four

Department of 

Veterans Affairs 

Audit of VA’s 

Implementation of 

Executive Order 13520, 

“Reducing Improper 

Payments” 

August 12, 2011 

10-02892-251 

VA Office of Inspector General

OFFICE OF AUDITS

& EVALUATIONS
ACRONYMS AND ABBREVIATIONS

CHAMPVA Civilian Health and Medical Program of the Department of Veterans Affairs

C&P Compensation and Pension 

FAO Financial Assistance Office

IPIA Improper Payments Information Act 

OIG Office of Inspector General

OMB Office of Management and Budget 

PAR Performance and Accountability Report

STAR Systematic Technical Accuracy Review

VBA Veterans Benefits Administration

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) 
i 

Report Highlights: Audit of VA’s 

Implementation of Executive Order 

13520, “Reducing Improper Payments” 

Why We Did This Audit

On November 23, 2009, President Barack H. 

Obama signed Executive Order 13520 in the 

interest of reducing payment errors and 

eliminating waste, fraud, and abuse in 

Federal programs. To evaluate VA’s 

implementation of Executive Order 13520, 

we determined if VA’s FY 2010 First 

Quarter High-Dollar Overpayments Report

was complete and the process to identify 

susceptible programs was adequate. 

What We Found

VA’s FY 2010 First Quarter High Dollar 

Overpayments Report, that listed 101 highdollar overpayments, was incomplete

primarily because Veterans Benefits

Administration (VBA) misinterpreted 

reporting guidance. We identified 143 highdollar overpayments totaling $623,434 that 

VBA did not report. VBA also did not 

adequately consider including an additional 

39,208 potential high-dollar overpayments 

totaling $213 million.

VBA made adjustments after the first 

quarter to improve the compliance with 

reporting guidance; however, VBA’s 

process still did not fully follow guidance

for identifying the high-dollar 

overpayments. We determined that the 

39,208 overpayments met some of the 

criteria used in determining reportable highdollar overpayments; however, VBA did not 

gather and analyze additional information to 

determine which overpayments met all of 

the criteria and should have been reported. 

Veterans Health Administration’s (VHA) 

FY 2009 risk assessment did not adequately

assess the level of risk associated with their 

programs. VHA relied upon a selfassessment process that consisted of a 

checklist; however, the process did not 

adequately address all payment components. 

What We Recommended

We recommended the VA Secretary direct 

the Under Secretary for Benefits to report

prior period overpayments and 

administrative errors as required. Further, 

the VA Secretary should direct the Under 

Secretary for Health to implement planned 

improvements to risk assessments. We did 

not make recommendations where VA made 

improvements during our audit. 

Agency Comments

The VA Chief of Staff agreed with our 

conclusions and recommendations and 

provided an acceptable implementation plan 

for the recommendations. Appendix B 

contains the full text of the VA’s comments.

BELINDA J. FINN

Assistant Inspector General 

for Audits and Evaluations
ii

TABLE OF CONTENTS

Table of Contents ............................................................................................................................ ii

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

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

Finding 1 VBA’s Process to Report High-Dollar Overpayments Needs Improvement ......2

Finding 2 VHA’s Susceptible Program Assessment Needs Improvement......................... 6

Appendix A Scope and Methodology ....................................................................................10

Appendix B Agency Comments ........................................................................................... 12

Appendix C OIG Contact and Staff Acknowledgments ....................................................... 18

Appendix D Report Distribution .......................................................................................... 19
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 1

INTRODUCTION 

The audit determined whether VA implemented Executive Order 13520, 

“Reducing Improper Payments” effectively. Specifically, we determined 

whether VA reported all identified high-dollar overpayments in the 

FY 2010 First Quarter High-Dollar Overpayments Report and whether VA’s

process to identify susceptible programs was adequate.

The Improper Payments Information Act of 2002 (IPIA) required VA to 

perform a risk assessment of programs to determine if they are susceptible to 

significant improper payments. Office of Management and Budget (OMB) 

Circular A-123, Management’s Responsibility for Internal Control, provided 

requirements for implementing IPIA. OMB defined susceptible programs as 

programs with annual improper payments exceeding both 2.5 percent of 

program payments and $10 million. VA identifies susceptible programs in 

the Performance and Accountability Report (PAR). 

VA reported five programs in the FY 2009 PAR as susceptible: 

Compensation, Pension, Education, Civilian Health and Medical Program of 

the Department of Veterans Affairs (CHAMPVA), and Non-VA Fee Care. 

