to reassess the established SSBG error rate for FY 2014.

While the FY 2014 SSBG Disaster Relief Act error rate was greater than the initially estimated 10 percent, HHS felt it was inappropriate to adjust its SSBG Disaster Relief Act error rate estimate for all reviews in all states based on the results of a case record review occurring in one state.  As such, HHS retained a base error estimate of 10 percent when generating samples for the FY 2015 improper payment reviews.

HHS reviewed a total of 1,152 records in FY 2015.  For the case record review, HHS reviewed 580 case records across the three states – 53 cases in Connecticut, 383 cases in New Jersey, and 144 cases in New York.  For the vendor payment review, HHS reviewed 572 vendor payments across the three states – seven payments in Connecticut, 224 payments in New Jersey, and 341 payments in New York.

The SSBG gross improper payment estimate for FY 2015 is 0.22 percent or $0.46 million.  The FY 2015 net improper payment estimate is 0.22 percent or $0.45 million.

The error rate for the case record reviews was 1.18 percent, while the error rate for the vendor payments was 0.18 percent.

15.22 SSBG Root Causes and CAPs

Of the 1,152 records reviewed, 45 records had an improper payment.

Five errors (representing 53.4 percent of the estimated improper payments) were categorized as Administrative or Process Errors due to State or local agencies.  These errors included: (1) missing signatures on payment processing forms required as part of payment approval; or (2) clerical errors in calculating payment amounts based on vendor claims.

Eight errors (representing 14.8 percent of the estimated improper payments) were categorized as Administrative or Process Errors due to other parties (i.e., non-Federal, non-State, and non-local agencies).  These errors included: (1) clients receiving incorrect benefit amounts (greater or lesser) based on documented need; (2) clients receiving benefits before providing all necessary eligibility documentation; (3) clients receiving benefits despite documentation indicating ineligibility for service; or (4) benefit payments being made on behalf of someone outside of the client’s household.

Thirty-two errors (representing 31.8 percent of the estimated improper payments) were categorized as Insufficient Documentation to Determine.  These errors included: (1) case records missing necessary eligibility documentation (e.g., driver’s license, passport); or (2) records missing necessary documentation of proper payment processing (e.g., proof of payment, payment approval forms, copies of bills/invoices to be paid).

Corrective Actions to Address Root Causes:

HHS implemented a series of monitoring and oversight activities in all states to address problems of burden, information exchange, and organization of review materials highlighted in the FY 2014 improper payment findings.  HHS has worked with the state to address issues related to document processing and will continue to coordinate with the state on additional corrective actions including payment recapture where necessary.  HHS activities have included drawing quarterly improper payment samples for review and formalizing a 30-day response period for states upon completion of each review.  The 30-day response period allowed states to clarify payment policies or provide missing documentation that may have been mistakenly left out during the organization and assembly of files for review.

In response to FY 2015 improper payment findings, HHS will provide each state subject to review with a letter outlining the development of CAPs.  These letters will be accompanied by itemized lists of unresolved errors from the FY 2015 review period (including descriptions of improper payment findings and amounts), and will establish a 30-day timeframe for states to respond with planned corrective actions.  HHS will also hold calls with each state to answer any questions related to developing CAPs or establishing improper payment recovery amounts.  In developing their responses, states may provide an explanation for recovery amounts to be sought for each error; however, HHS retains final discretion in determining total amounts of funds subject to recovery.  Further information on specific root causes and corrective actions is located below.

Root Cause: Administrative or Process Errors Made by State or Local Agency

To address administrative or process errors due to State or local agencies, HHS will develop strategies with states to monitor and provide oversight to the most error-prone agencies.  These strategies will reinforce the importance of ensuring that all documentation required for payment processing is present and complete before payments are approved.  These activities will also emphasize careful examination of receipts and invoices to ensure that payments made by the states properly reflect established payment schedules and reimbursement protocols.  HHS will continue to work with states to examine where in their payment approval processes the greatest intervention is warranted.

