ARLINGTON, Va.—A government audit concluding that an insurance program for injured contract workers in Afghanistan potentially lost tens of millions of dollars also calls into question CNA Financial Corp.'s billing methods.

The audit, released Thursday by the Special Inspector General for Afghanistan Reconstruction, blames the U.S. Army Corps of Engineers for failing to exercise strong oversight of its Defense Base Act workers compensation insurance program in Afghanistan, which led to higher insurance costs than necessary.

The Army Corps agreed to pay higher premiums than called for by CNA's loss ratio, according to the report.

“Although CNA reported a loss ratio of 5.2%, it requested and received higher rates than were indicated for that ratio, giving it $9.9 million more in premiums than it would have collected using the lower rates,” the special inspector general found.

The report also determined that a process applied by CNA unit Continental Insurance Co. when billing and reimbursing contractors for DBA insurance costs commingled funds, a violation of U.S. funding restrictions.

CNA defends prices, practices

In response, a spokeswoman for Chicago-based CNA said its insurance “was appropriately priced and we acted transparently and in good faith in all our dealings” with the Army Corps of Engineers.

To confirm that CNA did not receive premiums in excess of amounts it was entitled to under its contract, the insurer retained an actuarial expert, the spokeswoman said.

The actuarial expert concluded that CNA's methodology, loss ratio and reserving practices used to price its coverage were consistent with sound actuarial science and reasonable industry practices, the spokeswoman added.

The Defense Base Act of 1941 requires federal government contractors to purchase workers comp insurance for their employees working overseas.

Insurers that provide the coverage in war zones have faced criticism in the past for profit they reap from the government-mandated program.

Since 2005, the Army Corps has contracted with CNA as its single source of DBA coverage for which the insurer has collected about $225 million in premiums, according to the special inspector general.

The audit report states that the special inspector general also determined that the Army Corps has not recovered refunds from contractors for DBA insurance coverage that are due it, which could amount to another $58.5 million in losses.

Among other recommendations, the audit suggests that the Army Corps modify its contract with CNA to require additional reporting from the insurer.