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25–228 2018

INVESTIGATING HOW VA IMPROPERLY PAID 

MILLIONS TO INCARCERATED VETERANS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON DISABILITY 

ASSISTANCE AND MEMORIAL AFFAIRS 

OF THE

COMMITTEE ON VETERANS’ AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

TUESDAY, SEPTEMBER 27, 2016 

Serial No. 114–82 

Printed for the use of the Committee on Veterans’ Affairs 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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(II) 

COMMITTEE ON VETERANS’ AFFAIRS 

JEFF MILLER, Florida, Chairman 

DOUG LAMBORN, Colorado 

GUS M. BILIRAKIS, Florida, Vice-Chairman 

DAVID P. ROE, Tennessee 

DAN BENISHEK, Michigan 

TIM HUELSKAMP, Kansas 

MIKE COFFMAN, Colorado 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

RALPH ABRAHAM, Louisiana 

LEE ZELDIN, New York 

RYAN COSTELLO, Pennsylvania 

AMATA COLEMAN RADEWAGEN, American 

Samoa 

MIKE BOST, Illinois 

CORRINE BROWN, Florida, Ranking 

Minority Member 

MARK TAKANO, California 

JULIA BROWNLEY, California 

DINA TITUS, Nevada 

RAUL RUIZ, California 

ANN M. KUSTER, New Hampshire 

BETO O’ROURKE, Texas 

KATHLEEN RICE, New York 

TIMOTHY J. WALZ, Minnesota 

JERRY MCNERNEY, California 

JON TOWERS, Staff Director 

DON PHILLIPS, Democratic Staff Director 

SUBCOMMITTEE ON DISABILITY ASSISTANCE AND MEMORIAL 

AFFAIRS 

RALPH ABRAHAM, Louisiana, Chairman 

DOUG LAMBORN, Colorado 

LEE ZELDIN, New York 

RYAN COSTELLO, Pennsylvania 

MIKE BOST, Illinois 

DINA TITUS, Nevada, Ranking Member 

JULIA BROWNLEY, California 

RAUL RUIZ, California 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Veterans’ Affairs are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

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(III) 

C O N T E N T S 

Tuesday, September 27, 2016 

Page 

Investigating How VA Improperly Paid Millions To Incarcerated Veterans ...... 1 

OPENING STATEMENTS 

Honorable Ralph Abraham, Chairman .................................................................. 1 

Honorable Dina Titus, Ranking Member ............................................................... 2 

WITNESSES 

The Honorable Michael J. Missal, Inspector General, Office of Inspector General, U. S. Department of Veterans Affairs ....................................................... 3 

Prepared Statement ......................................................................................... 22 

Accompanied by: 

Mr. Nick Dahl, Director, Bedford Office of Audits and Evaluations, Office 

of Inspector General, U. S. Department of Veterans Affairs 

Ms. Beth Murphy, Director, Compensation Service, Veterans Benefits Administration, U. S. Department of Veterans Affairs ................................................ 5 

Prepared Statement ......................................................................................... 25 

Accompanied by: 

Mr. Willie Clark, Acting Deputy Under Secretary for Field Operations, 

Veterans Benefits Administration, U. S. Department of Veterans Affairs 

Mr. David R. McLenachen, Director, Appeals Management Center, Veterans Benefits Administration, U. S. Department of Veterans Affairs 

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(1) 

INVESTIGATING HOW VA IMPROPERLY PAID 

MILLIONS TO INCARCERATED VETERANS 

Tuesday, September 27, 2016 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON VETERANS’ AFFAIRS, SUBCOMMITTEE ON DISABILITY ASSISTANCE

AND MEMORIAL AFFAIRS, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 10:33 a.m., in 

Room 334, Cannon House Office Building, Hon. Ralph Abraham 

[Chairman of the Subcommittee] presiding. 

Present: Representatives Abraham, Lamborn, Zeldin, Costello, 

Bost, Titus, Brownley, Ruiz. 

OPENING STATEMENT OF RALPH ABRAHAM, CHAIRMAN 

Mr. ABRAHAM. The Subcommittee on Disability Assistance and 

Memorial Affairs will now come to order. And I want to thank the 

witnesses for being here today. I think I met all of you. 

According to a June 28, 2016 IG report, the VA has failed to 

process incarceration adjustments in a timely manner. To date, 

VA’s error has resulted in more than $100 million of overpayments. 