Root Cause: Administrative or Process Errors Made by Other Party

To address administrative or process errors due to other parties, HHS will develop strategies with states to monitor and provide oversight to the most error-prone service providers.  These strategies will reinforce the importance of: (1) collecting all client eligibility documentation prior to provision of service benefits; (2) ensuring that eligibility documentation is properly examined, and that ineligible individuals do not receive service benefits; and (3) ensuring that benefits provided to clients match their documented needs.  HHS will continue to work with states to address how error-prone vendors can improve their client intake processes and improve processes for assessing and approving client benefits.

Root Cause: Insufficient Documentation to Determine

To address errors due to insufficient documentation, HHS will develop strategies with states to monitor and provide oversight to the most error-prone service agencies and providers.  These strategies will reinforce the importance of record maintenance and organization.  HHS will work with states to assess typical practices of record maintenance and organization.

15.23 SSBG Improper Payment Recovery

Of the total error findings, $457,434 was associated with overpayments.  As states receive and review all unresolved errors from the FY 2015 review period, HHS will work with states to identify items for which additional corrective action will be taken (including obtaining additional documentation, making process adjustments, and the current state of improper payment recovery).  Where additional action around improper payment recovery is warranted, HHS will work with states to focus recovery efforts on improper payments resulting from core eligibility errors, where benefits or payments should not have been paid.

15.30 FVPS

15.31 FVPS Statistical Sampling Process and Results

The Family and Youth Services Bureau‘s Division of Family Violence Prevention and Services (FVPS) received $2 million in Disaster Relief Act funding to prevent domestic violence in affected states.  This funding is used for multiple purposes and HHS identified financial alternative housing assistance as most susceptible to improper payments; therefore, these are the payments that are measured.  Alternative housing assistance benefits are paid directly to third parties on behalf of an individual recipient by the New Jersey Department of Children and Families (NJDCF) and the New York State Office of Children and Family Services (NYSOCFS).

HHS determined that each state grantee would sample 45 percent of its financial alternative housing payments during each review period to generate a statistically valid estimate.  If the number of payments in any review period is less than 110, then 100 percent of the payments will be reviewed.  In FY 2015 (review period July 1, 2014 to June 30, 2015), FVPS reviewed 371 payments, with 220 payments coming from the NJDCF and 151 payments from the NYSOCFS.

FVPS’ gross and net improper payment estimate for FY 2015 is 0.89 percent or $7,944.85.

15.32 FVPS Root Causes and CAPs

Of the 371 payments that were reviewed, HHS determined four payments were in error due to Administrative or Process Error Made by the State or Local Agency (100 percent).  One of the improper payment errors was an overpayment by a NJDCF sub awardee due to an error made by the local awardee.  The other three improper payment errors were overpayments made by NYSOCFS subawardees that resulted from the subawardees’ failure to correctly classify ineligible or unallowable expenses.  For example, multiple programs had unallowable expenses (purchases of household goods) due to misinterpretation of allowable expenses for “basic, essential items.”

Corrective Actions to Address Root Cause:  
Root Cause: Administrative or Process Error Made by State or Local Agency

To reduce the likelihood of future improper payments, HHS has:  (1) shared the improper payment findings with NJDCF and NYSOCFS, and (2) provided technical assistance and clarification on allowable versus unallowable expenses with future supplemental funding.  In addition, both states identified internal corrective actions to prevent errors.  For example, NJDCF required that domestic violence provider agencies send a list of the “basic, essential items” that a co-trauma victim was requesting prior to disbursement of funds.  NJDCF then sent the request to HHS for approval to determine which items were allowable.  In addition, NJDCF distributed a frequently asked question (FAQ) document on October 28, 2014 to all provider agencies in order to assist in reducing unallowable expenditures.  This FAQ was developed by HHS as a technical assistance aid for both state grantees to reduce improper payments.  NYSOCFS provided written notification of the improper payment findings to its sub-grantees with instructions to refund the specified amounts to NYOCFS.

The grant period for both awards ended on June 30, 2015.  No further expenditures or reimbursements were made after that period; therefore, there will be no further monitoring or reporting on improper payments.

15.33 FVPS Improper Payment Recovery

It is estimated that all of the actual identified overpayments will be recovered by the grantees and will be returned to the Department of Treasury.