In the FY 2010 PAR, VA added a sixth program (Insurance). Although the 

Insurance and Compensation Programs did not meet the reporting threshold 

for significant improper payments, OMB directed Veterans Benefits 

Administration’s (VBA) to report on these payments in the PAR because the 

total value makes them susceptible programs.

In November 2009, President Barack H. Obama signed Executive 

Order 13520 with the purpose of reducing improper payments by 

intensifying efforts to eliminate payment error, waste, fraud, and abuse in 

major Federal programs. OMB Circular A-123, Appendix C, Part III

provided requirements for implementing Executive Order 13520. In part, 

Executive Order 13520 required VA to report high-dollar overpayments 

quarterly for programs identified as susceptible by the IPIA. OMB defined a 

high-dollar overpayment as a single payment or cumulative payments for the 

quarter over $5,000 for an individual or $25,000 for an entity where the 

amount of overpayment exceeded 50 percent of the correct amount. 

VA submitted the FY 2010 First Quarter High-Dollar Overpayments Report 

to the Inspector General on June 2, 2010. It listed 101 high-dollar 

overpayments from five susceptible programs reported in the FY 2009 PAR

with total overpayments over $1.1 million. Of the 101 high-dollar 

overpayments reported, the VBA programs reported 67 overpayments while

Veterans Health Administration (VHA) reported 34 overpayments. 

Objectives 

Improper 

Payments 

Information Act of 

2002 

Executive Order 

13520
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 2

RESULTS AND RECOMMENDATIONS

Finding 1 VBA’s Process to Report High-Dollar Overpayments

Needs Improvement

VBA did not have an adequate process to ensure compliance with Executive 

Order 13520 reporting requirements. We identified 143 additional 

high-dollar overpayments totaling $623,434 that VBA did not report to VA 

for inclusion in the FY 2010 First Quarter High-Dollar Overpayments 

Report. In addition, VBA’s process for identifying the high-dollar 

overpayments shown in the report did not adequately consider including an 

additional 39,208 potential high-dollar overpayments totaling $213 million. 

We determined that these 39,208 overpayments met some of the criteria used 

in determining reportable high-dollar overpayments. VBA did not request

sufficient information or conduct analysis to determine which overpayments 

met all of the criteria and should have been reported. 

This occurred because VA misinterpreted OMB’s guidance on determining 

high-dollar overpayments. VBA did not apply high-dollar thresholds 

accurately, report prior period overpayments identified in the first quarter, 

report overpayments caused by administrative errors, or report overpayments 

when documentation was insufficient to determine if high-dollar thresholds 

were met. Reducing improper payments increases the effectiveness of VA 

programs to provide services and benefits to veterans. Without an adequate 

process to identify and report high-dollar overpayments, VA cannot fully 

comply with Executive Order 13520 to reduce and collect improper 

payments. 

To identify high-dollar overpayments, the VA’s Debt Management Center 

provided VBA a list of all accounts receivable (receivables) created during 

the first quarter of FY 2010 that were greater than $5,000. A receivable

represents an overpayment to a veteran that needs to be paid back. VBA 

compared this list with a list of first quarter benefit payments to veterans. If 

the total payments made in the quarter were less than $5,000, VBA did not 

include the overpayment on the report. The Education Service and the 

Compensation and Pension (C&P) Service reviewed the remaining 

receivables and excluded any overpayments that occurred prior to the 

reporting quarter or did not meet high-dollar guidance. The remaining 

overpayments were included on the FY 2010 First Quarter High-Dollar 

Overpayments Report. 

VBA reported 67 high-dollar overpayments in the VA’s FY 2010 First

Quarter High-Dollar Overpayments Report, but did not report an additional

 

VBA’s Process for 

Identifying and 

Reporting HighDollar 

Overpayments

VBA Process Did 

Not Include All 

Overpayments
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 3

143 high-dollar overpayments—128 Education Service overpayments and 

15 C&P Service overpayments. Specifically: 

• Education Service excluded 128 overpayments because the improper 

payment (overpaid amount) of $3,000 was less than the $5,000 threshold. 

OMB’s criteria states that the $5,000 threshold applies to total payment, 

not the improper payment. In all 128 cases, the total payment was more 

than $5,000 and met the additional OMB requirement that overpayment 

be more than 50 percent of the correct amount. 

