The government hired Continental Insurance Co., a subsidiary of CNA Financial Corp., to administer the program for contractors of the U.S. Army Corps of Engineers and U.S. Central Command Joint Theater Support Contracting Command. The Chicago-based insurer has collected about $225 million in premiums under the program since 2005.

The audit recommends requiring Continental to provide additional reporting and undergo periodic independent reviews. It also recommends the two Defense Department agencies get back the money owed the government. The two agencies agreed to the recommendations in written responses to the inspector general.

But the workers' compensation program is so riddled with problems as a result of using a third-party insurer that the inspector general's office suggests it may be worthwhile to dump the insurer altogether, the audit reads.

"Our findings suggest that consideration of the self-insurance option may be warranted," it says.

The audit shows the Army Corps of Engineers agreed to pay Continental higher premium rates than warranted, leading to being overcharged $9.9 million. Some subcontractors did not have insurance policies, or their policies were not adjusted when major changes were made to contracts, increasing the risk that workers in Afghanistan don't have the insurance coverage they needed for the jobs they were carrying out.

Also, the audit found Continental Insurance used a billing and reimbursement process that commingled funds in violation of the law and prevented the U.S. government from receiving refunds it was owed, which could total as much as $58.5 million.

CNA Financial Corp. spokeswoman Katrina Parker disputed that the company improperly billed or overcharged the U.S. government, saying all of its actions were permissible under the contract.

"The program was appropriately priced and CNA acted transparently and in good faith with all our dealings with the U.S. Army Corps of Engineers," Parker said.

The company intends to continue administering the DBA program and is willing to work with the government on how to improve it, she said.

Willcockson said he and the other three members of his contingency contracting team first became suspicious about the program last year when they realized they had not seen a single DBA insurance claim during their deployment. Meanwhile, Continental Insurance was charging high premiums to the Afghan businesses that did contracting work for the government, he said.

When he tried to investigate further, he said the company would not disclose its loss ratio—the amount an insurance company pays in claims compared to what it makes in premiums. A good loss ratio is about 70 percent, Willcockson said, meaning that for every dollar in premiums, a company pays out 70 cents in claims. The rest goes to pay overhead, for reserves and for profit, he said.

"If it's above 70 percent, it's probably not making enough to make a profit," Willcockson said. "If it's way lower, it's probably a sham."

Willcockson said he suspected Continental Insurance's loss ratio was less than 50 percent. The inspector general's audit found it was just over five percent.

Parker said the company retained an actuary that concluded Continental Insurance's loss ratio and pricing practices were consistent with reasonable industry practices.

Willcockson said he brought his concerns to the Army, but an internal investigation by the Army Audit Agency stalled. He said he decided to write to Tester with the full knowledge and consent of his chain of command.

"As a final resort, I said, 'OK, I'm a U.S. citizen, I'm a taxpayer. I'm going to let my congressman know," Willcockson said.

Tester forwarded the letter to Arnold Fields, the Special Inspector General for Afghanistan Reconstruction in November with a request that the claims be investigated.