SOCIAL SECURITY ADMINISTRATION

CONTRACT WITH LOCKHEED MARTIN
GOVERNMENT SERVICES, INC.FOR
DIGITAL IMAGING SERVICES

November 2008

A-04-08-18066

AUDIT REPORT

Mission

By conducting independent and objective audits, evaluations and investigations, we inspire public confidence in the integrity and security of SSA’s programs and operations and protect them against fraud, waste and abuse. We provide timely, useful and reliable information and advice to Administration officials, Congress and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

 Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
 Promote economy, effectiveness, and efficiency within the agency.
 Prevent and detect fraud, waste, and abuse in agency programs and operations.
 Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
 Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

 Independence to determine what reviews to perform.
 Access to all information necessary for the reviews.
 Authority to publish findings and recommendations based on the reviews.

Vision

We strive for continual improvement in SSA’s programs, operations and management by proactively seeking new ways to prevent and deter fraud, waste and abuse. We commit to integrity and excellence by supporting an environment that provides a valuable public service while encouraging employee development and retention and fostering diversity and innovation.

MEMORANDUM

Date: November 20, 2008 Refer To:

To: The Commissioner

From: Inspector General

Subject: Contract with Lockheed Martin Government Services, Inc., for Digital Imaging Services (A-04-08-18066)

OBJECTIVE

The objectives of our audit were to ensure (1) the services and related costs Lockheed Martin Government Services, Inc. (Lockheed), charged the Social Security Administration (SSA) under Contract Number SSOO-05-40013 adhered to the negotiated contract terms and applicable regulations and (2) SSA personnel properly monitored the contract.

BACKGROUND

Electronic Disability (eDIB) is a major SSA initiative to automate and improve the disability claims process. Under eDIB, an electronic claims folder is created for individuals applying for Disability Insurance benefits. Before the implementation of eDIB, the disability claims process involved gathering paper evidence and assembling the documents into a paper-based disability claims folder. The paper folder was then mailed to the SSA components responsible for processing the claim. Using eDIB, SSA captures disability evidence electronically and stores it in an electronic claims folder. The electronic folder can be easily and instantly accessed by all components involved in processing a disability claim, thereby eliminating the delay involved with mailing paper folders between components.

Under eDIB, any paper medical and non-medical evidence received to support a disability decision must be converted to a digital (electronic) image. To aid in this process, in August 2005, SSA entered into a 5-year Blanket Purchase Agreement (BPA) with Lockheed for nationwide scanning services. Under the BPA, Lockheed scans paper documents, creates quality digital images, and securely transmits the images to SSA. Lockheed also stores and destroys the imaged paper documents and protects the confidentiality of both the electronic images and the paper documents in its custody. The cost of the scanning service over the 5-year period is estimated at about
$124 million. Table 1 details the contract costs during our audit period.

Table 1: Contract Costs by Service Period
Year Contract Service Period Cost
1 November 2005 – August 2006 $22,047,459
2 September 2006 – August 2007 $26,989,727
3 September 2007 – December 2007 $8,840,884
Totals $57,878,070

RESULTS OF REVIEW

The services Lockheed provided and costs it charged SSA generally adhered to the contract terms. Lockheed provided SSA with quality digital images of paper documents in a timely manner. The unit prices charged to SSA agreed with the contract prices, and the quantity of services billed agreed with the contractor’s production reports. Lockheed submitted the invoices promptly, and SSA made timely and accurate payments. Finally, SSA personnel properly monitored the contract.

However, SSA could save as much as $67,311 a month in shipping and related costs by reducing the number of paper documents Lockheed is required to forward (send) to SSA components and State DDSs. The paper documents being forwarded have already been scanned, and the electronic images are available to their users. As such, we believe shipping scanned paper documents—which may cost about $1.6 million over the remainder of the contract—is unnecessary.

SSA COULD REDUCE SHIPPING AND RELATED COSTS BY NOT FORWARDING PAPER DOCUMENTS THAT HAVE ALREADY BEEN SCANNED

SSA could save as much as $67,311 a month—or about $1.6 million over the remaining 2 years of the contract—by only shipping documents that DDSs and SSA components definitely need to verify a digital image or add to a paper case file.

Lockheed creates digital images of all paper documents it receives. However, in certain situations, Lockheed’s contract with SSA requires that it forward already-scanned paper documents to a State DDS or SSA component. Most paper documents are forwarded

because SSA’s barcode is missing or damaged or the barcode instructs Lockheed to forward the paper document to the component that initially requested the information. Because the digital image of these documents is available to SSA users, we believe shipping the source paper documents to DDS and State components is unnecessary and costly. In lieu of forwarding documents, Lockheed could store these documents with other imaged documents for future reference, if needed.