• C&P Service excluded 15 overpayments from reporting because the 

reason for the overpayment could not be determined. All 

15 overpayments were greater than $5,000 and identified during the 

first quarter of FY 2010. An OMB official in the Office of Federal 

Financial Management responsible for the government-wide 

implementation of the Executive Order 13520 stated that VA should 

report all overpayments identified during the quarter where VA did not 

have enough information to determine if the overpayment met all of 

OMB’s criteria. 

VBA noted that OMB’s guidance was not always clear, but agreed that they 

had misapplied the reportable overpayment threshold for the first quarter 

report. VBA officials said they made corrections in time for the third quarter 

report. Additionally, during the second quarter, VBA said they began 

including overpayments where the reason of overpayment could not be 

determined. We will review the implementation of these corrective actions 

in future Office of Inspector General (OIG) reviews of high-dollar 

overpayments. 

VBA did not adequately consider including 39,208 potential high-dollar 

overpayments totaling $213 million in the report. We determined that these 

39,208 overpayments met some of the criteria in determining high-dollar 

overpayments. However, VBA needed to gather and analyze additional 

information to identify the quarter when overpayments occurred and 

determine if the $5,000 total payment and 50 percent improper payment 

criteria were met. Specifically, VBA incorrectly omitted the following items 

from reporting.

• Some Receivables Less Than $5,000 Meet Reporting Criteria. The 

VBA Office of Resource Management excluded 30,993 receivables

because they requested only receivables greater than $5,000 from the 

Debt Management Center. OMB guidance identifies a high-dollar 

overpayment as an improper payment that exceeds the correct payment 

by 50 percent and the total payments exceed $5,000. For example, if a 

veteran is entitled to a monthly payment of $3,333 but the VA incorrectly 

pays the veteran $5,000, the veteran was overpaid $1,667 or 50.1 percent 

VBA’s Process

Did Not 

Adequately 

Consider All 

Overpayments 
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 4

of the correct amount. We identified 30,993 receivables between 

$1,667 and $5,000 that VBA did not consider for inclusion in the first

quarter report. 

• Prior Period Overpayments Identified in the First Quarter. The 

Office of Resource Management excluded 8,104 receivables because the 

overpayments were made prior to the FY 2010 first quarter. OMB 

Circular A-123 states that the report shall list all high-dollar 

overpayments identified by the agency during the quarter. An OMB 

official confirmed this by stating that programs were to report high-dollar 

overpayments identified in the quarter regardless of when the 

overpayment occurred. 

• Overpayments Caused by Administrative Errors. C&P Service 

excluded at least 111 administrative errors because they misinterpreted 

OMB’s guidance. An administrative error occurs because of a VBA 

decision. A veteran is not asked to repay the resulting overpayments 

from an administrative error; therefore, a receivable is not established. 

However, OMB’s guidance states that an improper payment is any 

payment that should not have been made or that was made in an incorrect 

amount. Each month, the Systematic Technical Accuracy Review 

(STAR) evaluates a statistical sample of about 1 to 2 percent of C&P 

decisions that occur nationwide. In the first quarter FY 2010, STAR 

reviews found 80 administrative errors with improper payments over 

$1,667 that VBA did not consider including in the high-dollar 

overpayment report. In addition, we contacted three regional offices to 

determine if administrative errors are identified and reported as highdollar payments through local reviews. St. Petersburg Regional Office 

identified 31 administrative errors while Denver and Salt Lake City did 

not track administrative errors. 

VBA agreed receivables less than $5,000 should be considered and said they 

revised their methodology for the third quarter report. Therefore, we did not 

make a recommendation. However, VBA had concerns about their ability to 

report prior quarters and administrative errors. VBA stated the Benefits 

Delivery Network and Veterans Services Network databases did not track 

information necessary for data matching techniques to report prior quarter 

and administrative errors. These limitations would require case-by-case 

reviews significantly increasing required resources to comply with OMB 

guidance. VBA needs to follow OMB’s guidance and report all high-dollar 

overpayments found in the reporting quarter regardless of when it occurred. 

VA’s methodology did not report all high-dollar overpayments to ensure 

compliance with Executive Order 13520 reporting requirements. Although 

VA adjusted their process since issuing the first high-dollar overpayments 

report on June 2, 2010, VA needs to consider prior period overpayments and 

Conclusion
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 5

administrative errors in reporting high-dollar overpayments. Reducing 

improper payments increases the effectiveness of VA programs to provide 

services and benefits to veterans. VA needs to ensure that VBA applies 

OMB thresholds and guidance in a consistent manner. 