What is worse, if VA does not address this issue soon, the IG estimates that the VA will issue more than $200 million in overpayments between fiscal year 2016, and fiscal year 2020. And this is 

simply not acceptable. 

By law, if a beneficiary is incarcerated for more than 60 days, VA 

is usually required to reduce compensation and pension benefits to 

no more than the ten percent disability rate. The IG recently discovered that the VA has not processed the incarceration adjustments in a timely manner since 2008. The veterans who receive 

these overpayments have committed crimes, but the overpayments 

are not their fault. VA’s testimony blames the veteran for not notifying VA of his or her incarceration. I have a copy of an attachment 

to a VA decision letter, and I know that there is one buried sentence stating that incarceration affects their rights to payments. At 

the very end of the document is a blanket request that veterans 

contact VA if there is a change in any condition affecting their 

right to payments. However, the information sheet does not clearly 

explain how the veteran is supposed to notify the VA, nor is there 

any warning that a debt may be created. Besides, does VA really 

expect a veteran to remember to contact VA from prison, what may 

be many years after receiving the decision letter so VA can reduce 

their compensation payment? I would venture to say that these veterans have more urgent matters on their minds. 

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Moreover, even if the veteran did notify the VA of his or her incarceration, based on the IG report, there is no evidence that the 

VA would have promptly processed the adjustment. 

Regardless, nothing excuses the VA for failing to do its job. I am 

particularly concerned about the families of these veterans. On the 

other hand, although I am sympathetic to these families if a veteran is unable to repay the debt, American taxpayers will be on the 

hook. 

According to the IG report, this failure is not limited to one or 

two ROs, it is system wide. That means that the decision not to 

make the adjustment a priority was made at a higher level, probably by someone at the central office. And I also hope that we will 

receive these answers in a timely manner, unlike the VA’s failure 

to respond to the questions from the record that the Subcommittee 

submitted on July 25, 2016 following the hearing, ‘‘TBI Claims: 

VA’s Failure to Provide Adequate Examinations.’’ 

I am also frustrated that despite repeated requests, it was only 

last night that the VA finally responded to questions submitted by 

my staff on the subject of the present hearing, questions submitted 

over a month and a half ago. VA cannot continue to avoid answering questions to escape scrutiny. 

Ms. Murphy, I expect that we will receive VA’s responses to our 

questions on the overpayments by no later than the end of this 

week. With that, I call on our distinguished Ranking Member Ms. 

Titus for her opening statements. 

OPENING STATEMENT OF DINA TITUS, RANKING MEMBER 

Ms. TITUS. Well thank you very much, Mr. Chairman. Like you, 

I am concerned about the improper payments that are outlined in 

the GAO report, and I look forward to hearing from the VA about 

what can be done to eliminate the problem. I hope you all, our witnesses today, will make recommendations as to how we can help 

and assist in this effort. I would remind the Committee, however, 

that it was Congress that in its infinite wisdom that passed that 

law and wrote it that required the veteran to call from prison and 

let the VA know they were having a change in status. 

Today’s hearing is focused on just one small part of the many responsibilities of the VBA. We realize that, and I think it is important that we take a look at the whole picture. Over the past four 

years, the VBA has made significant progress in reducing the 

workload for the backlog. This is something that we asked you to 

do, and you have done it. Unfortunately, over the same time work 

has piled up in other areas. You squeezed the balloon, the air has 

moved to another part. 

In July, 2013 there were more than 883,000 disability and compensation claims waiting for a decision by the VA. By July of 2015, 

the claims inventory had been reduced to 375,000. This is a reduction of half a million claims in just two years. That is commendable. In terms of the backlog claims, the claims that have been 

pending for more than 125 days, you also made significant improvement. In March of 2013, there were 611,000 claims that were 

considered to be backlogged. Veterans were waiting for years for 

their initial decisions on those claims. But now thanks to your hard 

work, veterans are waiting only 130 days for a decision on their 

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initial claim, and 115 days if they utilize the fully developed claim 

process which this Committee helped to establish. 

In clearing out the backlog, however, we asked you to make some 

tough decisions, and the results of that have been unfortunate in 

some areas. While the benefits backlog was a top priority, other 

work was put on the back burner, and that is one of the things that 

we are addressing today. Our Subcommittee was promised that 

once the claims and pension backlog was reduced, resources would 

be moved around and utilized to work on other priorities within the 

VBA. I am interested in hearing from you all, how the VBA is 

going to maintain that benchmark or those benchmarks that we set 

for timeliness of benefits claims while also addressing the non-rating backlog and the backlog of appeals, which we have talked about 

over and over again. 