15.40 ASPR Research

15.41 ASPR Research Statistical Sampling Process and Results

ASPR received approximately $11.9 million in Disaster Relief Act funding to evaluate preparedness and response activities in the affected states.  ASPR’s Superstorm Sandy improper payment methodology will be conducted in two stages.  The first stage, for FY 2014 reporting, reviewed the eligibility of grantees that received funding in FY 2013.  The second stage of the methodology was implemented for FY 2015 and will continue into FY 2016.  The methodology calculates an unallowable spending error rate (e.g., unallowable expenses, lack of documentation) based on a review of each grantee’s expenditures during the review period.  The sample for the FY 2015 reporting period consisted of expenditures during FY 2014 (October 1, 2013 to September 30, 2014), and the sample for the FY 2016 reporting period will consist of expenditures made during FY 2015 (October 1, 2014 to September 30, 2015).

Based on a review of over 1,000 transactions from FY 2014, the ASPR Research gross and net improper payment estimate for FY 2015 is 0 percent or $0 million.

15.42 ASPR Research Root Causes and CAPs

Corrective Actions to Address Root Cause:  
Root Cause:

Although HHS has not identified any improper payments in the ASPR Research program in FY 2015, HHS established internal controls to prevent future improper payments from occurring.  In FY 2015, no improper payments were found.  However, ASPR will continue to monitor the Disaster Relief Act funding and related key processes.  Major accomplishments in FY 2015 include:

• Revising the Disaster Relief Act sub-cycle memorandum to reflect updates within the process.
• Revised the improper payment methodology.

15.43 ASPR Research Improper Payment Recovery

No recoveries will be attempted as no improper payments were identified.

15.50 CDC Research

15.51 CDC Research Statistical Sampling Process and Results

To date, CDC received approximately $8.2 million under the Disaster Relief Act to perform environmental health studies and provide public health support, of which approximately $7.2 million represents Disaster Relief Act funds awarded to grantees.  The CDC’s Notice of Award required awardees to include additional documentation to support the line items on the Federal Financial Report (FFR).  This additional documentation includes grantees internally generated reports or extracts of expenses.  Under its methodology, CDC reviewed these documents to identify improper payments due to causes including: unallowable costs, unallocable costs, and goods and/or services not received.  The FY 2015 sampling methodology included quarterly reviews of draw down activity and transactions from July 1, 2014 through June 30, 2015 for each grantee that spent Disaster Relief Act funding during the review period, covering 1,050 transactions representing approximately $4.6 million in outlays.

The CDC Research gross and net improper payment estimate for FY 2015 is 0 percent or $0 million.

15.52 CDC Research Root Causes and CAPs

Corrective Actions to Address Root Cause:  
Root Cause:

No improper or erroneous payments were identified during the FY 2015 review; therefore there is no root cause information. In FY 2014, CDC established internal controls to prevent future improper payments from occurring.  Specifically, CDC developed a Risk Mitigation Plan for the CDC Research program that outlines steps to prevent improper payments in the Superstorm Sandy funding.  The CDC continued to use their Risk Mitigation Plan during FY 2015 due to its success in preventing Superstorm Sandy improper payments.

15.53 CDC Research Improper Payment Recovery

No recoveries will be attempted as no improper payments were identified.

15.60 SAMHSA

15.61 SAMHSA Statistical Sampling Process and Results

SAMHSA received $10 million under the Disaster Relief Act.  SAMHSA awarded approximately $6.2 million to four programs and returned approximately $3.8 million because fewer organizations applied for the funding and applications received were for amounts significantly less than expected.  The four funded programs were:  1) Behavioral Health Treatment; 2) Disaster Distress Helpline; 3) Resiliency Training for Educators; and 4) Medication Assisted Treatment of Opioid Addiction Restoration.

For FY 2015, SAMHSA’s program universe subject to sampling consisted of four grants awarded to New York State ($798,339), New York City ($2,947,786), New Jersey ($329,120), and Links2Health ($2,100,000) for the four funded programs listed above.  Between July 1, 2014 and June 30, 2015, SAMHSA had outlays of $1.3 million across 24 transactions.  Due to the small number of transactions, SAMHSA reviewed all outlays for payment accuracy and used the results to calculate the total improper payments for the program.

