Department of
 

Veterans Affairs
 

Audit of
 

Retention Incentives
 

for Veterans Health
 

Administration and VA
 

Central Office Employees
 

OFFICE OF AUDITS AND EVALUATIONS

November 14, 2011 

10-02887-30 
ACRONYMS AND ABBREVIATIONS
 

OIG Office of Inspector General 

PAID Personnel and Accounting Integrated Data 

RSA Retention Service Agreement 

SOU Statement of Understanding 

VA Veterans Affairs 

VACO Veterans Affairs Central Office 

VHA Veterans Health Administration 

To Report Suspected Wrongdoing in VA Programs and Operations:
 

Telephone: 1-800-488-8244
 

E-Mail: vaoighotline@va.gov
 

(Hotline Information: http://www.va.gov/oig/contacts/hotline.asp)
 
Report Highlights: Audit of Retention 

Incentives For Veterans Health 

Administration and VA Central Office 

Employees 

Why We Did This Audit 

VA uses retention incentives to retain 

employees in hard-to-fill positions and 

employees who possess high-level or unique 

qualifications the Department does not want to 

lose. In FY 2010, VA paid nearly $111 million 

in retention incentives to 16,487 employees. 

We conducted this audit to determine the 

adequacy of Veterans Health Administration 

(VHA) and VA Central Office (VACO) 

processes for awarding retention incentives. 

What We Found 

VHA and VACO approving officials did not 

adequately justify and document retention 

incentive awards in accordance with VA 

policy. VA lacked clear guidance, oversight, 

and training to effectively support the program. 

VA officials did not effectively use the 

Personnel and Accounting Integrated Data 

system to generate timely review notices. VA 

officials also did not always stop retention 

incentives at the end of set payment periods. 

Based on these findings, we questioned the 

appropriateness of 96 (80 percent) of 120 VHA 

incentives and 30 (79 percent) of 38 VACO 

incentives we reviewed. These incentives 

totaled about $1.06 million in FY 2010. 

What We Recommend 

We recommend the Assistant Secretary for 

Human Resources and Administration, in 

coordination with the Under Secretary for 

Health and the Deputy Assistant Secretary for 

the Corporate Senior Executive Management 

Office, revise and clarify guidance governing 

the retention incentive program. We 

recommend the Assistant Secretary for 

Human Resources and Administration 

institute controls to ensure that VA officials 

effectively stop benefits at the end of 

established payment periods, and notify 

responsible officials regarding awards 

pending review. 

We recommend the Under Secretary for 

Health, the Assistant Secretary for Human 

Resources and Administration, and the 

Deputy Assistant Secretary for the 

Corporate Senior Executive Management 

Office conduct 100 percent reviews of 

retention incentives under their purview 

and stop unnecessary payments. These 

officials should provide the oversight and 

training needed to ensure responsible 

officials properly justify and document 

retention incentives awards. 

Agency Comments 

VA senior officials concurred with our 

report recommendations and provided 

acceptable corrective action plans. We will 

follow up on implementation of the 

initiated and planned corrective actions. 

BELINDA J. FINN
 

Assistant Inspector General
 

for Audits and Evaluations
 

i 
TABLE OF CONTENTS
 

Introduction......................................................................................................................................1
 

Finding VHA and VACO Management of Retention Incentives Needs
 

Appendix C Potential Monetary Benefits in Accordance With Inspector General Act
 

Appendix F Deputy Assistant Secretary for the Corporate Senior Executive
 

Results and Recommendations ........................................................................................................2
 

Improvement .......................................................................................................2
 

Appendix A Background ...................................................................................................... 13
 

Appendix B Scope and Methodology................................................................................... 15
 

Amendments .................................................................................................... 16
 

Appendix D Under Secretary for Health Comments............................................................ 17
 

Appendix E Assistant Secretary for Human Resources and Administration Comments.... 20
 

Management Office Comments ....................................................................... 23
 

Appendix G OIG Contact and Staff Acknowledgments....................................................... 37
 

Appendix H Report Distribution .......................................................................................... 38
 

ii 
Retention Incentives for VHA and VACO Employees

Objective 

Retention 

Incentive 

Payments 

OIG Hotline 

Report 

INTRODUCTION 

The VA Office of Inspector General (OIG) conducted this audit to determine 

whether Veterans Health Administration (VHA) and Veterans Affairs 

Central Office (VACO) processes are adequate for authorizing and managing 

retention incentives to employees. 

VA uses retention incentives to retain selected employees likely to leave 

Federal service in the absence of monetary benefit encouraging them to stay. 

Typically, such employees possess unusually high or unique qualifications, 

meet special VA needs, or hold hard-to-fill positions. For FY 2010, VA paid 

nearly $111 million in retention incentives to 16,487 employees. 

The Office of Human Resource Management establishes policy for VA’s 

retention incentive program. Responsibility for executing this policy is 

highly decentralized. Heads of administrations, assistant secretaries, deputy 

assistant secretaries, and facility directors award and manage retention 

incentives in their respective organizations. The Central Office Human 

Resource Service manages retention incentives requiring centralized 

approval for VA employees in headquarters positions in Washington, DC. 

Although the Chief Business Office Workforce Management previously 

managed retention incentives for VA senior executives, the Corporate Senior 

Executive Management Office currently has this responsibility. 

This national audit builds on issues identified in our prior report, Review of 

Retention Incentive Payments at VA Medical Center, Providence, Rhode 

Island (Report No. 10-01937-68, January 20, 2011). The report concluded 

that in 17 (85 percent) of 20 cases reviewed, justification for retention 

incentive awards was not available or the supporting documentation was not 

adequate. As a result, the Providence medical facility paid inadequately 

justified or unsupported retention incentive payments to 17 employees, 

totaling almost $179,000 annually. In response to this report, VHA outlined 

actions to accomplish a 100 percent review of Providence employees’ 

retention incentives, establish controls to ensure incentives meet VA policy, 

develop standard operating procedures, and establish a system for 

maintaining all information. 

Appendix A provides background information and criteria for awarding 

retention incentives. Appendix B provides our audit scope and methodology. 

Appendix C outlines monetary benefits from this audit while Appendix D 

provides management comments in response to a draft of this report. 

VA Office of Inspector General 1
Retention Incentives for VHA and VACO Employees

Finding 

Award Criteria 

VHA Retention 

Incentives 

RESULTS AND RECOMMENDATIONS 

VHA and VACO Management of Retention Incentives 

Needs Improvement 

VHA and VACO management did not effectively manage retention 

incentives in accordance with VA policy. When approving retention 

incentives, managers did not adequately justify award decisions and maintain 

supporting documentation. This occurred because the program lacked clear 

guidance, oversight, and training. VHA and VACO officials did not 

effectively use the Personnel and Accounting Integrated Data (PAID) system 

to timely generate notices of awards pending annual review and 

reauthorization. Officials also did not take actions to stop retention incentive 

payments at the end of designated award periods. Based on these issues, we 

questioned the appropriateness of 96 (80 percent) of 120 VHA incentives and 

30 (79 percent) of 38 VACO incentives, totaling approximately 

$1.06 million during FY 2010. 

According to VA policy, the appropriate approving official must justify the 

reason for and the amount of a retention incentive in writing before the 

incentive can be paid. Retention incentives should be primarily justified 

based on the following: 

 Employment trends and labor market factors, such as limited availability 

and scarcity of candidates possessing the competencies required for the 

position. 

 Unsuccessful efforts to recruit candidates and retain employees with 

competencies similar to those possessed by the employee planning to 

leave Federal service. 

 Special or unique competencies required for the position. 

 Salaries typically paid outside the Federal government. 

Appendix A contains more detail for consideration in awarding retention 

incentives. 

VHA used incentives to retain Title 5 employees in administrative and 

support services positions and Title 38 employees, such as physicians and 

nurses. In FY 2010, VHA paid nearly $110 million in retention incentives to 

16,346 employees located at 162 facilities. 

However, VHA retention incentive awards were not always well justified. At 

times, VHA awarded retention incentives for questionable reasons, such as 

increased compensation for employees. In numerous instances, 

VA Office of Inspector General 2
Retention Incentives for VHA and VACO Employees

Inadequate 

VHA Awards 

Justification 

Questionable 

Use of VHA 

Retention 

Incentives for 

Compensation 

Package 

Increases 

documentation to support retention incentive awards was missing. For these 

reasons, we questioned the appropriateness of 96 (80 percent) of 120 VHA 

incentives, valued at about $547,000. The awards ranged from $260 to 

$43,733. We also observed that other information providing background and 

history on retention incentives was missing from case files and a group 

retention incentive exceeded authorized limits. 

We concluded VHA retention incentive awards for 29 (24 percent) of 

120 cases, valued at $194,000, were not well justified. Recommending and 

approving officials did not adequately substantiate that retention bonus 

recipients possessed unusually high or unique qualifications, met special 

needs, or were likely to leave Federal service without monetary incentives to 

stay. 