1. We recommended the VA Secretary direct the Under Secretary for 

Benefits report prior period high-dollar overpayments that meet Office of 

Management and Budget’s definition of high-dollar overpayments. 

2. We recommended the VA Secretary direct the Under Secretary for 

Benefits report improper payments that result from administrative errors 

that meet Office of Management and Budget’s definition of high-dollar 

overpayments. 

VA Chief of Staff generally agreed with our conclusions and provided 

acceptable implementation plans to our recommendations. Based on actions 

taken by VBA, we consider recommendation 2 closed. We will monitor 

VBA’s progress and follow up on their implementation of 

recommendation 1 until all proposed actions are completed. Appendix B 

contains the full text of the Chief of Staff’s comments. The Chief of Staff 

provided additional comments on the content of our report.

Management Comment: VA Chief of Staff requested the report 

acknowledge that the Insurance, Compensation, and Pension Services did not 

meet the significant erroneous payments reporting threshold set by OMB. 

OIG Response: We acknowledged that the Insurance and Compensation 

Services did not meet the significant erroneous payments reporting threshold 

set by OMB in the Introduction Section of the report. According to the 

FY 2010 PAR, Pension Service did meet the reporting thresholds. 

Management Comment: VA Chief of Staff commented that a vast majority 

of education, compensation and pension payments are proper based on the 

information available to VBA at the time payments were made. These types 

of overpayments occur because VBA must rely on third parties to promptly 

report changes in eligibility status. In the case of Education Service, a 

majority of the overpayments occurred because tuition and fees are paid upfront and the student withdraws after payment. 

OIG Response: OMB directed VBA to report the overpayments when the 

recipient was ineligible at the time of payment regardless of what 

information was available. As noted by VA Chief of Staff, OMB stated that 

VBA does not have to report payments that became improper based on a 

future event. We did not reference these Education Service overpayments in 

our report. 

Recommendations

Management 

Comments and 
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 6

Finding 2 VHA’s Susceptible Program Assessment Needs 

Improvement

VHA did not adequately assess program susceptibility to improper payments

in FY 2009 as required by the IPIA. Program personnel used a self-assessed 

checklist that did not address all aspects of the payment cycle. In addition, 

improper payment rates found in independent OIG audits differed 

significantly from the program assessment results. This occurred because 

VHA did not make needed improvements to the risk assessment process 

identified by the Financial Assistance Office (FAO). More VHA programs 

may be susceptible to significant improper payments than reported. Without 

accurate reporting, susceptible programs continue to be at risk for significant 

improper payments. 

For FY 2009, VHA’s risk assessments of 22 programs with total outlays of 

over $17 billion found only 1 with significant improper payments (improper 

payments exceeding both 2.5 percent of program payments and $10 million). 

However, OIG audits found and reported significantly higher improper 

payment rates in two of the programs. Further, two VHA internal reviews by 

FAO found results from annual risk assessments were not valid and facilities 

needed a better assessment tool for determining whether programs had 

significant improper payments.

OIG audit results for the Non-VA Fee Care Program and the Patient 

Transportation Program differed significantly from VHA’s self-assessments. 

VHA found improper payment rates of approximately 1 percent for each 

program. 

• In FY 2009, OIG’s Audit of Non-VA Outpatient Fee Care Program 

(Report 08-2901-185) estimated $225 million in improper payments due 

to weaknesses in payment processes. Our estimation equaled an

improper payment rate within the Non-VA Fee Care Program of 

17 percent. In FY 2010, OIG’s Audit of Non-VA Inpatient Fee Care

Program (Report 09-03408-227) estimated $120 million in improper 

payments because VHA’s policies did not provide adequate guidance, 

staff did not have accurate and timely information, and sufficient controls 

were not in place to detect clerical errors.

• In FY 2010, OIG’s Audit of Oversight of Patient Transportation 

Contracts (Report 09-01958-155) reviewed $520 million of patient 

transportation contracts and found improper payments estimating

$18.4 million or 3.5 percent of the contract outlays. The improper 

payments occurred because VHA needed to strengthen controls and 

oversight of patient transportation service contracts. 