SAMHSA’s actual gross improper payments for FY 2015 is 1.38 percent or $18,166; the net improper payments estimate is 0.15 percent or $2,006. 

15.62 SAMHSA Root Causes and CAPs

SAMHSA’s improper payments identified during the review period were due to Administrative or Process Errors Made by the Grantees (100 percent).  The total gross improper payments of $18,166 were due to errors in the calculation of direct and indirect expenses.

Corrective Actions to Address Root Cause:
Root Cause: Administrative or Process Errors Made by Other Party

SAMHSA’s improper payment results were discussed with each grantee and the grantees concurred with the findings.  Efforts to reduce future improper payments include:  (1) improving grantee processes for ensuring adequate supporting documentation is maintained; (2) ongoing examinations by SAMHSA grants management specialists of documentation supporting grantee drawdowns; and (3) developing and disseminating additional guidance to grantees to govern the conditions under which drawdowns can be made and the supporting evidence that should be maintained.

15.63 SAMHSA Improper Payment Recovery

SAMHSA has corrected the entire $18,166 in improper payments.  The $10,086 in overpayments was refunded to SAMHSA and the $8,080 in underpayments was subsequently drawn down by the grantee.

15.70 NIH Research

15.71 NIH Research Statistical Sampling Process and Results

NIH received $148.7 million in funds under the Disaster Relief Act to support recovery efforts at eligible impacted universities and research institutions.  These funds will restore NIH’s investment in biomedical research and infrastructure that was severely damaged or destroyed by Superstorm Sandy.

Due to the variable grant expenditure amounts, NIH implemented a stratified random sampling process, with the sampling frame being divided into mutually exclusive groups or "strata" based on expenditure amount.  Each sampling period consists of six months.  NIH selects a random sample of expenditures from the grantees quarterly reports for the respective two quarters.  The sampling unit is the total quarterly expenditures for a single award, while the sampling frame is the collection of all reports filed containing expenditures during the sampling period.  NIH uses a random number generator to assign random numbers to each quarterly expenditure report.  The list of expenditure reports is sorted by stratum and random number, and the appropriate number of items from each stratum is reviewed.  NIH’s methodology examines two areas for improper payments:  (1) ensuring funds are used for an allowable program use and (2) grantee eligibility.  For each grant in the sample, NIH requests detailed expenditure data and appropriate background documentation from the grantee to determine allowability.  NIH also confirms grantees’ continued eligibility to receive Disaster Relief Act funding in accordance with HHS requirements.

Under its methodology, NIH completed two rounds of improper payment reviews in FY 2014 covering 12-months of expenditures in two semi-annual sampling periods:  July 1, 2013 to December 31, 2013 and January 1, 2014 to June 30, 2014.  For FY 2015, NIH reviewed 357 expenditure reports representing 242 grant awards and 18 different grantee institutions, and identified improper payments of $539,300.  The improper payments were associated with one grantee institution.

The NIH Research gross and net improper payment estimate for FY 2015 is 2.29 percent or $884,550.

15.72 NIH Research Root Causes and CAPs

The root cause for all improper payments identified for the review period was due to Insufficient Documentation to Determine if the grantee’s reported costs were allowable pursuant to NIH’s grant terms and conditions of award (100 percent).

Corrective Actions to Address Root Cause:  
Root Cause: Insufficient Documentation to Determine

NIH will implement the following corrective actions:

• Request that the grantee conduct a review of their accounting system and related policies  to identify and correct any potential weaknesses in the grantee’s accounting system or methods of charging accounts specifically related to cost transfers, allocation of costs, and adherence to special terms and conditions of grant award.
• Provide the grantee with technical assistance, as required, based on the outcome of the review.
• Determine whether there are recoveries of unallowable costs after further review of the findings.

Include the grantee in all future Sandy improper payment testing.

15.73 NIH Research Improper Payment Recovery

After NIH conducts a further review of the grantee’s subsequent corrective actions, NIH will be in a position to determine whether there are recoveries of unallowable costs.