For example, a medical center director with an annual salary of 

$146,835 received an annual retention incentive of $5,517 in FY 2010. The 

executive initially received the retention incentive in 2009. In 2010 the 

director was transferred to a different facility and continued to receive the 

retention incentive. The award justification was not reassessed and updated 

to reflect the unusually high or unique qualifications needed to accomplish 

duties at the new location. 

In other instances, the award justifications provided were faulty. A staff 

nurse at the VA Health Care System, Minneapolis, MN, with an annual 

salary of $95,237, received a group retention incentive of $7,589 in FY 2010. 

The justification stated the employee was likely to leave Federal service and 

had unusually high or unique qualifications; however, no evidence supported 

or described the employee’s high or unique qualifications. 

In another example, a nursing assistant at VA Medical Center Hampton, VA, 

with an annual salary of $32,359 in FY 2010, received an annual retention 

incentive totaling about $1,232. Managers incorrectly used a salary survey 

for licensed practical nurses instead of the salary survey for nursing 

assistants to justify the retention incentive for this employee. If management 

had applied the correct salary scale, the employee might not have been 

eligible for the retention incentive. 

VHA sometimes awarded retention incentives for questionable reasons, such 

as increased compensation for employees. At two medical facilities we 

visited, we identified six cases totaling about $16,000 and 

$11,000 respectively where VHA used retention incentives to increase 

physician salaries as part of employees’ compensation packages. A 

compensation package outlines agreements on an employee’s annual salary 

and benefits as terms of employment with the agency. The award process 

and supporting documentation for increasing compensation packages did not 

meet VA’s criteria for retention incentives. 

VA Office of Inspector General 3
Retention Incentives for VHA and VACO Employees

Missing VHA 

Awards 

Documentation 

Specifically, compensation panels were responsible for recommending 

compensation package increases, including retention incentives. The 

documentation the panels used did not fully capture the justification for 

paying retention incentives. The documentation also did not always include 

supervisory certifications, annual review results, applicable statements of 

understanding (SOUs), or retention service agreements (RSAs). A panel 

member we interviewed was unaware compensation decisions signed by 

facility directors were inadequate to justify retention incentive payments. 

For example, a physician at VA Health Care System Minneapolis, MN, with 

an annual salary of over $224,000, received a retention incentive of about 

$7,642 as part of his compensation package. Supporting documentation in 

the compensation package did not include justification for the retention 

incentive, supervisory certifications, annual reviews, or applicable SOUs. 

In many cases, files were missing to support VHA retention incentive award 

decisions. VA policy requires that, for a minimum of 3 years, human 

resources management officers maintain records sufficient to reconstruct 

determinations to award retention incentives. 

Because of a lack of supporting documentation, we could not evaluate the 

appropriateness of VHA retention incentive payments in 67 (56 percent) of 

120 cases, valued at about $353,000. Responsible personnel did not 

maintain signed management approvals to support the retention incentives. 

As such, we could not determine whether approving officials adequately 

identified unusually high or unique skills of the employees that VHA needed 

to retain. We also could not determine the basis for the supervisors 

certifying that the employees were likely to leave Federal service in the 

absence of monetary incentives. In some instances, documentation was 

missing to show that retention incentives had been annually reviewed and 

reauthorized from year-to-year as required. Following are details on two 

instances where we could not determine whether awards were valid because 

of missing documentation. 

	 A registered nurse at Veterans Affairs Medical Center Hampton, VA, with 

an annual salary of $85,021, received a 10 percent retention incentive 

totaling about $8,500 in FY 2010. The employee had received a total of 

more than $21,600 in retention incentives between FY 2008 and FY 2010. 

	 A radiologic technician at VA Health Care System Hines, IL, with an 

annual salary of $72,691, received a 9 percent retention incentive totaling 

about $6,500 in FY 2010. The employee had received a total of over 

$18,400 in incentives between FY 2008 and FY 2010. 

VA Office of Inspector General 4
Retention Incentives for VHA and VACO Employees

Questioned VHA 

Retention Incentive 

Costs 

As a result of the lack of justification, questionable use, and missing 

supporting documentation, we questioned the appropriateness of retention 

incentive payments to 96 of 120 VHA employees in FY 2010. The 

questionable awards were valued at about $547,000 of the total $769,000 in 

VHA retention incentives comprising our sample. Of the 96 awards 

questioned, 51 ($335,000) were Title 38 employees, while the remaining 

45 ($212,000) were Title 5 employees. Figure 1 provides a breakdown of the 

errors identified in our sample. 

Figure 1	 Sample Assessment of VHA Retention Incentives 

Source: VA OIG 

Other VHA 

Supporting 

Documentation 

Not Maintained 

Some locations were working to improve and help eliminate questionable 

payments. For example, during our audit, the Chief of Human Resources, 

VA Health Care System Palo Alto, CA stated they took actions to reduce the 

number of employees receiving retention incentives from 914 in FY 2010 to 

399 in FY 2011 because the incentives were no longer required. 

We found a lack of compliance with requirements to maintain complete and 

up-to-date VHA retention incentive award case files. A number of files we 

reviewed lacked various documentation, including the following: 

	 Supervisory certifications that employees were likely to leave Federal 

service in the absence of incentives 

	 Results of annual reviews to determine whether continued payments were 

appropriate and, if so, whether the payment amounts should be adjusted 

	 SOUs signed by employees acknowledging receipt of retention 

incentives 

	 RSAs acknowledging receipt of group retention incentives 

The absence of such documentation demonstrates a lack of compliance and 

discipline in maintaining complete case file histories. Table 1 provides a 

VA Office of Inspector General 5
Retention Incentives for VHA and VACO Employees

breakdown on the additional supporting documentation typically missing 

from VHA retention incentive case files. 

Table 1 VHA Retention Incentive Documents Not Maintained 

Sites Visited & VA 

Entities 

Sample 

Size 

Supervisory 

Certification Annual Review Statement of Understanding 

Retention Service 

Agreement 

Required Not 

Maintained Required Not Maintained Required Not Maintained Required Not Maintained 

Richmond, VA 20 20 20 1 1 1 1 19 20 

Hampton, VA 20 20 17 0 0 0 0 20 20 

Minneapolis, MN 20 20 17 6 6 7 6 12 12 

Ann Arbor, MI 20 20 5 5 2 9 3 11 0 

Hines, IL 20 20 9 10 3 10 5 10 10 

Palo Alto, CA 20 20 15 6 1 6 0 14 10 

Totals: 120 120 83 28 13 33 15 86 71 

VHA Awards 

Exceeded 

Established 

Limits 

VACO 

Retention 

Incentives 

Source: VA OIG 

We also identified one instance where VHA made a group retention 

incentive award that exceeded established limits. According to VA 

guidance, the retention incentive rate for a specific category or a targeted 

group of employees may not exceed 10 percent of each employee’s salary. 

Rates higher than 10 percent require Office of Personnel Management 

approval for Title 5 employees, or Under Secretary for Health approval for 

Title 38 employees. 

At VA Health Care System Hines, IL, we identified a group retention 

incentive with a rate exceeding 10 percent of salary. Hines management had 

awarded the incentive to 11 employees. The 11 employees were not part of 

our sample population. The incentives for these employees totaled over 

$79,000 and ranged from over 10 to 20 percent of the employees’ salaries. 

In FY 2010, VACO paid 38 employees approximately $618,000 in retention 

incentives. Centralized approval was required for these VA employees in 

headquarters positions in Washington, DC. VACO awarded incentives to 

Title 5 employees in administrative and support services positions, such as 

contracting, information technology, engineering, human resources and 

administrative support. The employees received incentives awards ranging 

from $337 to $41,930, averaging about $16,700 per person. 

However, VACO retention incentive awards were not always well justified. 

In numerous instances, documentation to support retention incentive awards 

was inadequate or missing. For these reasons, we questioned the 

appropriateness of 30 (79 percent) of 38 VACO incentives, valued at about 

VA Office of Inspector General 6
Retention Incentives for VHA and VACO Employees

Inadequate 

VACO Awards 

Justification 

Missing VACO 

Awards 

Documentation 

$514,349. Of the 30 awards questioned, 26 were awarded to 

Title 5 employees ($456,725) and 4 were to Title 38 employees ($57,624). 

We concluded VACO retention incentive awards for 18 (47 percent) of 

38 cases reviewed, valued at $310,000, were not well justified. 

Recommending and approving officials did not adequately substantiate that 

retention bonus recipients possessed unusually high or unique qualifications, 

met special needs, or were likely to leave Federal service without monetary 

incentive to stay. 

For example, a senior executive with an annual salary of $156,797 received 

an annual retention incentive of approximately $26,000, in addition to a 

$13,000 senior executive service award. In February 2009, a senior official 

initially disapproved the retention incentive because the employee was a first 

year as a senior executive and was on probation. One month later, this same 

senior official approved a second retention incentive request for the 

employee even though the employee was still on probation. No information 

was available in the files to explain this action. The justification we found 

did not adequately explain why it was essential to retain the employee or 

whether the employee actually planned to leave Federal service. 