Risk Assessments

Need 

Improvement

OIG Reviews 
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 7

Due to the significant variance in risk assessment results, VHA reported the 

OIG’s results of the FY 2009 Audit of Non-VA Inpatient Fee Care Program

in the PAR with a footnote stating that VHA “will improve future error 

measurements to more accurately identify proper payments in the Fee 

program.” In the FY 2010 PAR, VHA estimated a 14 percent improper 

payment rate for the Non-VA Care Fee Program.

FAO serves as the principal advisor to the VHA financial community by 

providing oversight through reviews, audits, and assessments designed to 

improve national program fiscal performance and compliance with fiscal 

policy and Federal accounting regulations. During 2009, FAO conducted 

two internal reviews with findings that differed significantly from the results 

of VHA’s risk assessments. 

FAO conducted one review to learn ways to improve the risk assessment 

process for FY 2009. In the IPIA Quality Improvement Research White 

Paper, dated February 3, 2009, FAO noted the following issues with the risk 

assessment process:

• Checklists were not appropriate because they did not adequately lead 

field station personnel to verify compliance in each component of the 

payment. For example, one of the questions on the checklist was 

“Payment made for goods or services not received?” However, the 

checklist did not verify the proper certification of the receipt of goods or 

services. Proper certification may be the only available evidence to 

reviewers of receiving goods or services. 

• Risk assessments were performed without consideration of known risks 

in VHA’s overall internal control environment. 

• Personnel who performed the self-assessments lacked objectivity. FAO 

auditors stated the assessments resulted in extremely low error rates that 

did not reconcile with findings reported by independent audits. 

In another review (Follow-up to Fiscal Year 2008 Improper Payment 

Information Act Risk Assessment, May 6, 2009), FAO conducted a review on 

the quality of supporting documentation. FAO requested supporting 

documentation for 235 claims; medical facilities provided documentation for 

175 (74 percent) claims. FAO’s follow-up review of the 175 claims with 

supporting documentation found that claims were not adequately assessed for 

improper payment determination and concluded that risk assessment results 

were not valid. 

FAO’s Internal 

Reviews
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 8

For example, for the: 

• Non-VA Fee Care program, VHA’s risk assessment found the improper 

payment rate was 1.28 percent in 2008. However, FAO reviewed 

16 claims and found: 

 Accuracy of the medical coding on the bill was checked for only 

one payment. 

 Authorization or referral was missing in most of the payments, 

and in one case, the referring provider was blank. 

 Documentation to verify that services were actually provided was 

found in only 2 (13 percent) of the 16 claims. 

• Pharmacy program, VHA’s risk assessment found the improper payment 

rate was less than 1 percent (.22 percent) in 2008. However, FAO’s 

review found no documentation to show that goods were received for 

many cases.

Our audit reviewed the assessment process and did not verify the accuracy of 

program risk assessments. However, significant variances in the results of

OIG audits compared to VHA assessments, and FAO’s findings on the 

inadequacies of the risk assessment process showed that the self-reporting 

risk assessment process did not accurately reflect correct program risk levels. 

VHA needs to improve risk assessments to ensure that programs susceptible 

to improper payments are identified.

VHA stated they are developing an improved risk assessment process. For 

the FY 2010 assessment of the Non-VA Fee Care Program, VHA performed 

independent assessments using a specialized checklist that consisted of 

inputs from medical center clerks and supervisors. Checklist results and 

payment documentation will be subject to a secondary review by FAO. 

VHA plans to implement these changes for all programs in FY 2011. 

VHA needs to ensure improvements in the assessment of susceptible 

programs are completed and expanded to all programs. Without an adequate 

assessment and reporting of susceptible programs, more programs could be 

at risk with limited efforts to reduce significant improper payments. 

3. We recommended the VA Secretary direct the Under Secretary of Health 

implement planned improvements to risk assessments to include 

independent reviews with specialized checklists for all programs. 

FY 2010

Improvements

Conclusion

Recommendations
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 9

VA Chief of Staff generally agreed with our conclusions and provided

acceptable implementation plans to our recommendations.1 We will monitor

VHA’s progress and follow up on their implementation until all proposed

actions are completed. Appendix B contains the full text of the Chief of

Staff’s comments.

1 VHA provided us updated completion dates for three of their proposed actions. Those

dates are identified by footnotes in Appendix B.