Incarcerated veterans’ claims equate to 1.19 percent of the total 

non-rating workload of the VBA. These claims represent less than 

25,000 claimants nationwide, or half a percent of the total pending 

rating and non-rating workload. Our Subcommittee, however, 

should not forget to look at the larger issues as well. There are currently 213,000 non-rating claims waiting an average of 350 days for 

a decision. There are nearly half a million veterans waiting more 

than three years on average for their decision on an appeal. In 

sum, total that is nearly three-fourths of a million claimants waiting extensive periods of time for something from the VA, so we 

need to be focusing our attention now on all of those backlogs, including these for incarcerated veteran problems. 

So Mr. Chairman, I look forward to working with you on this 

issue and others along these same lines that come before our Subcommittee, and I yield back. 

Mr. ABRAHAM. Thank you, Ms. Titus. And I know Chairman Miller is coming this way. He has been detained, but he does plan to 

join us. So I do ask unanimous consent that when he does arrive 

he be allowed to sit at the dais and make opening statements and 

to ask questions. Does anyone else have an opening statement that 

they would like to make? Okay. Hearing no objection, so ordered. 

Now I would like to welcome today’s witnesses. We are honored 

to have the Inspector General Michael Missal with us. Congratulations on your confirmation as the VA Inspector General. I am looking forward to working with you. And Inspector General Missal is 

accompanied with Mr. Nick Dahl, the Director of the Bedford Office 

of Audits and Evaluations. We also welcome the VA’s witnesses. 

Ms. Beth Murphy is the Director of Compensation Service. She is 

accompanied by Mr. Willie Clark, Acting Deputy Under Secretary 

for Field Operations, and Mr. David McLenachen, Director of the 

Appeals Management Center. Mr. McLenachen is here today to answer questions related to his previous position as Deputy Under 

Secretary for Disability Assistance. I want to remind the witnesses 

that your complete written statements will be entered into the 

hearing record. Inspector General, you are recognized now for five 

minutes to present the testimony of the VA Inspector General. 

STATEMENT OF MICHAEL J. MISSAL 

Mr. MISSAL. Thank you. Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to discuss the OIG’s 

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June, 2016 report, ‘‘Veterans Benefits Administration Audit of 

Compensation and Pension Benefit Payments to Incarcerated Veterans.’’ This morning, as you noted, I am accompanied by Mr. Nick 

Dahl, Director of OIG’s Audits and Evaluations Division in Bedford, Massachusetts. 

On May 2, 2016, I was sworn in as the Inspector General. Since 

that time, I have immersed myself to better understand the people, 

work, and priorities of our office. My integration has gone very 

well. I am impressed with the OIG staff, many of whom are veterans. Our office has a strong commitment and focus on bringing 

about positive changes in the integrity, efficiency, and effectiveness 

of VA programs and operations. I have submitted my written statement for the record so I will summarize. 

Federal law requires VBA to reduce compensation and pension 

benefit payments for veterans incarcerated for more than 60 days 

in a Federal, state, or local penal institution. Our audit objective 

was to determine whether VBA was adjusting C&P benefits payments for incarcerated veterans. We found that VA regional office 

and pension management center staff did not consistently take action to adjust C&P benefits for incarcerated veterans. 

For those in Federal facilities ranging from May 2008 through 

June 2015, VBA did not adjust veterans’ C&P benefits as required 

in an estimated 53 percent of the cases. This resulted in improper 

payments totaling approximately $59.9 million. Without improvements, we estimate that VBA could make improper benefit payments totaling about $41.8 million for Federal incarceration cases 

from fiscal year 2016 through fiscal year 2020. 

VA regional office and pension management center staff also did 

not take consistent and timely action to adjust C&P benefits for 

veterans incarcerated in state and local penal institutions. Based 

on incarceration notifications received from March 2013 to August 

2014, the most current data available at the time of our audit, VBA 

did not effectively adjust veterans’ C&P benefits in an estimated 18 

percent of cases. This resulted in significant delays and improper 

payments totaling approximately $44.2 million. Without improvements, we estimate that VBA could make additional improper benefit payments totaling about $162 million for state and local incarceration cases from fiscal year 2016 through fiscal year 2020. In 

total, we estimated potential improper benefit payments of about 

$307.9 million. 