Despite requirements to maintain records for a minimum of 3 years, 

numerous case files lacked documentation to support VACO retention 

incentive decisions. We could not evaluate the appropriateness of VACO 

retention incentive payments in 12 (32 percent) of 38 cases, valued at about 

$204,000. Responsible officials within Central Office Human Resource 

Services and the Corporate Senior Executive Management Office did not 

maintain signed forms approving the retention incentive awards. They did 

not have on file supporting information substantiating that the employees had 

unusually high or unique skills that VACO needed to retain. 

They also did not have supervisors’ certifications that the employees were 

likely to leave Federal service in the absence of monetary incentives. In 

some instances, documentation was missing to show that retention incentives 

had been annually reviewed and reauthorized from year-to-year as required. 

Following are two examples of questionable retention incentives because of 

missing documentation. 

	 A human resource information system specialist with an annual salary of 

$136,771 received a 15 percent retention incentive totaling about 

$20,300 in FY 2010. The employee had received a total of about 

$58,600 in retention incentives between FY 2008 and 2010. 

VA Office of Inspector General 7
Retention Incentives for VHA and VACO Employees

	 An administrative officer with an annual salary of $119,238 received a 

15 percent retention incentive totaling about $17,500 in FY 2010. The 

employee had received about $49,800 in retention incentives between FY 

2008 and 2010. 

Questioned As a result of the lack of justification and missing supporting documentation, VACO we questioned the appropriateness of retention incentive payments awarded Retention to 30 (79 percent) of 38 VACO employees, totaling about $514,000 in Incentive Costs 

FY 2010. Figure 2 provides a breakdown of the errors identified in our 

sample. 

Figure 2 Sample Assessment of VACO Retention Incentives 

Source: VA OIG 

Other VACO 

Supporting 

Documenation 

Not Maintained 

We found a lack of VACO compliance with requirements to maintain 

complete and up-to-date retention incentive award case files. A number of 

files we reviewed lacked various documentation, including the following: 

	 Supervisory certifications that employees were likely to leave Federal 

service in the absence of incentives 

	 Results of annual reviews to determine whether continued payments were 

appropriate and, if so, whether the payment amounts should be adjusted 

	 SOUs signed by employees acknowledging receipt of retention 

incentives 

The absence of such documentation demonstrates a lack of compliance and 

discipline in maintaining complete case file histories. Table 2 provides a 

breakdown on the additional supporting documentation typically missing 

from VACO retention incentive case files. 

VA Office of Inspector General 8
Retention Incentives for VHA and VACO Employees

Table 2 Assessment of VACO Approval Documentation 

Sites Visited & VA Sample 

Supervisory 

Certification Annual Review Statement of Understanding 

Entities Size 

Required Not 

Maintained Required Not Maintained Required Not Maintained 

COHRS 20 20 12 16 14 20 14 

CSEMO 18 18 15 16 16 18 15 

VACO 

Washington, DC 38 38 27 32 30 38 29 

Inadequate 

Controls for 

Retention 

Incentive 

Management 

Source: VA OIG 

The Office of Human Resources Management and the Corporate Senior 

Executive Management Office were working to improve and help eliminate 

questionable payments. For example, during our audit, the Office of Human 

Resource Management initiated actions to draft new national guidance in 

response to our Providence hotline report. The Central Office Human 

Resource Service is in the process of drafting new localized policies for 

retention incentives. The Corporate Senior Executive Management Office 

had terminated one award and had initiated actions to review all senior 

executive retention incentives to ensure they were adequately justified. Also, 

the office was drafting policy for awarding retention incentives to senior 

executives. 

Controls were not adequate to ensure that VHA and VACO effectively 

managed retention incentives in accordance with established policy. 

Following are areas where mechanisms were lacking or ineffective to ensure 

the integrity of retention incentive awards. 

Inadequate Guidance. Policy on retention incentives was embodied in VA 

Handbook, Chapter 3, “Retention Incentives,” Chapter 35, Part VI. 

However, the handbook was fairly high-level in some aspects. Additional 

detail was needed on using the policy in areas such as surveying and 

comparing VA vs. local employee salaries to justify retention incentive 

awards or calculating the amount of a monetary incentive based on an 

employee’s qualifications and skills and the position filled. There was no 

guidance on how to use monetary incentives to retain employees in high 

turnover positions as part of workforce succession planning. Guidance was 

unclear on what supporting documentation needed to be maintained to 

demonstrate that an employee was likely to leave Federal service in the 

absence of monetary benefit. Clarification was also needed on the feasibility 

of using retention incentives as part of employee compensation packages. 

Insufficient Oversight. The oversight process was insufficient to ensure 

effective processing and approval of retention incentives. Human Resource 

Management officials responsible for technical review of the requests did not 

VA Office of Inspector General 9
Retention Incentives for VHA and VACO Employees

Conclusion 

Recommendations 

always ensure the completeness of retention incentive packages prepared in 

organizations under their purview. In turn, senior approving officials within 

medical facilities and VACO organizations often signed off on retention 

incentive packages they received from Human Resource Management 

without ensuring that the requests were adequately justified and documented 

to meet requirements prescribed in the VA Handbook. 

Lack of Training. Not all responsible personnel were adequately trained. 

Human resource personnel needed additional detailed training on the process 

and procedures to request, review, authorize, and approve retention incentive 

awards. Also, personnel needed training to cover requirements for 

maintaining documentation to support retention incentive decisions. 

Ineffective Use of the PAID System. VA used the PAID system, which fed 

accounting data to the Defense Finance and Accounting Service, to make 

retention incentive payments to employees. PAID had functionality to 

generate automated notices alerting approving officials 5 months in advance 

of the end date of awards so that required annual reviews and 

reauthorizations could be conducted. However, Human Resource 

Management personnel did not consistently input the end dates for the 

awards to make effective use of this functionality. No mechanism was in 

place to ensure personnel maximized use of the system capability. Officials 

also did not take action to stop retention incentive payments at the end of 

authorized periods. Retention incentive payments sometimes continued until 

human resource management officials manually terminated them when 

brought to their attention. 

Retention incentives are a valuable tool to retain quality and critical 

employees. However, adequate justification and supporting documentation 

for incentive awards are not only needed to meet VA policy requirements, 

but also to ensure transparency and the integrity of the program. As we 

determined through our audit, in numerous instances VHA and VACO 

officials did not effectively manage retention incentives in line with this 

criteria. As a result, we questioned the appropriateness of 96 (80 percent) of 

120 VHA incentives and 30 (79 percent) of 38 VACO incentives we 

reviewed, totaling approximately $1.06 million during FY 2010. Improved 

management controls, such as clear guidance, adequate oversight, additional 

training, and consistent system use are needed to provide reasonable 

assurance that the monetary incentives paid to retain employees are in the 

best interest of the Department. 

1.	 We recommend the Assistant Secretary for Human Resources and 

Administration, in coordination with the Under Secretary for Health and 

the Deputy Assistant Secretary for the Corporate Senior Executive 

Management Office, issue revised national guidance clarifying the 

VA Office of Inspector General 10
Retention Incentives for VHA and VACO Employees

retention incentive process and what is needed to adequately justify, 

approve, and support an incentive award. 

2.	 We recommend the Assistant Secretary for Human Resource 

Administration institute control mechanisms to ensure responsible 

personnel consistently use the Personnel and Accounting Integrated Data 

system to generate and distribute alerts and obtain responses to those 

alerts for retention incentives pending review to determine whether to 

continue or stop payments at the end of established award periods. 

3.	 We recommend that within the next 6 months, the Under Secretary for 

Health conduct a 100 percent review of the retention incentive awards we 

identified as unsupported within our sample to determine appropriateness 

and stop unnecessary payments. 

4.	 We recommend the Under Secretary for Health conduct a 100 percent 

review of all retention incentive payments over the next 12 months in 

line with the required annual review process to assess appropriateness 

and stop unnecessary payments. 

5.	 We recommend the Under Secretary for Health provide the oversight and 

training needed to ensure responsible officials properly justify, approve, 

and maintain supporting documentation for retention incentives as 

required by policy. 

6.	 We recommend that within the next 6 months, the Assistant Secretary for 

the Human Resources and Administration conduct a 100 percent review 

of the retention incentive awards we identified as unsupported within our 

sample to determine appropriateness and stop unnecessary payments. 

7.	 We recommend the Assistant Secretary for Human Resources and 

Administration conduct a 100 percent review of all retention incentive 

payments over the next 12 months in line with the required annual review 

process to assess appropriateness and stop unnecessary payments. 

8.	 We recommend the Assistant Secretary for Human Resources and 

Administration provide the oversight and training needed to ensure 

responsible officials properly justify, approve, and maintain supporting 

documentation for retention incentives as required by policy. 

9.	 We recommend that within the next 6 months, the Deputy Assistant 

Secretary for Corporate Senior Executive Management Office conduct a 

100 percent review of the retention incentive awards we identified as 

unsupported within our sample to determine appropriateness and stop 

unnecessary payments. 