Management

Comments and

OIG Response
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 10

Appendix A Scope and Methodology 

The audit focused on VA’s implementation of Executive Order 13520 and 

the completeness of VA’s FY 2010 First Quarter High-Dollar Overpayments 

Report. The report is located at the following VA website: 

http://www4.va.gov/ABOUT_VA/docs/2010_high_dollar_overpayment_rep

ortQ1.pdf. In addition, we reviewed the assessment and reporting process 

for IPIA reporting related to the FY 2009 PAR. 

To assess the implementation of Executive Order 13520, we performed site 

visits to VA, VHA, and VBA offices in Washington, DC, and the FAO in 

Austin, TX. While on site, we interviewed key personnel from VHA and 

VBA officials to determine and discuss the methodology and procedures 

used for both Executive Order 13520 and IPIA reporting requirements. We 

contacted: 

• The VA Debt Management Center to obtain receivables established in 

the first quarter FY 2010. 

• VA Quality Assurance program offices to obtain and review internal 

reviews conducted on VHA’s risk assessments. 

• OMB for clarification on guidance when questions arose on the 

interpretation of OMB guidance. 

We reviewed current and prior OIG and Government Accountability Office

audits to identify improper overpayments not reported in the FY 2010 First 

Quarter High-Dollar Overpayments Report and to determine the relative risk 

of programs excluded from IPIA reporting. 

We relied on the number and amount of receivables provided by the VA 

Debt Management Center without auditor verification. The VA Debt 

Management Center numbers were determined for the purpose of this audit 

to be sufficiently reliable because the VA Debt Management Center was 

independent of the decision review process to identify high-dollar 

overpayments. Numbers relied on for this report were not disputed by VA. 

We conducted our audit work from June through November 2010. To 

review VHA’s process for identifying susceptible programs we relied on the 

information reported in FAO’s internal reviews. We did not verify the 

accuracy of the results in these reports because data from these reviews were 

no longer available. However, results from independent audits corroborated 

the internal review conclusions. We also did not perform audit steps to look 

for fraud, waste, and abuse because the nature of the activity being audited 

made fraud unlikely. In all other facets, 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 

Scope

Methodology

Compliance with 

Government Audit

Standards
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 11

sufficient and 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. 

We did not rely on computer-processed data for our conclusion. Therefore, 

reliability was not assessed. 

Reliability of 

ComputerProcessed Data
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 12

Appendix B Agency Comments

Department of

Veterans Affairs Memorandum

Date: July 29, 2011 

From: Chief of Staff (00A)

Subj: OIG Draft Report-Audit of VA's Implementation of Executive Order 13520, 

"Reducing Improper Payments" (VAIQ 7125742) 

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

1. The Department of Veterans Affairs has reviewed the Office of Inspector 

General's (OIG) draft report, Audit of VA's Implementation of Executive 

Order 13520, "Reducing Improper Payments," and generally agrees with the 

conclusions and concurs with the OIG's recommendations to the Department. 

2. Attached are VA’s revised comments on the draft report as well as responses

to the OIG's recommendations. VA appreciates the opportunity to comment 

on the draft report. 

(Original signed) 

 John R. Gingrich

Attachment
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 13

VA Comments on Office of Inspector General (OIG) Draft Report

Audit of VA's Implementation of Executive Order 13520,

"Reducing Improper Payments"

VA provides the following comments on the OIG draft report: 

The draft report states that the Veterans Benefits Administration (VBA) reports on four 

programs identified as susceptible to significant improper payments -compensation, pension, 

education, and insurance. We believe the report should acknowledge that the insurance, 

compensation, and pension programs do not meet the reporting threshold for "significant 

erroneous payments," which the Office of Management and Budget (OMB) has defined as 

exceeding both 2.5 percent of program payments and $10 million. 

The insurance program was included as a reportable entity in the 2010 Performance and 

Accountability Report (PAR) at OMB's request. The insurance program had previously been 

granted relief from this reporting requirement because of the extremely low percentage and 

amount of improper payments under that program. As reported in the 2010 PAR (based on fiscal 

year (FY) 2009 actual data), insurance outlays were $1.3 billion and improper payments were 

projected to be .03 percent of outlays (approximately $400,000). 