Cost of Forwarding Documents with Missing or Damaged Bar Codes Could be Reduced

SSA could save as much as $42,306 a month—or about $1 million over the remaining 2 years of the contract—by not forwarding paper documents that have already been scanned, but had a missing or damaged barcode. Table 2 calculates the cost savings that could be achieved by not forwarding these documents.

Table 2: Cost Savings—Documents with a Missing or Damaged Barcode
Average Monthly Cost for Shipping Paper and Other Documents $69,605
Percent of Forwarded Documents with a Missing or Damaged Barcode 62.6
Monthly Cost Savings Before Destruction and Storage Costs to be Incurred from Not Forwarding Documents ($69,605 X 62.6 percent)
$43,573
Less: Destruction and Storage Costs to be Incurred $1,267
Adjusted Monthly Contract Savings $42,306
Number of Months Remaining on the Contract 24
Total Contract Savings ($42,306 X 24 months) $1,015,344

SSA’s barcode, which should be included with all documents sent to Lockheed, provides information to electronically identify the document. However, Lockheed occasionally receives documents with no, or a damaged, barcode. When this occurs, Lockheed is still required to scan the document and transmit the electronic image to the responsible DDS or SSA component. To enable transmission, Lockheed manually inputs the site location into its system.

The DDS or component that receives the image indexes it to the claimant’s electronic claims folder. To index the document, staff must verify the claimant’s Social Security number, the document type and the evidence request number. Typically, DDSs and SSA components verify this information using Lockheed’s electronic image, not the forwarded paper document.

In conjunction with our audit, SSA’s Office of Operations (Operations) surveyed State DDSs to determine whether the paper document was needed to verify Lockheed’s manual inputs. In general, the survey found DDS staff never or rarely referred to the forwarded paper documents. Rather, staff used the digital image—a copy of the paper document. As such, Operations is considering a national pilot that would determine whether these documents could be simply stored at the scanning facilities for future reference.

In addition to the cost savings, storing the paper documents at the scanning facility would reduce the risk of inadvertent loss of personally identifiable information that could result from placing medical and non-medical evidence back into the mail system.

Costs of Forwarding Documents for Inclusion in Paper Folders Could be Eliminated

SSA could save as much as $25,005 a month—or about $600,000 over the remaining 2 years of the contract—if DDSs and SSA components do not instruct Lockheed to forward paper documents when a paper folder may be involved. Table 3 calculates the cost savings that SSA could recognize if it implemented this practice.

Table 3: Cost Savings—Documents for Inclusion in Paper Folders
Average Monthly Cost for Shipping Paper and Other Documents $69,605
Percent of Returned Documents for Inclusion In Paper Folders 37.0
Monthly Cost Savings Before Additional Destruction and Storage Costs to be Incurred from Not Forwarding Documents ($69,605 X 37.0 percent)
$25,754
Less: Destruction and Storage Costs to be Incurred $749
Adjusted Monthly Cost Savings $25,005
Number of Months Remaining on the Contract 24
Total Contract Savings ($25,005 X 24 months) $600,120

When a paper claims folder exists, a DDS or SSA component can instruct Lockheed (via the barcode) to forward the paper document to it for inclusion in the paper claims folder. About 37 percent of all documents Lockheed forwarded was because of DDS’ and SSA components’ forwarding instructions. However, during our audit period, all DDSs and all but two SSA components serviced by Lockheed had obtained SSA’s approval to work in an electronic claims environment. As such, the DDSs and SSA
components no longer construct paper claims folders—although, for some older claims, a paper folder may still be involved.

SSA’s project manager also expressed concern with the significant number of documents being forwarded per the barcode instructions. As a result, Operations asked DDSs with an unusually high number of forwarded documents to determine whether their barcode instructions were correct. At the time of our audit, one DDS had reported that its barcode incorrectly included forwarding instructions. The DDS took action to remove the forwarding instructions from the barcode. We also found one DDS that was simply printing the document from the electronic file and placing it in the paper folder. This practice would eliminate the need for Lockheed to forward documents.

We commend SSA for working with DDSs to identify documents that are unnecessarily forwarded. To further reduce the cost of forwarding documents, we recommend that SSA (1) ensure all DDSs and SSA components review the appropriateness of the forwarding instructions in their barcode and (2) consider having DDSs and SSA components print the evidence from the electronic file—in lieu of Lockheed forwarding paper documents.