10. We recommend the Deputy Assistant Secretary for Corporate Senior 

Executive Management Office conduct a 100 percent review of all 

retention incentive payments over the next 12 months in line with the 

VA Office of Inspector General 11
Retention Incentives for VHA and VACO Employees

Management 

Comments and 

OIG Response 

required annual review process to assess appropriateness and stop 

unnecessary payments. 

11. We recommend the Deputy Assistant Secretary for the Corporate Senior 

Executive Management Office provide the oversight and training needed 

to ensure responsible officials properly justify, approve, and maintain 

supporting documentation for retention incentives as required by policy. 

In their written comments on a draft of this report, the Under Secretary for 

Health, the Assistant Secretary for Human Resources and Administration, 

and the Deputy Assistant Secretary for Corporate Senior Executive 

Management Office each concurred with our report recommendations and 

provided acceptable corrective action plans. Appendixes D, E, and F 

provide copies of their written comments. For example, VHA has defined a 

three-stage process for completing its corrective action items. By September 

30, 2012, VHA plans to review the 96 facility-based retention incentives we 

identified, 100 percent of all Senior Executive Service and Senior Executive 

Equivalent retention incentives currently in place, and 100 percent of the 

16,000 non-Senior Executive Service and Senior Executive Equivalents 

retention incentives currently in place. VHA indicated that any retention 

incentives that did not meet the required criteria would be terminated 

immediately. 

VA Central Office Human Resources is updating VA policies on retention, 

recruitment and relocation incentives. The policies will be implemented 

after appropriate coordination with the VA Administrations and Staff 

Offices. Central Office Human Resources plans to develop a standard 

operating procedure for approval, issuance, and maintenance of records; run 

bi-weekly reports to capture the expiration date of each retention incentive to 

ensure termination or extension is processed appropriately; complete a 100 

percent review of the 30 retention incentives we identified; ensure that all 

retention incentives are thoroughly reviewed bi-annually; and oversee the 

retention incentive program, including training, guidance, and policy to all 

human resource staff and stakeholders within Central Office. 

Further, the Corporate Senior Executive Management Office coordinated 

with VHA and Human Resources on the revised Departmental guidance 

clarifying the retention incentive process and what is needed to adequately 

justify, approve, and support a retention incentive. The office is also taking 

steps to ensure payments are stopped at the end date of incentive periods, 

complete a 100 percent review of the 18 incentives we identified, and 

implement program improvements as appropriate in response to the issues 

we identified in our report. 

We will monitor the Department’s progress and follow up on implementation 

of all proposed actions until they are completed. 

VA Office of Inspector General 12
Retention Incentives for VHA and VACO Employees

Appendix A
 

Retention 

Incentives 

Criteria 

Background 

VA uses retention incentives to retain selected employees who are likely to 

leave Federal service in the absence of monetary benefits encouraging them 

to stay. In FY 2010, VHA paid nearly $110 million in retention incentives to 

16,346 employees nationwide. In FY 2010, VACO paid approximately 

$618,000 in retention incentives to 38 employees requiring centralized 

approval in headquarters positions with a duty location in Washington, DC. 

The Office of Human Resource Management sets policy for managing 

retention incentives Department-wide. 

VA Handbook 5007, Part VI, Chapter 3 outlines the process for preparing 

and approving requests for retention incentives. In determining whether to 

award a retention incentive, managers are required to consider and document 

a number of factors including: 

	 Employment and labor market trends (such as the availability and quality 

of candidates possessing the competencies needed) and who, with 

minimal training, cost, or disruption of service to the public, could 

perform the full range of duties and responsibilities of the position at the 

level performed by the employee. 

	 The success of efforts within the previous 6 months to recruit candidates 

and retain employees with competencies similar to those possessed by 

the employee. 

	 Special or unique competencies required for the position. 

	 The extent to which the employee's departure would affect VA's ability 

to carry out an activity, perform a function, or complete a project 

essential to VA's mission. 

	 Salaries typically paid outside the Federal government. 

In addition to considering and documenting the factors described above, 

supervisors are to provide separate certification that an employee is likely to 

leave Federal service in the absence of an incentive. This certification, made 

only when a supervisor is reasonably convinced the employee is likely to 

leave Federal service, may be based on: 

	 Receipt by the employee of one or more bona fide offers of employment, 

as evidenced by a formal written job offer or affidavit signed by the 

employee providing the position and salary being offered, and the name 

and location of the organization; 

	 Evidence of high demand in the private sector for the knowledge and 

skills possessed by the employee and significant pay disparities between 

Federal and non-Federal service; or 

VA Office of Inspector General 13
Retention Incentives for VHA and VACO Employees

 Discussion with the employee of the employee's career plans. 

Policy requires that approving officials review retention incentives at least 

annually to determine whether continued payments are appropriate and, if so, 

whether the amounts should be adjusted. Approving officials may continue 

payments as long as the conditions giving rise to the original determinations 

to pay the incentives still exist. 

VA Office of Inspector General 14
Retention Incentives for VHA and VACO Employees

Appendix B
 

Reliability of 

ComputerProcessed 

Data 

Government 

Audit 

Standards 

Scope and Methodology 

We conducted this performance audit from July 2010 through 

September 2011. We reviewed VHA’s retention incentives paid between 

October 1, 2009, and September 30, 2010. Initially, we statistically selected 

10 VHA sites based on probability proportional to size, which would have 

allowed us to project our results across the total VHA universe. Given the 

progress of our audit, the results identified in our prior review, and 

discussions with VHA senior leadership, we adjusted the scope of our audit. 

We reduced the number of VHA sites in our sample from 10 to 6 (Richmond, 

VA; Hampton, VA; Minneapolis, MN; Ann Arbor, MI; Palo Alto, CA; and 

Hines, IL). For each of the 6 sites, we selected a random sample size of 20, 

resulting in a review of 120 cases. As a result of our reduction in scope, we 

are not able to project our audit results across the VHA universe. 

We added a review of retention incentives requiring centralized approval for 

VA employees in headquarters positions in Washington, DC. We reviewed 

all 38 retention incentives awarded by VACO between October 1, 2009, and 

September 30, 2010. 

We interviewed approving officials, human resource managers, fiscal 

officials, and staff at selected facilities to meet our audit objectives. In 

addition, we interviewed officials in VACO, VHA, and the Defense Finance 

and Accounting Service. 

We reviewed and performed data analysis on available supporting 

documents, such as retention incentive requests, annual reviews, supervisory 

certifications, SOUs, and RSAs. We discussed questionable cases and 

exceptions we identified with Human Resource Managers and responsible 

officials to understand the basis for authorizing the retention incentives. 

To test the reliability of computer-processed data, we compared PAID data 

to employee retention incentive file source documents, including SOUs, 

RSAs, and Veterans Health Information Systems and Technology 

Architecture screen printouts. For the purposes of our audit, we concluded 

that the data was sufficiently reliable for the 120 VHA employees and the 

38 VACO employees in our sample. 

We conducted this performance audit in accordance with generally accepted 

government auditing standards. These 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 objective. 

VA Office of Inspector General 15
Retention Incentives for VHA and VACO Employees

Appendix C Potential Monetary Benefits in Accordance With 

Inspector General Act Amendments 

Better Use Questioned Recommendation Explanation of Benefits of Funds Costs 

Ensure payment of retention
 

incentives is appropriate for
 1 0 $1,061,000 96 cases at VHA and 30 cases
 

at VACO
 

Totals: 0 $1,061,000 

VA Office of Inspector General 16
Retention Incentives for VHA and VACO Employees

Appendix D Under Secretary for Health Comments 

Department of Memorandum Veterans Affairs 

Date: October 24, 2011

From: Under Secretary for Health (10)

OIG Draft Report, Audit of Retention Incentives for Veterans Health Administration Subj: 

VA Central Office Employees (VAIQ 7160225)

To: Assistant Inspector General for Audits and Evaluations (52)

1.	 I have reviewed the draft report and concur with the report’s recommendations.

Attached is the Veterans Health Administration’s (VHA) corrective action plan for the

report’s recommendations pertinent to VHA.

2.	 In response to the Office of Inspector General (OIG) recommendations, VHA has

defined a three-stage process to complete the action items:

a)	 Review the 96 facility-based retention incentives identified by OIG as unsupported

within its sample by April 15, 2012;

b)	 Review 100 percent of all SES/SES EQV retention incentives currently in place.

While the recommendation suggests this be completed in the next 12 months, we

plan to complete this review by November 30, 2011;

c)	 Review 100 percent of the 16,000 non-SES/SES EQV retention allowances

currently in place by September 30, 2012.

3.	 On September 26, 2011, the VHA Workforce Management and Consulting (WMC) Office

issued supplemental guidance on the proper use of retention incentives for Senior

Executive Service (SES) and SES Equivalent (SES-EQV) employees. Any retention

incentives that do not meet the required criteria will be terminated immediately.

