Kusserow on Compliance: OIG reports that CMS failure poses federal funding financial risks

The HHS Office of Inspector General (OIG) issued a report that found CMS failed to properly conduct “close out” audits of their contractors, which constitutes a violation of federal acquisition regulations (FARs). Further, the report found that the delayed closeout process is posing financial risks to CMS funds.

As of February 2014, CMS owed $15 billion on 1,229 contracts, which were held by 500 separate contractors. CMS relies extensively on contractors to carry out its basic mission and spends billions of dollars each year in contracts for a variety of goods and services. Once a contractor has completed contract requirements, a “close out” audit is required. This is a particularly important effort in light of the fact that improper payments may be identified and recovered during this process; it is the last chance for improper contract payments to be detected and recovered. Delayed closeout poses a financial risk to agency funds. The OIG noted that a past report by the Government Accountability Office (GAO) found a large backlog of unclosed contracts at CMS.

The agency initiated a review of this process in the last year to: (1) determine whether CMS had addressed the deficiencies noted by GAO; (2) to gauge CMS’ progress in addressing issues identified; and (3) to ensure continuing improvements in contract management. The OIG stated that the recommendations it provided to CMS are meant to improve its contract management and better protect federal funds. The OIG review focused on CMS’ FAR contracts active as of February 2014 and analyzed contract data to determine: (1) the number of active contracts and the amounts obligated to those contracts and (2) the number and total cost of contracts pending and overdue for closeout. The analysis also entailed interviewing CMS staff and reviewing policies and procedures related to contract closeout.

The OIG found that CMS contractors completed work for 6,126 contracts (amounting to $25 billion) that had not been closed out, as required under the FARs. Many of these contracts were at least 10 years overdue for close out and the status of a number of contracts could not be determined because of inconsistent and conflicting data. Because the closeout process is usually the last chance for improper payments to be detected and recovered, delays in the closeout process pose a financial risk to CMS. CMS reported a number of barriers to meeting its obligations, including resource constraints. Furthermore, CMS lacks key pieces of information, such as project description and contract payments that are not easily accessible through its contract management system and that could be used to manage and oversee contracts.

OIG recommendations to CMS

  • Implement additional strategies to meet required FAR timeframes for closeout.
  • Determine the status of contracts for which closeout status could not be determined.
  • Improve reports from the contract management system to allow for easier access to contract data that would assist in closeout and funds management.
  • Improve coordination and collaboration across departmental staff with contract closeout responsibilities.

CMS concurred with all four recommendations.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.