CONCLUSION AND RECOMMENDATIONS

In general, Lockheed complied with the contract and accurately billed SSA for the services it provided. However, SSA could reduce costs incurred under the contract by reducing the number of paper documents Lockheed is required to forward to DDSs and SSA components. Specifically, SSA could save as much as $67,311 a month in shipping and related costs by reducing the number of already imaged paper documents that are unnecessarily being forwarded. Over the remaining 2 years of the contract, SSA could save about $1.6 million in shipping and related costs. Accordingly, we recommend that SSA:

1. Determine whether the requirement to forward all paper documents with a missing or damaged barcode to the responsible SSA component should be eliminated.
2. Ensure State DDSs and SSA components review the appropriateness of the forwarding instructions in their SSA-generated barcode.
3. Consider having DDSs and SSA components print the document from the electronic file, in lieu of Lockheed forwarding paper documents, when a paper claims folder is involved.

AGENCY COMMENTS AND OIG RESPONSE

SSA agreed with our recommendations. The Agency’s comments are included in Appendix D.

/s/
Patrick P. O’Carroll, Jr.

Appendices
APPENDIX A – Acronyms
APPENDIX B – Scope and Methodology
APPENDIX C – Sampling Methodology
APPENDIX D – Agency Comments
APPENDIX E – OIG Contacts and Staff Acknowledgments

Appendix A
Acronyms

BPA Blanket Purchase Agreement
DDS Disability Determination Services
eDIB Electronic Disability
Lockheed Lockheed Martin Government Services, Inc.
OIG Office of the Inspector General
Operations Office of Operations
SSA Social Security Administration

Appendix B
Scope and Methodology

In August 2005, the Social Security Administration (SSA) entered into a 5-year Blanket Purchase Agreement (BPA) with Lockheed Martin Government Services, Inc. (Lockheed), for scanning services to convert paper medical and non-medical documentation into digital images as well as related services. The related services include securely transmitting the images to SSA and protecting the confidentiality of SSA’s paper documents and electronic images. The cost of the scanning service over the 5-year period is estimated at about $124 million. Lockheed began providing services under the BPA in November 2005. Our audit covered the period November 2005 through December 2007.

To accomplish our objectives, we:

• Reviewed the contract and the contract modifications that applied during our review period.

• Reviewed pertinent sections of SSA’s policies and procedures, handbooks, and relevant Federal laws and regulations.

• Interviewed SSA and Lockheed personnel associated with the BPA.

• Reviewed Lockheed’s invoices and supporting documentation.

• Observed the contractor’s operations at each of the three scanning facilities, which included the receipt, preparation, and scanning of documents. We also observed the controls for the storage and destruction of documents containing personally identifiable information.

• Observed the physical security at each of the three scanning facilities.

For each invoice, we:

• Verified the type of services billed to the contract and contract modifications.

• Verified the unit price charged to the contract and contract modifications.

• Verified the quantities billed to production reports.

• Determined whether Lockheed submitted the invoice timely.

• Determined whether SSA’s payments were accurate and timely.

To assess the quality of the digital images and the accuracy of billing records, we performed tests at each of the three scanning facilities. At each site, we randomly selected 50 boxes of paper documents that were stored at the facility during the 15-day retention period. We tested 1 document (all documents included multiple pages) from each box, for a total of 150 documents. For each paper document, we determined whether (1) all pages in the document had a corresponding digital image, (2) the digital images were legible, and (3) the number of pages electronically recorded for the imaged document agreed with the number of pages in the paper document. We did not test the contractor’s proprietary software used to generate production reports. However, we determined the data used for this audit were sufficiently reliable to meet our audit objectives.

The entities audited were Lockheed; the Offices of Acquisition and Grants and Financial Policy and Operations within the Office of Budget, Finance, and Management; and the Office of Disability Systems. Our tests of internal controls were limited to gaining an understanding of laws, regulations and policies that govern the Federal contracting procedures necessary to address our audit objectives. We conducted the audit between November 2007 and August 2008 in Atlanta, Georgia; London, Kentucky; Draper, Utah; and Mt. Vernon, Illinois. The audit was conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix C
Sampling Methodology

At each of the 3 scanning facilities, we randomly selected 50 boxes of paper documents that had been scanned and were being stored at the facility during the required 15-day document retention period. From each box, we selected one document for testing. As such, we tested 50 documents from each facility for a total of 150 documents. For each paper document, we performed tests to determine whether (1) all pages in the document had a corresponding digital image, (2) the digital images were legible, and
(3) the number of pages electronically recorded for the imaged document in Lockheed’s system agreed with the number of pages in the paper document. We found no errors in our test sample.

Scanning Facility Document
Retention
Period Population of Storage Boxes Document Selection Criteria Total Pages Reviewed
London, Kentucky November 9, 2007 through
November 27, 2007 1,327 First Document in the Box 2,654
Draper, Utah December 31, 2007 through
January 14, 2008 359 Fifth Document in the Box 1,022
Mt. Vernon, Illinois December 31, 2007 through
January16, 2008 573 Last Document in the Box 2,027
Total 5,703

Appendix D
Agency Comments

.