4.	 WMC is in the process of developing similar guidance that will direct VHA program

offices and field facilities to conduct a complete review of non-SES retention incentives

currently in place and terminate any that do not meet required criteria.

5.	 Thank you for the opportunity to review the draft report. If you have any questions,

please contact Linda H. Lutes, Director, Management Review Service (10A4A4) at (202)

461-7014.

Robert A. Petzel, M.D.

Attachment

VA Office of Inspector General 17
Retention Incentives for VHA and VACO Employees

VETERANS HEALTH ADMINISTRATION (VHA)
 

Action Plan
 

OIG Draft Report, Audit of Retention Incentives for Veterans Health Administration and 

VA Central Office Employees (VAIQ 7160225) 

Date of Draft Report: September 13, 2011 

Recommendations/Status Completion 

Actions Date 

Recommendation 3. We recommend that within the next 6 months, the Under Secretary for 

Health conduct a 100 percent review of the retention incentive awards we identified as 

unsupported within our sample to determine appropriateness and stop unnecessary payments. 

VHA Comments 

Concur 

The Under Secretary for Health (USH) will direct a 100 percent review of the 96 retention 

incentives the Office of Inspector General (OIG) identified as unsupportable or lacking 

appropriate documentation and stop any unnecessary payments. 

In Process April 15, 2012 

Recommendation 4. We recommend the Under Secretary for Health conduct a 100 percent 

review of all retention incentive payments over the next 12 months in line with the required 

annual review process to assess appropriateness and stop unnecessary payments. 

VHA Comments 

Concur 

Senior Executive Service (SES) /SES-Equivalent (SES-EQV) Employees 

On September 26, 2011, the USH issued a memorandum to Chief Officers, Veterans Integrated 

Service Network (VISN) Directors, and Veterans Health Administration (VHA) Senior Staff, 

directing a complete review of retention incentives for all SES and SES-EQV employees. 

Included with the memorandum was detailed guidance on the proper use of retention incentives, 

with detailed instructions for the preparation of fully documented requests for approval. Memo 

recipients were instructed to terminate immediately any incentives that do not meet the required 

criteria. 

For those retention incentives that do meet required criteria, a new request for approval must be 

submitted to VHA’s Workforce Management and Consulting Office (WMC) no later than 

October 31, 2011. 

VA Office of Inspector General 18
Retention Incentives for VHA and VACO Employees

In Process October 31, 2011 

VHA has established a Retention Incentive Technical Review Board (RITRB) which will 

provide oversight for all SES and SES-EQV retention incentives. All retention incentives will be 

evaluated by the board for adherence to criteria and recommendations for approval or 

disapproval, and will be forwarded to the Department of Veterans Affairs (VA) Chief of Staff. 

RITRB reviews will be completed no later than (NLT) November 30, 2011. 

In Process November 30, 2011 

Non-SES/SES-EQV Employees 

Guidance is under development that will direct VHA field facilities to conduct a complete review 

of non-SES retention incentives currently in place. Detailed guidance on the proper use of 

retention incentives, with instructions for the preparation of fully documented requests for 

approval, will be included. The guidance will also require that all retention incentives for nonSES/SES-EQV employees be approved at the Network level. All Networks will be required to 

establish a Network RITRB to review non-SES/SES-EQV retention incentive requests. All 

retention incentives approved by Network RITRBs will be required to be reported to WMC. The 

reviews by Networks will be required to be completed NLT September 30, 2012. 

In Process September 30, 2012 

Recommendation 5. We recommend the Under Secretary for Health provide the oversight and 

training needed to ensure responsible officials properly justify, approve, and maintain supporting 

documentation for retention incentives as required by policy. 

VHA Comments 

Concur 

In addition to the guidance described in the response to Recommendation 4, VHA’s Human 

Resource (HR) Development Staff will provide special virtual training sessions on retention 

incentives to the VHA HR community. The objectives of this training will be to ensure HR 

Managers and Officers have a solid understanding of the laws and regulations governing 

retention incentives, the required documentation for approval, and the requirement for annual 

review of all approved retention incentives. HR Managers will be reminded to place a follow-up 

code in the Personnel and Accounting Integrated Data (PAID) system for all retention incentives 

to ensure that annual reviews are completed as required. This special training will be completed 

NLT December 31, 2011. 

In Process December 31, 2011 

Veterans Health Administration 

October 2011 

VA Office of Inspector General 19
Retention Incentives for VHA and VACO Employees

Appendix E Assistant Secretary for Human Resources and 

Administration Comments 

Department of Memorandum Veterans Affairs 

Date:	 November 8, 2011

From:	 Assistant Secretary for Human Resources and Administration (006)

Subj:	 OIG Draft Report, Audit of Retention Incentives for VA Central Office Employees (VAIQ
 

7160225)
 

To: Assistant Inspector General for Audits and Evaluations (52)

1.	 I have reviewed the draft report and concur with the report's recommendations.

Attached is the VA Central Office (VACO) corrective action plan in response to the

report's recommendations that are pertinent to VACO.

2.	 Also, the Office of Human Resources Management is updating VA policies on retention,

recruitment and relocation incentives. After appropriate coordination with the

Administrations and Staff Offices, the policy will be implemented.

3.	 Thank you for the opportunity to review the draft report. If you have any questions,

please contact Tonya M. Deanes, Deputy Assistant Secretary for the Office of Human

Resources Management, at (202) 461-7765.

(original signed by:) 

John U. Sepulveda

Attachment

VA Office of Inspector General 20
Retention Incentives for VHA and VACO Employees

VETERANS AFFAIRS CENTRAL OFFICE HUMAN RESOUCRES (COHRS) ACTION PLAN 

OIG Draft Report, Audit of Retention Incentive for Veterans Health Administration 

and VA Central Office Employees (VAIQ 7160226) 

Date of Draft Report: September 13, 2011 

Recommendation/Actions Status Completion Date 

Recommendation #1: We recommend the Assistant Secretary for Human Resources

Management in coordination with Under Secretary for Health and the Deputy Secretary for

Corporate Senior Executive Management Office (CSEMO), issue revised national guidance

clarifying the retention incentive process and what is needed to adequately justify, approve,

and support an incentive award.

COHRS Comments: Concur. VA Central Office Human Resources (COHRS) staff

developed a Recruitment, Retention and Relocation (3R) Standard Operating Procedure

(SOP) for approval, issuance and maintenance of 3R records.

In Process December 31, 2011

Recommendation #2: We recommend the Assistant Secretary for Human Resources and

Administration (HR&A) institute control mechanisms to ensure responsible personnel

consistently use the Personnel and Accounting Integrated Data system (PAID) to generate

and distribute alerts and obtain responses to those alerts for retention incentives pending

review to determine whether to continue or stop payments at the end of established award

periods.

COHRS Comments: Concur. COHRS will run bi-weekly reports to capture the expiration

date of each incentive to ensure termination or extension action is processed appropriately.

In Process

Recommendation #5: We recommend that within the next six months, the Assistant

Secretary for Human Resources and Administration conduct a 100 percent review of the

retention incentive awards we identified as unsupported within our sample to determine

appropriateness and stop unnecessary payments.

COHRS Comments: Concur. The Assistant Secretary for Human Resources directed a

100 percent review of the 30 retention incentives identified by the Office of Inspector

General (OIG) as unsupportable or lacking appropriate documentation and to stop

unnecessary payments.

In Process April 15, 2012

VA Office of Inspector General 21
Retention Incentives for VHA and VACO Employees

OIG Draft Report, Audit of Retention Incentive for Veterans Health Administration 

and VA Central Office Employees (VAIO 7160226) 

b) We recommend the Assistant Secretary for Human Resources and Administration

conduct a 100 percent review of all retention incentive payments within the next 12 months

in conjunction with required annual reviews to assess appropriateness and stop

unnecessary payments.

COHRS Comments: Concur. The COHRS Director oversees the retention incentive

program and ensures that all retention incentives are thoroughly reviewed bi-annually. Any

retention incentives that do not meet the required criteria will be terminated.

In Process June 30, 2012

c) Provide the oversight and training needed to ensure responsible officials properly justify,

approve, and maintain supporting documentation for retention incentives as required by

policy.

COHRS Comments: Concur. The COHRS Director oversees the retention incentive

program which includes providing training, guidance and policy to all COHRS staff

members and stakeholders within Central Office.

In Process FY 2012, Q2

VA Office of Inspector General 22
Retention Incentives for VHA and VACO Employees

Appendix F Deputy Assistant Secretary for the Corporate Senior
 

Executive Management Office Comments
 

Department of Memorandum Veterans Affairs 

Date: November 9, 2011

From: Deputy Assistant Secretary for Corporate Senior Executive Management Office

Thru: Chief of Staff (Original initialed 11/9/11) 

Draft Report, Audit of Retention Incentives for Veterans Health Administration and VA Subj: 

Central Office Employees, OIG Project No. 2010-02887-D2-0313

Assistant Inspector General for Audits and Evaluations To: 

1.	 This responds to your September 19, 2011, memorandum, subject: Draft Report,

Audit of Retention Incentives for Veterans Health Administration and VA Central

Office Employees, in which you requested written comments and concurrence or

non-concurrence for each finding and recommendation.

