GAO: CMS’ Lack of Internal Control Hinders Contract Management
In 2007, GAO found deficiencies in CMS’ internal control over administrative services contracts to implement the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which required CMS to start applying the FAR to its Medicare claims processing contracts, a process that MMA requires to be finished by fiscal ’11. GAO made nine recommendations (see chart below) to ameliorate the problem, and they’ve released a follow-up report detailing CMS’ inaction on many of their recommendations, finding that 84.3% of contracts from fiscal ’08 had at least one instance where a key control was not adequately implemented and 37.2% were deficient in at least three key controls. GAO reviewed contract actions ranging from a $1,000 firm-fixed price contract for newspapers to a $17.5 million modification of an information technology contract valued at over $500 million.
For example, GAO reports that CMS used cost reimbursement contract vehicles without verifying that contractors had a FAR-compliant accounting system at least nine times in 2008. From GAO’s report, “in addition to these nine cases, during our review of contract modifications we observed another six cases in which cost reimbursement contracts were used even though CMS was aware that the contractor’s accounting system was inadequate at the time of award. In one instance, the contracting officer was aware that a contractor had an inadequate accounting system resulting from numerous instances of noncompliance with applicable Cost Accounting Standards.”
Without a proper accounting system, there’s no way to even audit the company’s declared expenses under a “cost plus” style contract. In fact, 52% of the time, CMS didn’t even have adequate support mechanisms in place to audit indirect contractor expenses as required by FAR. From the report, “CMS did not promptly close out its contracts and had not made progress in reducing the backlog of contracts eligible for closeout…This backlog continued to increase, and CMS officials stated that as of July 29, 2009, the total backlog of contracts eligible for closeout was 1,611, with 594 overdue based on FAR timing standards.”
Also, in 2008, 59% of CMS project officers overseeing contracts didn’t always certify invoices from contractors. “For example, in one case, although a contractor submitted over 100 invoices for fiscal year 2008,30 only 8 were certified by the project officer. The total value of the contract through January 2009 was about $64 million.”
GAO’s report concludes that, “while we have not updated the status of any CMS actions to address our October 2009 findings and recommendations, the extent to which control weaknesses in CMS’s contracting activities continue, raises questions concerning whether CMS management has established an appropriate “tone at the top” to effectively manage these key activities.”
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