MEMORANDUM

Date: November 3, 2008 Refer
Refer To: S1J-3

To:
Patrick P. O'Carroll, Jr.
Inspector General

From: David V. Foster – DVF /s/
Executive Counselor to the Commissioner

Subject: Office of the Inspector General (OIG) Draft Report, “Contract with Lockheed Martin Government Services, Inc., for Digital Imaging Services” (A-04-08-18066)—INFORMATION

We appreciate OIG’s efforts in conducting this review. Attached is our response to the recommendations.

Please let me know if we can be of further assistance. Please direct staff inquiries to
Ms. Candace Skurnik, Director, Audit Management and Liaison Staff, at (410) 965-4636.

Attachment

COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL (OIG) DRAFT REPORT “CONTRACT WITH LOCKHEED MARTIN GOVERNMENT SERVICES, INC., FOR DIGITAL IMAGING SERVICES” (A-04-08-18066)

Thank you for the opportunity to review and provide comments on this draft report.

Recommendation 1

Determine whether the requirement to forward all paper documents with a missing or damaged barcode to the responsible Social Security Administration (SSA) component should be eliminated.

Comment

We agree. As the report states, we are currently evaluating this recommendation. We will propose a national pilot that will have Lockheed Martin (LMGS) scan and transmit images of documents with damaged or missing barcodes to the responsible State disability determination services (DDS) or SSA component as they currently do. Lockheed will then store these documents (as they currently do with all imaged documents) for future reference. DDSs and SSA components will receive that image and index it to the claimant's electronic claim folder.

Recommendation 2

Ensure State DDSs and SSA components review the appropriateness of the forwarding instructions in their SSA-generated barcode.

Comment

We agree. We are working with the DDSs to ensure the barcodes we generate for electronic cases are correct so LMGS will not have to forward paper documents to the DDSs.

Recommendation 3

Consider having DDSs and SSA components print the document from the electronic file, in lieu of LMGS forwarding paper documents, when a paper claims folder is involved.

Comment

We agree and will continue to evaluate this recommendation. While this recommendation would reduce shipping costs from the contract scanner, it would increase needed resources in the DDSs and SSA components in order to print and associate the documents with the paper folder. With each SSA and DDS legacy system's enhancement release, the number of paper cases decrease. Naturally, as the number of paper cases decrease, the number of documents that must be shipped from the contract scanner decreases. Because of these scenarios we will evaluate this recommendation more closely before any final decisions are made.

Appendix E
OIG Contacts and Staff Acknowledgments
OIG Contacts

Kimberly Byrd, Director, Southern Audit Division, (205) 801-1650

Frank Nagy, Audit Manager, Atlanta Office of Audit, (404) 562-5552

Acknowledgments

In addition to those named above:

Teaketa Turner, Senior Auditor

Mike Leibrecht, Senior Auditor

For additional copies of this report, please visit our web site at www.socialsecurity.gov/oig or contact the Office of the Inspector General’s Public Affairs Staff Assistant at (410) 965-4518. Refer to Common Identification Number
A-04-08-18066.

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Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of an Office of Audit (OA), Office of Investigations (OI), Office of the Counsel to the Inspector General (OCIG), Office of External Relations (OER), and Office of Technology and Resource Management (OTRM). To ensure compliance with policies and procedures, internal controls, and professional standards, the OIG also has a comprehensive Professional Responsibility and Quality Assurance program.
Office of Audit
OA conducts financial and performance audits of the Social Security Administration’s (SSA) programs and operations and makes recommendations to ensure program objectives are achieved effectively and efficiently. Financial audits assess whether SSA’s financial statements fairly present SSA’s financial position, results of operations, and cash flow. Performance audits review the economy, efficiency, and effectiveness of SSA’s programs and operations. OA also conducts short-term management reviews and program evaluations on issues of concern to SSA, Congress, and the general public.
Office of Investigations
OI conducts investigations related to fraud, waste, abuse, and mismanagement in SSA programs and operations. This includes wrongdoing by applicants, beneficiaries, contractors, third parties, or SSA employees performing their official duties. This office serves as liaison to the Department of Justice on all matters relating to the investigation of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.
Office of the Counsel to the Inspector General
OCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCIG also advises the IG on investigative procedures and techniques, as well as on legal implications and conclusions to be drawn from audit and investigative material. Also, OCIG administers the Civil Monetary Penalty program.
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Office of Technology and Resource Management
OTRM supports OIG by providing information management and systems security. OTRM also coordinates OIG’s budget, procurement, telecommunications, facilities, and human resources. In addition, OTRM is the focal point for OIG’s strategic planning function, and the development and monitoring of performance measures. In addition, OTRM receives and assigns for action allegations of criminal and administrative violations of Social Security laws, identifies fugitives receiving benefit payments from SSA, and provides technological assistance to investigations.