2.	 When Secretary Shinseki arrived at VA and received President Obama’s mandate to

transform the Department into a 21st century organization, he realized the

management of VA’s executive cadre needed to change. He proposed a corporate

office to assist him with the selection, development, utilization and management of

VA’s strategic human capital resources charged with leading the Department and

most effectively serving our Nation’s Veterans. The establishment of the office was

fully vetted through VA’s governance structure. The office was approved in October

2009. A Deputy Assistant Secretary for Corporate Senior Executive Management

Office (CSEMO) was appointed in 2010 and the office was staffed and trained.

CSEMO was moved to the Office of the Secretary in January 2011 and positioned to

provide oversight and integrated management of executive programs. The CSEMO

faced an enormous challenge to meld 3 ways of doing business (i.e., VHA, VBA, and

VACO/ NCA) into 1 corporate approach, while continuing to provide service to our

customers. CSEMO is looking at every aspect of lifecycle management of the SES

cadre, developing a corporate approach in each area and refining that approach as

necessary to get it right.

Over the past year, CSEMO has been working to improve oversight and

management of the overall Senior Executive Service (SES) and SES-equivalent

incentives program. While we have made significant progress, the fast pace and

ever changing priorities required to build a Department-level corporate program for

the lifecycle management of VA’s executive cadre has prevented us from achieving

all desired improvements. Your report will drive us toward a renewed focus and will

ultimately facilitate our development of a sound program.

VA Office of Inspector General 23
Retention Incentives for VHA and VACO Employees

CSEMO Response to Draft OIG Report 

3.	 VA recently had the opportunity to respond to a September 1, 2011, inquiry from Mr.

Jeff Miller, Chairman of the House Veterans Affairs Committee (attachment 1)

concerning VA’s incentives and performance awards programs. In our response to

Mr. Miller (attachment 2), which is focused primarily on the Senior Executive Service,

we addressed what VA is currently doing to improve the incentives program

(recruitment, relocation, and retention) in the context of broad improvements we are

making in the overall corporate executive management program. Paragraph 4 below

addresses specific improvements we are making in the area of retention incentives.

4.	 CSEMO is committed to a complete overhaul of the retention incentive program for

executives. We have begun our reengineering effort but have much more to do.

Specific actions that CSEMO has initiated to improve the program follow:

a. As our response to Chairman Miller indicated, since June 2011, VA has been

conducting a system-wide review of the overall incentives program. CSEMO’s efforts

to improve retention incentives began in late 2010. In December of 2010, CSEMO

proposed for VHA’s consideration specific criteria for determining the amount

(percentage) of each incentive requested. CSEMO and VHA are working jointly to

establish appropriate, meaningful criteria that will be applied to new incentive

requests.

b. CSEMO’s initial review of retention incentives focused on determining if each

was still warranted after considering such factors as whether the incentive was

needed to retain the employee, whether labor-market factors made it more likely (or

reasonably likely) to recruit a candidate with competencies similar to those possessed

by the employee, or whether VA’s need for the services of the employee had been

reduced to a level that made it unnecessary to continue paying a retention incentive.

Initial results of this review resulted in CSEMO identifying 2 questionable incentives;

both are on your SES case list. We immediately initiated action to terminate these

incentives in April of 2011.

c. Early in 2011, CSEMO became aware that there was not a consistent, reliable

mechanism for terminating an incentive when an executive moved to a position

different from the one for which the incentive was approved. The Code of Federal

Regulations requires that we terminate an incentive when an executive is reassigned.

We realized that, through an oversight, an executive continued to receive an incentive

after the date of reassignment. As soon as we realized this error, we stopped the

incentive. In another instance, we were able to stop the incentive upon reassignment.

Our review indicated that in other situations, executives’ incentives were correctly

stopped when reassignments occurred and notices of termination were not needed.

To ensure we take appropriate action to terminate retention incentives, CSEMO has

refined our reassignment process to include a review of any retention incentive the

executive receives and termination of the incentive effective the date the executive is

reassigned.

2

VA Office of Inspector General 24
Retention Incentives for VHA and VACO Employees

CSEMO Response to Draft OIG Report 

d. When CSEMO recently became aware that retention incentives implemented

prior to CSEMO’s standup were not ending automatically at the end of the period of

time for which they were approved (e.g., 1, 2, or 3 years, etc.), we took action. The

OIG draft report also noted this problem on page 10 in the section entitled Ineffective

Use of PAID System. We understand from VHA that executives receiving incentives

are generally not aware of the date their individual incentive is scheduled to end, and

would be taken by surprise if the incentive ended without notice. To resolve this issue

for the future and ensure incentives do not extend beyond the approved duration,

CSEMO will provide written notification to each executive for whom a retention

incentive is approved that the incentive has been approved, the duration that has

been approved, that the incentive will end at the conclusion of the duration period

approved for the incentive, and that no additional notice will be provided unless the

incentive is terminated for other reasons (e.g., the executive is reassigned, the

incentive is no longer needed or no longer justifies the amount initially approved,

etc.). CSEMO will also monitor end dates entered in the PAID system and take

appropriate action to ensure they actually end on scheduled end dates.

e. Since it became fully staffed and operational, CSEMO has closely scrutinized

new retention incentive requests. When appropriate, requests have been returned for

additional justification. No new retention incentives have been approved since June

2011. Currently there are only 7 retention incentives being paid that have been

approved since Secretary Shinseki arrived; 2 of these incentives were approved at

lower amounts than initially requested.

f. A review of all current retention incentives is underway. Of the 78 retention

incentives currently being paid, 76 are paid to executives in VHA and 2 in the Office

of Information & Technology (OI&T). On September 26, 2011, the Under Secretary

for Health (USH) initiated a complete review of all retention incentives paid to VHA

SES and SES-equivalent employees. USH requires responsible VHA officials to

determine if the current incentive meets established regulatory criteria. VHA will

submit a new request to CSEMO for each incentive that is still warranted and meets

the criteria. Incentives that are no longer needed or do not meet the criteria will be

terminated. CSEMO will closely scrutinize the new requests and make a

recommendation to the Chief of Staff for the Secretary’s consideration/decision.

5.	 I offer the following comments in response to specific recommendations for CSEMO

in your draft report “Audit of Retention Incentives for Veterans Health Administration

and VA Central Office Employees:”

a.	 OIG Recommendation 1: That the AS for HR&A, in coordination with the USH

and DAS for CSEMO, issue revised Departmental guidance clarifying the

retention incentive process and what is needed to adequately justify, approve,

and support a retention incentive.

3

VA Office of Inspector General 25
Retention Incentives for VHA and VACO Employees

CSEMO Response to Draft OIG Report 

CSEMO Response: Concur with OIG recommendation. CSEMO has been

working and will continue coordinating with AS for HR&A and USH on the

issuance of revised guidance clarifying the retention incentive process and the

requirements for adequately justifying, approving, and supporting retention

incentives. Further, CSEMO has provided initial guidance and will formally

publish any necessary guidance to address unique executive retention incentive

issues.

b.	 OIG Recommendation 2: That the AS for HR&A institute control mechanisms to

ensure responsible personnel consistently use the PAID system to generate and

distribute alerts and obtain responses to those alerts for retention incentives

pending review to determine whether to continue or stop payments at the end of

established incentive periods.

Although Recommendation 2 is not addressed to CSEMO, CSEMO has

conducted a review and is using PAID data to ensure payments are stopped on

the end date of incentive periods as we conduct the 100 percent review of

current retention incentives and for retention incentives approved in the future.

c.	 OIG Recommendation 9: That within the next 6 months, the DAS for CSEMO

conduct a 100 percent review of the retention incentives OIG identified as

unsupported within its sample to determine appropriateness and stop

unnecessary payments.

CSEMO Response: Concur with OIG recommendation. Attachment 3 shows the

current status of the 18 SES and SES-equivalent retention incentives reviewed

by OIG. Only 8 of the 18 are currently being paid. CSEMO is reviewing the

original documentation for all cases to include these 8 cases from VHA and will

make recommendations on all incentives by the end of December 2011. If any of

these cases are resubmitted under the process described in paragraph 4f above,

they will receive the same close scrutiny that is being applied to all requests

before recommendations are forwarded to OSVA.

d.	 OIG Recommendation 10: That the DAS for CSEMO conduct a 100 percent

review of all retention incentive payments over the next 12 months in line with the

required annual review process to assess appropriateness and stop unnecessary

payments.