In the compensation and pension programs, "erroneous payments" account for approximately 

1.6 percent of payments made. However, VBA was directed by OMB to report on these 

payments as the total value of "erroneous" payments makes them "high risk programs" for PAR 

purposes. It is important to note that a vast majority of the compensation and pension payments 

reported as "erroneous" were actually proper, based on all of the information available to VBA 

at the time the payments were made. Subsequent to the issuance of recurring monthly 

payments, VBA frequently receives new information that places previously issued payments in 

the "erroneous" category (e.g., death of a beneficiary, incarceration of a beneficiary, a Veteran 

returns to active duty, a beneficiary's marital status changes). In these types of cases, VBA must 

rely on the beneficiary, the beneficiary's family, or another third party to promptly report the 

change in status. 

Under the education program, VBA faces a similar situation. Although the "erroneous" 

payments in the education program currently exceed the 2.5 percent and $10 million criteria for 

reporting purposes, the primary cause of the overpayments is students' withdrawal from some or 

all of the classes for which they enrolled and were certified. Again, the majority of the payments 

were proper based on the information available to VBA at the time the payments were made, and 

VBA is dependent on timely reporting of changes in enrollment status by students and their 

educational institutions. The majority of the "erroneous" payments occur under the new Post9/11 GI Bill because the full amount of tuition and fees is paid up-front. Additionally, the long 

term solution does not yet provide the functionality for monthly certification of students' 

continued attendance before issuance of the recurring housing allowance. Automated monthly 

certification processing is available to support the other education programs VBA administers. 
Audit of VA’s Implementation of EO 13520, “Reducing Improper Payments”

VA Office of Inspector General 14

VBA sought clarification from OMB on the proper reporting of these payments. OMB agreed to 

host discussions with VBA, the Office of Management, and OIG to further clarify reporting 

requirements and ultimately reduce the significant burden placed on VBA to identify, review, 

recalculate, and report on improper payments. Those discussions are ongoing. VA teamed with 

OMB to develop a pilot program to streamline methods for accurately identifying and reporting 

improper payments. VA and OMB are evaluating results of the pilot and will use findings to 

inform ongoing discussions. 

Additional technical comments include: 

Preamble of the report. Add the following paragraph: In December 201 0, OIG solicited 

information from OMB on the reporting of overpayments that were proper at the time the 

payments were made but subsequently were deemed improper as a result of additional 

information. OMB's response stated that VBA does not have to report payments that were proper 

at the time they were made, but a future event resulted in them being viewed as an overpayment. 

Applying this guidance would reduce the number of overpayments in the fourth quarter report 

from 2,027 to 323 for education. Beginning with the first quarter report for FY 2011, VBA no 

longer reports as improper those education overpayments that represent proper payments at the 

time they were issued. 

Responses to the recommendations in the OIG draft report: 

Recommendation 1: We recommend the VA Secretary direct the Acting Under Secretary for 

Benefits to report prior period high-dollar overpayments that meet the Office of Management 

and Budget's definition of high-dollar overpayments. 

VA Response: VA concurs. 

OMB criteria are as follows: 

1. The overpayment is in excess of 50 percent of the total amount. 

2. Total payments to the individual exceed $5,000 for the quarter. 

Due to the nature of VBA debts, the overpayment mayor may not have been identified in the 

same quarter as the payments were made. VBA sought clarification from OMB regarding 

whether VBA should report all payments that contributed to the overpayment or just those that 

occurred in the quarter being reported. OMB directed that VBA review all payments that 

contributed to the overpayment in order to determine if the debt meets the criteria above. If the 

debt meets the criteria, then VBA will report as an overpayment. 

OMB implementing guidance provides the following potential means of identifying high dollar 

overpayments. The guidance states: 
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High-dollar overpayments should be identified by examining several sources of information 

available to agencies. For instance, agencies could identify high-value errors, where applicable, 

through: 

1. Statistical samples conducted under the Improper Payments Information Act; 

2. Agency post-payment reviews; 

3. Recovery audits; 

4. Agency IG reviews; 

5. Self-reports; or 

6. Reports from the public through Internet and telephone hotlines, and other referrals. 

To develop the report, beginning with the third quarter FY 2011, VBA will do the following: 

1. On VBA's behalf, the VA Debt Management Center will continue to produce the file of 

debts established for overpayments during the quarter. 

2. VBA will review a statistically valid sample of all debts totaling over $1,667 and report 

on those that meet the definition as written by OMB. The sample would be selected based 

on a 95 percent confidence rate with a confidence level of 5 percent; this is consistent with 

the sample sizes selected for the Compensation and Pension STAR reporting. 

3. VBA will use the results of the sample to develop inferential statistics regarding the 

population of debts. 