Summary of Financial Statement Audit and Management Assurances

As described in the “Management’s Discussion and Analysis” section, management annually presents an assurance statement on the effectiveness of internal control.  The following two tables present summary information related to the material weakness identified during the audit, as well as conformance with FMFIA and compliance with FFMIA.

Audit Opinion			Unmodified for Four Financial Statements. No Opinion Expressed on Statement of Social Insurance and Statement of Changes in Social Insurance Amounts
Restatement			No
Material Weaknesses	Beginning Balance	New	Resolved	Consolidated	Ending Balance
Financial Reporting, Systems, Analyses & Oversight	−	−	−	−	−
Financial Management Close and Review Processes	−	−	−	−	−
Financial Information Management Systems	1	−	−	−	1
Total Material Weaknesses	1	−	−	−	1

*Definition of Terms – Tables 1 and 2

Beginning Balance: The beginning balance will agree with the ending balance of material weaknesses from the prior year.

New: The total number of material weaknesses that have been identified during the current year.

Resolved: The total number of material weaknesses that have dropped below the level of materiality in the current year.

Consolidated: The combining of two or more findings.

Reassessed: The removal of any finding not attributable to corrective actions (e.g., management has re-evaluated and determined a material weakness does not meet the criteria for materiality or is redefined as more correctly classified under another heading (e.g., section 2 to a section 4 and vice versa).

Ending Balance: The agency’s year-end balance.

*Reference: OMB Circular A-136, Financial Reporting Requirements, August 4, 2015, page 150

Table 2: Summary of Management Assurances

Effectiveness of Internal Control over Financial Reporting (FMFIA #2)

Statement of Assurance	Qualified
Material Weaknesses	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
Information System Controls and Security	1	-	-	-	-	1
Total Material Weaknesses	1	-	-	-	-	1

Effectiveness of Internal Control over Operations (FMFIA #2)

Statement of Assurance	Qualified
Material Weaknesses	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
Information System Controls and Security	1	-	-	-	-	1
Error Rate Measurement	1	-	-	-	-	1
Total Material Weaknesses	2	-	-	-	-	2

Conformance with Federal Financial Management System Requirements (FMFIA #4)

Statement of Assurance	Do not conform to financial management system requirements
Non-Conformances	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
Information System Controls and Security	1	-	-	-	-	1
Total Non-Conformances	1	-	-	-	-	1

Compliance with Section 803(a) of the Federal Financial Management Improvement Act (FFMIA)

	Agency	Auditor
1. System Requirements	Lack of substantial compliance noted	Lack of substantial compliance noted
2. Accounting Standards	No lack of substantial compliance noted	No lack of substantial compliance noted
3. USSGL at Transaction Level	Lack of substantial compliance noted	Lack of substantial compliance noted

FY 2015 Top Management and Performance Challenges Identified by the Office of Inspector General

The Reports Consolidation Act of 2000, Public Law 106-531, requires the Office of Inspector General (OIG) to identify top management challenges, assess the Department’s progress in addressing each challenge, and submit this statement to the Department annually.

The OlG’s top management and performance challenges for fiscal year 2015 are:

1. Protecting and Expanding Medicaid Program from Fraud, Waste, and Abuse
2. Fighting Fraud, Waste, and Abuse in Medicare Parts A and B
3. The Meaningful and Secure Exchange and Use of Electronic Information and Health Information Technology
4. Administration of Grants, Contracts, and Financial and Administrative Management Systems
5. Ensuring Appropriate Use of Prescription Drugs
6. Ensuring Quality in Nursing Home, Hospice, and Home- and Community-Based Care
7. Implementing, Operating, and Overseeing the Health Insurance Marketplaces
8. Reforming Delivery and Payment in Health Care Programs
9. Effectively Operating Public Health and Human Services Programs
10. Ensuring the Safety of Food, Drugs, and Medical Devices

See the full report on the OIG site at: http://oig.hhs.gov/reports-and-publications/top-challenges/2015

 

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Also see these sections of the Agency Financial Report:

• Section I: Management, Discussion and Analysis
• Section II: Financial Section
• Section III: Other Information - Subsection 1
• Section III: Other Information - Subsection 2
• Section III: Other Information - Subsection 3
• Appendices

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