Weaknesses Led to Uninsured Workers, Added Costs to U.S. Government
Arlington, Va. - The Office of Special Inspector General for Afghanistan Reconstruction today released an audit showing that the U.S. Army Corps of Engineers failed to exercise strong oversight of the Defense Base Act insurance program in Afghanistan, leading to higher insurance premium rates than necessary, instances in which contractors did not obtain insurance for their workers, and up to $58.5 million in refunds not returned to the U.S. government.
The audit specifically found that the Army Corps of Engineers agreed to higher premium rates sought by the Continental Insurance Company (CNA) -the single provider of DBA insurance in Afghanistan -leading to $9.9 million in added costs to the U.S. government.
"The Defense Base Act is designed to protect workers employed on behalf of the U.S. government, often in difficult and dangerous environments such as war zones. But our audit found that some workers in Afghanistan were left with partial coverage or no coverage at all. We also found that the U.S. government paid more for this insurance than it had to; our recommendations are designed to address these issues and correct weaknesses in the DBA program,"said Herbert Richardson, acting Special Inspector General for Afghanistan Reconstruction.
Background:
The Defense Base Act, enacted in 1941, requires U.S. government prime contractors and subcontractors to provide workers' compensation insurance for employees working overseas.
DBA insurance carriers provide disability and medical benefits for work-related injuries, and death benefits to eligible survivors for work-related deaths. The U.S. government reimburses contractors for the cost of their DBA premiums.
As of December 2010, DBA cases in Afghanistan totaled 10,600. Since 2005, the Army Corps of Engineers has contracted with CNA as the single DBA provider for all Army Corps of Engineer contracts. In 2008, U.S. Central Command Joint Theater Supporting Contracting Command (C-JTSCC) contracts were added to the USACE DBA program. CNA has collected approximately $225 million in premiums for these contracts.
SIGAR's audit was undertaken to determine whether DBA premium rates were set at appropriate levels; to assess Army Corps of Engineers and C-JTSCC internal controls for ensuring prime contractors and subcontractors obtain insurance in compliance with DBA; and to evaluate DBA billing and reimbursement processes.
Key findings:
The Army Corps of Engineers agreed to higher premium rates than were provided for under the contract's definition of loss ratio, resulting in $9.9 million additional cost to the U.S. government.
Some subcontractors in Afghanistan did not purchase DBA insurance. Contracting officers did not always adjust the amount of DBA required when major changes were made to contracts or ensure that contractors renewed their DBA policies when needed. These weaknesses increased the risk that workers in Afghanistan do not have the coverage they are entitled to. The process for billing and reimbursing contractors fails to ensure that the U.S. government receives refunds it is owed; refunds due the U.S. government could total $58.5 million.
SIGAR makes four recommendations to the acting Commanding General of the Army Corps of Engineers, intended to strengthen the DBA contract and address problems with CNA's data; and four recommendations to the acting Commanding General of Army Corps of Engineers and the Commander of C-JTSCC to strengthen the DBA program and recover any funds due the U.S. government.
The audit (SIGAR Audit 11-15, "Weaknesses in the USACE Defense Base Act Insurance Program Led to as Much as $58.5 Million in Refunds Not Returned to the U.S. Government and Other Problems") may be found on the SIGAR website at https://www.sigar.mil/.