In general, VBA did not place priority on processing these adjustments because VBA did not consider these non-rating claims to be 

part of the disability claims backlog. Both VBA central office staff 

from Compensation Service and the Office of Field Operations, as 

well as VA regional office service center managers and staff consistently reported that incarceration adjustments were not a high 

priority. Accordingly we recommended the Acting Under Secretary 

for Benefits increase the priority of VBA’s incarceration adjustment 

workload. 

We made six recommendation to the then Acting Under Secretary for Benefits. These recommendations included increasing the 

priority of Federal, state, and local incarceration workload by making timely benefit adjustments when appropriate; reviewing Bureau of Prisons data on Federal incarcerations and issuing bills of 

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collection to recover improper benefit payments; and monitoring 

the terms of its computer matching agreements and take timely action to extend the agreements when appropriate. 

The Acting Under Secretary for Benefits concurred with our recommendations. Management’s planned actions were responsive and 

we will follow-up as required. 

In summary, VBA needs to prioritize its workload, make improvements to ensure sound financial stewardship over benefits 

earned through entitlements, and take timely actions that reduce 

improper benefit payments. 

Mr. Chairman, this concludes my statement. Mr. Dahl and I 

would be happy to answer any questions you or Members of the 

Subcommittee may have. I would like to add that this is my first 

House hearing as the Inspector General and I look forward to continuing the OIG tradition of providing the Committee with independent oversight reports on VA programs and operations. Thank 

you. 

[THE PREPARED STATEMENT OF MICHAEL J. MISSAL APPEARS IN

THE APPENDIX]

Mr. ABRAHAM. Thank you, Mr. Missal. Ms. Murphy, you are recognized to give the department’s testimony now for five minutes. 

STATEMENT OF BETH MURPHY 

Ms. MURPHY. Thank you. Good morning, Chairman Abraham, 

Ranking Member Titus, and Members of the Committee. As you 

mentioned earlier I am joined today by Mr. Clark and Mr. 

McLenachen. We appreciate the opportunity to respond to the concerns raised by the Committee regarding benefits paid to incarcerated veterans. 

Today I will address the recent IG audit of C&P payments, compensation and pension payments to incarcerated veterans. I will 

highlight VA’s response to the IG recommendations and describe 

the actions taken by the department. 

Federal law requires VA to reduce compensation payments and 

terminate pension payments to individuals incarcerated for a period in excess of 60 days for conviction of a felony. Veterans receiving compensation or pension payments are responsible for notifying 

VA of their incarceration and the date of release. This important 

reminder is sent to veterans when they receive an award of benefits or an increase in benefits, and because VA does not always receive this notification from veterans we have established data 

matching agreements with the Federal Bureau of Prisons and Social Security as backup mechanisms. 

IG in its report in June, 2016 found VBA offices did not take 

timely and consistent actions to adjust payments made to incarcerated veterans in Federal institutions between May, 2008 and June, 

2015, and state and local institutions between March, 2013 and 

August, 2014. As a result IG made recommendations to the department which included prioritizing incarceration adjustment workload, recouping overpayments, and renewing VA’s formal agreement with Bureau of Prisons. 

In accordance with IG’s recommendation VA has renews our data 

matching agreements and we are seeking to expand the type of 

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electronic data we receive. This will enhance efficiency of the process and support future automation of incarceration adjustments. 

The VA’s agrees with IG’s recommendation to increase the priority of processing of incarceration adjustments. VBA has issued 

guidance to all regional offices to ensure these claims are appropriately prioritized. Claims are being processed based on the date 

of incarceration, focusing on working the oldest dates first. 

VA also agrees with the recommendations to initiate more timely 

development of the work product after receiving notification of incarceration from the veteran or from the Bureau of Prisons or Social Security, and to make more timely adjustments after the due 

process notification has been issued. 

VA agrees with the IG recommendation to initiate procedures to 

recover improper payments where necessary after due process has 

been afforded. As a result, VBA will continue to retroactively adjust awards of veterans who are currently incarcerated, as well as 

those who were previously but no longer incarcerated. Veterans 

who become indebted as a result of incarceration are notified they 

have a right to request a waive of the overpayment, offer a compromise, or establish a repayment plan to help ease the financial 

burden once released. Repayment options can include partial 

withholdings from future benefit payments. Veterans are provided 

with information on how to contact the debt management center in 

VA for assistance in resolving their debts. 

