CHAPTER 6. STATISTICAL SAMPLING PROCEDURES FOR INSURANCE REFUNDS

6.01 GENERAL

a. Pursuant to Public Law 88521, August 30, 1964, as amended by Public Law 93-604, January 2, 1975, provides that statistical sampling procedures may be applied to the audit of vouchers for amounts of less than $500. The governing rules and regulations are contained in title 3, chapter 5 of the General Accounting Office Policy and Procedures Manual for Guidance of Federal Agencies. Under these rules, no certifying officer acting in good faith and in conformity therewith, shall be held liable with respect to any certification or payment made by him on a voucher which was not subject to specific examination because of the prescribed statistical sampling procedure, provided that such officer pursue collection action to recover the illegal, improper or incorrect payment.

b. Under the above authority, all clerically prepared insurance refunds will be examined under the statistical sampling procedures prescribed herein.

6.02 OBJECTIVE

The objective of the procedure is to estimate the frequency of financial errors in the universe of refund vouchers under $500 by examining a sample thereof and if the frequency of errors remains within prescribed limits, continue to limit the examination of all refunds under $500 to the selected sample. The result of these procedures is to effect economy in the audit of these vouchers and, at the same time, determine and control the amount of errors in unaudited vouchers to a value acceptable to management.

6.03 UNIVERSE

All refund disbursements under $500 paid by manually prepared voucher forms and input documents prepared to accomplish the same through the computer system, will be included for examination on a sampling basis. Input prepared without amounts to initiate payment through the computer system will be considered as exceeding $500.

6.04 SELECTION PROCESS

The vouchers to be audited will be selected by using the hundredth position of the file number. To obtain an expected 20 percent sample, two digits in the hundredth position will be used each day. These digits will be determined by using the last two positions of the file number of the last case entered in the log for the previous day. Should these digits be alike, go to the previous entry until unlike digits are obtained. Before the selection is made, all vouchers or input documents reflecting a disbursement of $500 or more and all input documents without amounts to be refunded, will be withdrawn for 100 percent examination in accordance with current procedures.

6.05 DEFINITION-REFUNDS

Recognizing that there may be some disbursements arising as a result of unusual transactions and which may be included under this procedure, refunds are defined as follows:

a. Return of collections or deductions from allotments which were in excess of the needs to:

(1) Pay premiums.

(2) Full settlement of policy loans, liens or other indebtedness.

b. Amounts tendered by an insured or noninsured, which he later claims to have remitted in error.

c. Payments of miscellaneous settlement amounts to beneficiaries, which may be of the same type as above and withdrawal of Dividend Credits or Dividend Deposits, will not be included in the statistical sampling technique.

6.06 ERRORS

a. It is not possible to define all the conditions which might be classified as a financial or nonfinancial error. As a guide, the following is offered:

(1) Financial Error: Incorrect computations affecting the amount of the refund being made, payments to wrong payee, payments from the wrong fund or on the wrong policy, amounts determined not to be due, etc.

(2) Nonfinancial: Errors in input or in the manually prepared voucher forms, which do not affect the amount of payment being made. (Includes wrong address.)

b. If more than one financial error occurs per policy, it will be counted as one error.

c. An error rate of 4 percent (four vouchers with one or more errors in 100) shall be used as the acceptable quality level. The upper and lower control levels as shown in M202, appendix E, should be used for comparison of percent of error for monthly, quarterly and 12month cumulative data. If the error percentages for successive months fall within the upper and lower control limits, the operation is ordinarily considered to be under control and no action is indicated. Action should be taken to review the procedure when error percentages result in an "outofcontrol" condition as described in M202, paragraph 5.04. When "outofcontrol" conditions occur, they should be reported in the next quarterly report, including a statement identifying the reason therefor or indicating corrective action taken.

6.07 RECORDS AND CONTROLS

a. In order that the certifying officer may be relieved of liability for overpayments on vouchers not audited under the statistical audit program, it is essential that the program be carefully controlled and that a record of the activities and results be maintained.

b. Recordkeeping and voucher selection should be assigned to an individual other than a voucher examiner and the supervision of this function should be assigned to the highest supervisory position in the Voucher Audit activity or the next higher echelon.

c. A daily record of vouchers, which meet the criteria for inclusion in the statistical audit program, will be maintained showing as a minimum the following:

(1) Date.

(2) Digits used for selecting sample.

(3) Number of vouchers selected from the batches of refund vouchers received (under $500, etc.) which meet the criteria for statistical sample audit. The term "voucher" used herein refers to a disbursement, whether it is to be scheduled manually or paid by the system based on one or more input documents.

(4) Value of all vouchers in the universe.

(5) Number of vouchers in the batches selected for audit.

(6) Make a line entry for each of the vouchers selected, showing file numbers and amount of each voucher selected. On this same line, if applicable, enter:

(a) Amount of overpayment or underpayment, if any, preclude by the audit.

(b) Date of memo returning the voucher to the Insurance Division if the audit resulted in an exception.

(c) Date of resubmission of the voucher by the Insurance Division or advice that entire payment is being deleted. (Resubmitted vouchers are not to be considered for reselection.)

(7) Record the daily total of all vouchers in the universe and the number selected for audit, the value of each category, the net overpayments/underpayments and the number of errors.

d. One column of the daily record may be used for recording one or more nonfinancial errors, if present. If desired, this column may be coded to show the type of administrative error. Such codes, if used, should be mutually agreed upon between the Finance and Insurance Divisions.

e. Each voucher selected for audit will be stamped "Selected for Audit." In the case of input-type vouchers, this statement should be placed on the basic document validating the disbursement, which is retained in the folder.

f. All manually prepared vouchers audited under sampling control procedures must be scheduled separately from all other vouchers. The schedule will also be stamped "Selected for Audit."

g. All manual vouchers meeting the criteria for statistical sampling audit but not selected for audit, will be scheduled for payment without audit.

h. All input related to an audited refund disbursement will be assigned batch numbers 9T, unless payment is made off system and has related input to update the master record, in which instance batch control number ZB will be used. These control numbers will not be used for any other input.

i. All input type vouchers not selected for audit will be assigned batch numbers from the regular series for refunds and immediately sent for processing by the computer system. Any rejects from such processing, involving a financial error, will not be included in the development of the statistics relating to the 20 percent sample. A record of these errors and the related file number will be maintained. It is recommended that they be entered below all other data for the day recorded in the suggested daily log of activities. Audited vouchers having financial errors, rejected by the system, will be included in the sample statistics.

6.08 REPORTS

a. A quarterly report, in duplicate, will be sent to the appropriate Field Director (047C1) giving the results of the statistical sampling audit of insurance refunds. As a minimum, the following information will be reported showing the last quarterly totals and the moving yearly totals to the last quarter being reported:

(1) Number of vouchers in universe.

(2) Number of vouchers selected for audit.

(3) Number of vouchers with financial error.

(4) Results of financial errors revealed by audit.

(a) Value of all overpayments.

(b) Value of all underpayments.

(c) Net overpayments/underpayments ((a)(b)).

(5) Percent of vouchers audited having financial error ((3) divided by (2)).

(6) Estimated value of net overpayments in the unaudited vouchers ((4)(c) divided by (2)) ((1)-(2)).

(7) If error rate goes out of control, furnish a complete explanation as to the reason and indicate corrective action taken, if any.

(8) Figure estimated savings that have been accomplished because of the use of statistical sampling and indicate in report.

b. The report should be released by the 10th workday following the quarters ending March, June, September and December. Reports Control Symbol 047-5 is assigned to this report.