4. VBA will continue to report on improper payment cases where no receivable was 

established under the administrative error provisions. 

5. Additionally, VBA will provide a report to the Secretary on: 

a. root causes of debts 

b. total number and amount of debts established in each quarter 

c. total amount of collections in each quarter 

Target Completion Date: September 1, 2011 

Recommendation 2: We recommend the VA Secretary direct the Acting Under Secretary for 

Benefits to report improper payments that result from administrative errors that meet the Office 

of Management and Budget's definition of high-dollar overpayments. 

VA Response: VA concurs. The Compensation and Pension Service began including 

administrative errors in the FY 2010 fourth quarter report. The Education Service began 

including administrative errors in the FY 2011 first quarter report. VA requests closure of this 

recommendation. 

Recommendation 3: We recommend the VA Secretary direct the Under Secretary of Health to 

implement planned improvements to risk assessments to include independent reviews with 

specialized checklists for all programs. 
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VA Response: VA concurs. All Veterans Health Administration (VHA) programs will undergo 

a formal risk assessment and review process in FY 2011 (and at least once every 3 years 

thereafter), to include independent reviews with specialized checklists, to establish a new 

baseline and more accurately determine if VHA programs are susceptible to significant improper 

payments in accordance with the Improper Payments Elimination and Recovery Act of 2010 

(lPERA). VHA identified 25 programs that are subject to IPERA reporting requirements. 

Programs are defined by VHA appropriations, budget object codes, cost centers, and transaction 

codes, if applicable. 

To conduct the review, the VHA Financial Assistance Office has contracted with the VA 

Financial Services Center to acquire a list of the universe of program payments from VA's 

Financial Management System (completed December 15, 2010). 

VHA will conduct a formal risk assessment taking into account the following risk factors: 

(a) Whether the program or activity reviewed is new to the agency; 

(b) The complexity of the program or activity reviewed, particularly with respect to 

determining correct payment amounts; 

(c) The volume of payments made annually; 

(d) Whether payments or payment eligibility decisions are made outside of the agency, for 

example, by a State or local government; 

(e) Recent major changes in program funding, authorities, practices, or procedures; 

(f) The level, experience, and quality of training for personnel responsible for making 

program eligibility determinations or certifying that payments are accurate; 

(g) Significant deficiencies in the audit report of the agency or other relevant management 

findings that might hinder accurate payment certification; and 

(h) Results from prior improper payment work. 

Based on the risk assessment results, VHA will conduct an independent review of program 

payments where the estimated annual improper payments in the program exceeds both 2.5 

percent of program outlays and $10 million of all program or activity payments made during the 

fiscal year reported, or $100 million. 

The VHA Financial Assistance Office will consult with the VHA Allocation Resource Center 

and a statistician to ensure the validity of the sample design, sample size, and measurement 

methodology in accordance with OMB guidelines. The Allocation Resource Center will generate 

a statistically valid, random sample based on the payment universe and estimated error rate of 

sufficient size to yield an estimate with a 90% confidence level and an estimated error of plus or 

minus 2.5 percent. The 2011 annual IPERA review will consist of VHA payments made in FY 

2010 (completed January 15, 2011). 
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The VHA Financial Assistance Office will review sampled program payments using a 

specialized checklist detailing specific compliance criteria to more accurately identify payment 

accuracy (completed June 15, 2011).2

Review results will be forwarded to the VHA Allocation Resource Center to estimate the amount 

of improperly paid dollars in each program. The estimates for the risk susceptible programs will 

be based on a gross total of both over-and underpayments (estimated completion date -July 29, 

2011).

 

3

For programs determined to be susceptible to significant improper payments, program officials 

will be responsible for implementing an action plan to strengthen internal controls, reduce 

improper payments, and establish reduction targets. VHA will report, for inclusion in the 

agency's PAR, estimates of the annual amount of improper payments in programs and activities 

and report on the progress in reducing them (estimated completion date –July 29, 2011).

 

4

 

 

2 Revised completion date of July 21, 2011

3 Revised completion date of July 29, 2011

4 Revised estimated completion date September 30, 2011
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Appendix C 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 Larry Reinkemeyer, Director 

Robin Frazier 

Joseph T. Janasz Jr 

Lance Kramer

Brad Lewis

Daniel Morris

Dao Pham

Lynn Scheffner

Oscar Williams

 
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Appendix D Report Distribution

VA Distribution

Office of the Chief of Staff

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 after it is issued.