4

VA Office of Inspector General 26
Retention Incentives for VHA and VACO Employees

CSEMO Response to Draft OIG Report 

CSEMO Response: Concur with OIG recommendation. As explained in

paragraph 4f above, a 100 percent review of currently paid retention incentives is

underway in VHA. VHA will submit a new request to CSEMO for any incentive

recommended and ensure full justification. CSEMO will closely review each

request submitted to assess appropriateness and recommend stopping any that

are unnecessary or unsupported. CSEMO’s review and OSVA oversight will be

completed by January 2012. CSEMO is also reviewing the 2 OI&T incentives

currently being paid to ensure they are needed and fully supported.

e.	 OIG Recommendation 11: That the DAS for CSEMO provide the oversight and

training needed to ensure responsible officials properly justify, approve, and

maintain supporting documentation as required by policy.

CSEMO Response: Concur with OIG recommendation. As indicated in

paragraph 4 above, CSEMO is aware of specific program improvements that

must be implemented. We are incorporating these improvements and the issues

identified by your review in our standard processes. We have begun training the

staff and will ensure that this process is followed precisely. We will closely

scrutinize requests submitted for consideration, and provide appropriate

feedback and training for the organizations that have difficulty properly justifying

requests. We will ensure that supporting documentation is properly maintained

and appropriate recommendations are made to OSVA.

6.	 I appreciate the time and attention your team devoted to the audit and the opportunity

you have provided us to respond. Your report is very helpful as we continue efforts to

improve the executive incentives program.

Christine L. Kluh

Enclosures

5

VA Office of Inspector General 27
Retention Incentives for VHA and VACO Employees

Overview of Retention Incentives 

	 143 VA executives received incentives in January 2009 

	 78 VA executives receiving retention incentives as of 10/24/11 

o	 76 in VHA (71 SES, 5 SES-Equivalent) 

 52 medical center/health care system directors 

 13 Virtual Integrated Systems Network (VISN) 

directors 

 11 other health care positions/program directors 

o	 2 in OI&T 

 71 approved before 1/20/2009 

7 approved after 1/20/2009 

	 5 incentives terminated during 2011 (no longer necessary or 

executive reassigned to another position) 

	 Preliminary assessment of all incentives underway, including 8 

active cases reviewed by OIG during audit of VACO retention 

incentives 

	 Full review of all incentives and OSVA oversight completed by 

January 2011 

6

VA Office of Inspector General 28
Retention Incentives for VHA and VACO Employees

September 1, 2011 

The Honorable Eric K. Shinseki 

Secretary 

U.S. Department of Veterans Affairs 

810 Vermont Ave NW 

Washington DC 20420 

Dear Secretary Shinseki, 

As you know, we are beginning to reign in out-of-control spending that threatens the health 

of our nation. Consistent with the realities of a fiscally conservative climate, a two-year 

freeze on Federal employee pay is in effect through December 31, 2012. Further, the 112th 

Congress convened in January of this year and adopted a 5% budget cut. 

Notwithstanding the government-wide pay freeze, VA retained the ability to offer pay 

increases, performance awards, and bonuses for many of its employees on the grounds that 

they would help it to retain high quality employees in critical health care or information 

technology positions. Based on recent news reports regarding large retention bonuses for 

Medical Center directors who were at or near retirement, and our own investigation 

showing bonuses going to facility directors who had been cited for extensive 

mismanagement, I have serious concerns about VA’s use of its discretion in these matters. 

Accordingly, I ask you to freeze or eliminate the current bonus program for the Executive 

Career Field pending a system-wide review of the program’s integrity. 

Mr. Secretary, with so many Americans struggling for any paycheck at all, it is imperative 

that the integrity of VA’s employee compensation system be above reproach. Going 

forward, I look forward to working with you on how we can ensure that is the case. 

Thank you for your consideration of my request. I look forward to your response. 

VA Office of Inspector General 29
Retention Incentives for VHA and VACO Employees

October 14, 2011

The Honorable Jeff Miller

Chairman

Committee on Veterans’ Affairs

U.S. House of Representatives

Washington, DC 20515

Dear Mr. Chairman,

I am responding further to your letter of September 1, 2011, requesting the

Department of Veterans Affairs (VA) freeze or eliminate the current bonus program

for the Executive Career Field pending a system-wide review of the program’s

integrity. Issues of fiscal responsibility are of utmost importance to VA. My firm

commitment to fiscal responsibility extends to VA’s performance and incentive

programs.

VA’s executive performance management program is sound. In the last two

years, the Department has made significant improvements to ensure the program is

credible, transparent, and consistent with law and regulation. VA implemented fiscal

year (FY) 2011 changes and is working with the Office of Personnel Management

(OPM) to leverage Government-wide improvements in FY2012. As it has done in the

past, VA will provide FY2011 results to the Committee in February 2012.

VA has been engaged in a thorough review of our incentive program to

strengthen our processes, control mechanisms and program oversight. This review

has resulted in renewed scrutiny and program improvements. VA is following the

Administration’s OPM/Office of Management and Budget June 10, 2011, guidance

concerning limiting expenditures for individual awards and incentives during FY2011

and 2012. We are on target with performance awards, and will ensure that spending

on incentives in 2011 and 2012 does not exceed calendar year 2010 levels.

Early on, I recognized that VA’s senior executive management needed

improvement. In the fall of 2009, I established a corporate office, reporting to the

Assistant Secretary for Human Resources and Administration, to centrally manage

VA’s executive corps. VA hired a director in February 2010 and began laying the

foundation for corporate management. In January, the corporate office was moved

under the Office of the Secretary.

This new office has had a tremendous impact on improving executive lifecycle

management. VA has improved the fairness and credibility of our processes and

policies for hiring, developing and compensating executives. The Department is

scrutinizing incentives currently in place, and conducting a comprehensive review of

the entire program. Since 2009, the number of VA executives receiving incentives

has been reduced by about 40 percent. Almost all of those incentives were approved

and in place prior to my tenure; since my arrival I have judiciously approved far fewer

incentives.

VA Office of Inspector General 30
Retention Incentives for VHA and VACO Employees

Page 2

The Honorable Jeff Miller

We are also addressing executive mismanagement and have taken

appropriate action in a number of cases. As one indicator of our effort to hold

executives accountable, several executives departed last year as a result of poor

performance.

Incentives were approved and used correctly to retain the two medical center

directors referenced in your letter. The directors were paid in pay period installments

based on their agreement to remain with VA, and they fulfilled their agreements. VA

did not pay them after they retired, and their annuities did not increase as a result of

their incentives. The incentives did what VA intended them to do.

Freezing performance award and incentive programs would be detrimental to

VA’s ability to recruit and retain a highly qualified workforce. We must retain these

flexibilities in order to provide the level of care and service our Nation’s Veterans

deserve. We have worked hard and continue to work hard to hire and retain the best

executives in critical positions within VA. In some cases, these executives came from

managing large organizations or programs successfully in the private sector. Those

same skills and experiences are needed to manage our own large organizations,

medical centers, or resource intensive programs such as the GI Bill. Our

performance award and incentive programs are intended to support our efforts in this

regard and we carefully apply those incentives, when appropriate.

Enclosed is a fact sheet that provides additional information on the

improvements VA has made in the management of executives, including

performance award and incentive programs. If you have additional questions, or

desire a briefing on VA’s programs, please have a member of your staff contact Mr.

Matthew Santos, Congressional Relations Officer, VA Office of Congressional and

Legislative Affairs. He can be reached at (202) 461-6442, or by e-mail at

matthew.santos@va.gov.

Thank you for your continuing support of our mission.

Sincerely,

Eric K. Shinseki

Enclosure

VA Office of Inspector General 31
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Department of Veterans Affairs (VA) 

VA Performance Management, Performance Awards and Incentives, and
 

Corporate Executive Management
 

Fact Sheet
 

Performance Management and Performance Awards 

Secretary Shinseki centralized the lifecycle management of VA's executive cadre and

established a Corporate Senior Executive Management Office (CSEMO) in October

2009. CSEMO began operations in 2010 and immediately focused on improving the

executive performance management program. VA has made significant progress

resulting in an executive performance management program that is sound, transparent,

accountable, and consistent with law and regulation.

In the past, VA's Performance Review Board (PRB) process, through which executive

performance results are assessed, was decentralized. We now have one centralized VA

PRB that serves as an honest-broker across the Department to recommend

performance ratings and awards for the Secretary's consideration. VA will continue to

use this rigorous PRB process for the fiscal year (FY) 2011 process and beyond.

Each year, before executive performance award recommendations are forwarded for the

Secretary's decision, a final check is done with VA's Office of Inspector General and

Office of General Counsel to determine if there are any ongoing investigations or audits

that may reflect unfavorably on the executives. Throughout the Department, we have

communicated the requirement to make meaningful distinctions in performance, as

required for certification of our Senior Executive Service (SES) appraisal system, and

have been successful in achieving greater distinctions. In 2010, VA provided

comprehensive training for executives across the Department to ensure all understood

the program and had an opportunity to express their concerns. Senior leadership is fully

engaged in this program. As in previous years, VA will forward its executive

performance appraisal results to the Committee in February 2012.

SES performance awards are the culmination of VA's rigorous performance appraisal

process. The Office of Personnel Management (OPM), with concurrence from the Office

of Management and Budget, has certified, under provisions of 5 U.S.C. 5307(d)(2), that

VA has a performance appraisal system that, as designed and applied, makes

meaningful distinctions in performance. Before budgetary restrictions were imposed on

SES performance awards, 5 U.S.C. Section 5384 limited expenditures for Career SES

awards. The aggregate amount of performance awards paid could not exceed 10

percent of the aggregate amount of basic pay paid to Career executives in VA during the

preceding FY. Over the past three years, VA has allocated less than the 10 percent of

aggregate pay; for FY 2008 performance, 9 percent; FY 2009, 8 percent; and FY 2010,

7 percent, and the same percentages for SES-equivalent Title 38 awards.

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The 5 percent limit on awards expenditures, which we will apply to FY 2011 awards,

acknowledges the need for restrained spending but will also permit us to recognize our

very highest performers.

Although 5 U.S.C. Section 5384 allows agencies to grant individual Career SES

performance awards that are no higher than 20 percent of an executive's salary, for FY

2010 performance, the highest award Secretary Shinseki granted was 15.5 percent.

Unlike the practice in some government agencies, a VA executive who receives a

Presidential Rank Award does not also receive an additional performance award for that

year.

VA is working closely with the OPM to build on the success the Department has realized.

VA envisions additional program enhancements in FY 2012 and beyond.

Incentives 

Recruitment, relocation, and retention incentives are compensation flexibilities available

to help VA recruit and retain a high quality workforce. Incentives are particularly

important to VA's Veterans Health Administration (VHA) Executive Career Field which

covers executives and non-executives. VHA is the Nation's largest integrated health

care system with more than 8 million Veteran enrollees. There is strong rationale for

using incentives for highly skilled individuals in occupations that are in high demand

outside the Federal government, where pay is significantly higher. These employees

provide or support direct care to the Nation's Veterans. VA needs to attract and retain

the best, and in some cases, that requires offering an incentive.

As is true throughout the Federal government, VA's senior executives in VHA and

throughout the Department serve in key positions just below the top Presidential

appointees, and are the major link between these appointees and the rest of the Federal

workforce. This executive cadre is the key driver of VA's success. During this

Presidential administration, our focus is on transforming VA into a 21st century

organization, as we continue to provide the best possible service to our Nation's

Veterans. To achieve its goals, VA needs to attract and retain the very best leaders.

Although VA is making great strides, there is still much to do. The Department's ability

to make progress will be diminished if it freezes or eliminates personnel management

flexibilities. If the Department was to disadvantage itself by reducing its ability to use

compensation flexibilities on par with the authority available to other agencies, it would

jeopardize its ability to attract and retain the best executive talent.

VA is improving its incentives program, including strengthening its control mechanisms

and program oversight, and ensuring that each justification fully supports the incentive.

Since June 2011, VA has been conducting a system-wide review of this program.

During this review, the Department is terminating individual incentives that are no longer

appropriate, and modifying those that no longer support the level initially approved.

Before 2009, annual renewals of SES incentives were approved below the Secretary

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level. There is now in place a very deliberate approval process through which each

executive incentive request receives close scrutiny. All initial requests and annual

renewals for SES and SES-equivalent incentives are forwarded to the Office of the

Secretary for consideration. The Department will ensure that incentives are terminated

when employees move from one position to another. Requests that are not supportable

are disapproved, and some requests are approved in amounts lower than requested.

For non-executives, each new request for a group incentive of less than 10 percent is

approved by a Veterans Integrated Service Network Director, or at the Deputy Assistant

Secretary level, or higher. A group incentive of 10 percent or more must be submitted

by an Administration Head, Assistant Secretary, or other key official through the chain of

command to the OPM. Any new non-executive Title 38 group incentive of 10 percent or

more must be approved by the Under Secretary for Health.

The Department is confident that its comprehensive review, close scrutiny of new

requests, and renewed attention to program oversight and controls will address any

concerns you have.

Corporate Executive Management 

You inquired about the 2 specific issues above that, while important, are only a part of

the Secretary's overall initiative to improve executive lifecycle management. Since his

arrival, the Secretary has championed a holistic, corporate approach to executive

management to ensure VA has the right people in the right place ready to execute VA's

critical mission. VA is transforming executives into 21st century leaders who can drive

the Department forward to best meet the needs of Veterans, their families and survivors.

Shortly after CSEMO moved under the Office of the Secretary, VA began streamlining

the entire SES recruitment process. VA's new process is automated, efficient, and

collaborative, and is envied throughout this Department and beyond. VA now

prepositions the tools needed to recruit for positions, and, using advance information

about departing executives, is reducing overall hiring time. In support of the President's

Hiring Reform Initiative, VA was one of the first Department's to aggressively implement

the streamlined, resume only recruitment process that eliminates the requirement to

submit lengthy narratives for employment consideration. The process and tools VA

developed have been shared with other agencies to assist in their implementation. This

new process makes it easier for those outside government to apply for executive

positions and encourages a more diverse applicant pool.

In July 2010, VA centralized the Executive Resources Board process for conducting the

merit staffing process for initial career appointment to the SES, eliminating multiple

Boards that functioned independently. This policy change provides corporate visibility

over the intake of VA's new leaders. With our new staffing process, the ERBs meet

virtually, with each member working independently on line. This is a tremendous step

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forward for VA. This new process is being reviewed by other agencies for adoption.

VA is 1 of 7 agencies piloting OPM's Executive Onboarding Framework that was

recommended to the President's Management Council (PMC) for government-wide

implementation. In alignment with the PMC's Career Development Initiative and in

support of VA's strategic mission and the Secretary's Transformation Initiatives, CSEMO

developed a structured Onboarding Program for Executives to help them build

leadership capabilities, establish networks and relationships, gain knowledge and insight

of the organizational and political structure, and achieve executive success. The goals

of onboarding are to welcome new executives and minimize the time required for

executives to become productive in their agency, organization and new position. VA

provides a robust orientation for new executives to foster an understanding of VA and its

governance process, and to communicate the strategic vision and direction of the

agency. The Secretary and VA's senior leadership participate in the Forum.

VA launched its Senior Executive Strategic Leadership Course (SLC) in March 2011. It

is designed to use executive education as a driving force to lead change for the VA.

This is a 51⁄2-day course where our executives learn key content and insight, participate

in simulations and group activities, and work on designated VA challenges for potential

implementation. The course addresses strategic leadership and working across

functional and organizational lines to improve service delivery. VA takes advantage of

the opportunity to hire from other agencies current executives with proven records of

success. VA has sharpened its qualifications requirements to ensure we are not

emphasizing agency-related experience to the detriment of well qualified candidates

from outside VA. VA is committed to diversity in the broadest sense by attracting

executive talent with strong executive qualifications including minorities, women,

individuals with disabilities, from within the VA, outside the VA, and outside the

government.

VA is developing an executive talent management system through which the

Department will assess its current executives against VA's highest missions and

priorities. The Department is committed to attracting highly skilled executives,

developing and retaining them given the dynamic ''war for talent" environment.

CSEMO's Senior Executive Talent Management program is a deliberate process through

which VA will build the capacity to achieve mission and organizational goals with the

right talent, in the right place, at the right time, and close talent gaps through a

systematic process that integrates each element of the career lifecycle. Successful

talent and succession management are critical to VA's ability to transform into a 21st

century department.

VA launched an executive collaborative Web site in 2011 to enhance communication

efforts among VA's executives. This tool helps break down silos in VA in order to

improve service delivery to Veterans, and promotes idea sharing/problem solving among

our executives. In addition to delivering timely, valuable information, it enhances

networking, knowledge sharing and collaboration. The Web site provides senior

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executives an opportunity to share with their peers ideas, knowledge, and best practices.

These ongoing efforts and initiatives are critical in facilitating integration and

collaboration across the Department's enterprise resulting in improved delivery of

services to our most important customer - our Nation's Veterans.

Corporate Senior Executive Management Office

October 2011

5
 

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Appendix G OIG Contact and Staff Acknowledgments
 

OIG Contact	 For more information about this report, please 

contact the Office of Inspector General at 

(202) 461-4720. 

Acknowledgments	 Paul M. Sondel, Director 

Vercie Y. Davis 

Candice M. Dunn 

Meredith Hauber 

Ambreen Husain 

Nick Jathar 

Victor Milano 

Tonya Shorts-Smith 

Carla R. Vines 

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Retention Incentives for VHA and VACO Employees

Appendix H Report Distribution 

VA Distribution 

Office of the Secretary
 

Veterans Health Administration
 

Veterans Benefits Administration
 

National Cemetery Administration
 

Assistant Secretaries
 

Office of General Counsel
 

Non-VA Distribution 

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be available in the near future on the OIG’s Web site at 

http://www.va.gov/oig/publications/reports-list.asp. This report will remain 

on the OIG Web site for at least 2 fiscal years. 

VA Office of Inspector General 38