VA acknowledges the importance of timely processing of the nonrating workload on behalf of veterans, their families, and taxpayers. This includes the timely processing of award adjustments 

to incarcerated veterans. As VBA completed record-breaking numbers of disability rating claims in recent years and eliminated almost 90 percent of the rating backlog one result is an associated 

increase in the volume of non-rating claims. 

In fiscal year 2015 VBA completed more non-rating claims than 

ever before. We will continue to prioritize these incarceration adjustments and balance resources accordingly to address non-rating 

inventory of claims. We will continue to renew and improve the 

data matching agreements with Federal Bureau of Prisons and Social Security so that all necessary data is included in their transmission of data to VA. And finally as part of VBA’s continued 

transformational efforts we will improve our electronic systems to 

streamline the processing of incarceration adjustments. 

Mr. Chairman, this concludes my statement. We would be 

pleased to respond to the questions that you or the Members may 

have. 

[THE PREPARED STATEMENT OF BETH MURPHY APPEARS IN THE AP- PENDIX]

Mr. ABRAHAM. Thank you, Ms. Murphy. I will start the questioning. You made a comment in your opening statement there 

about you wanted to expand the electronic data and that leads into 

a question I want to ask. In April of 2015 VBA reentered into a 

computer matching agreement with the Bureau of Prisons, over 

seven years after the previous was allowed to lapse. However, according to the IG’s report even after this agreement was signed 

VBA was still not working the backlog of incarceration adjustments 

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ten months after the data was provided. So I guess my question is 

why were these adjustments not made in a timely manner? 

Ms. MURPHY. Mr. Chairman, I would say that there were a number of factors at play, and I can start down the list. There are complications with the source of information and the data feeds that 

we get in particular. 

Mr. ABRAHAM. Who inputs that data into the system? The Bureau of Prisons? The VA? I mean, how do they match up? 

Ms. MURPHY. So it is my understanding that we provide information to Bureau of Prisons, they bump it against their lists, and 

then they provide us information back. A key piece of this, is the 

information we get, does not include the date of incarceration. So 

unless that is provided by, verified by the veteran or we get that 

making phone calls or doing development— 

Mr. ABRAHAM. That is not on the Bureau of Prisons’ match, with 

the day they got into the prison? I mean, that would seem like an 

important date. 

Ms. MURPHY. The date of conviction is not included and the date 

of incarceration is not included. These are pieces of information 

that we have to follow-up on in a manual manner, making phone 

calls, sending letters. If we send a letter we have to give 30 days 

for the institution to respond. So there are manual processes, time 

lags involved in getting this information if it is not provided to us. 

Mr. ABRAHAM. Okay. That is, you know, good enough for now. 

Mr. ABRAHAM. We will come back. Inspector General Missal, this 

is a question for you, sir. Based on the VA’s testimony, do you believe that there is an appropriate level of engagement to determine 

who was responsible for allowing the data sharing agreement with 

the Bureau of Prisons to lapse for seven years? 

Mr. MISSAL. We believe that this is now an issue that they are 

focused on. It did not appear to be an issue during our review. 

Holding a hearing like this certainly raises that issue again. One 

of our recommendations was to make sure that they are focused on 

that. We follow-up on all our recommendations. 

Mr. ABRAHAM. And you guys are focused on it now, I am assuming, Ms. Murphy? 

Ms. MURPHY. We are focused, sir. Yes, sir. 

Mr. ABRAHAM. All right. I will take that as a yes. And I am going 

to come back to you, Ms. Murphy— 

Ms. MURPHY. Yes. 

Mr. ABRAHAM [continued]. —for the next question. Now I understand that you are new to your role as the Director of the Compensation Service whose responsibility was to ensure that the data 

sharing agreement with the Bureau of Prisons was in place. So 

who is responsible now? I mean, who is the go to person that 

makes sure this is happening? 

Ms. MURPHY. So there are lots of different pieces of this. There 

is an IT piece of this to make sure that the information is provided 

securely. 

Mr. ABRAHAM. All right. So who, all right, so give me that name. 

Ms. MURPHY. I do not have a particular name. On the IT side 

there are folks that work with us on that. But as far as going forward I have got my eye on that ball and making sure from the 

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Compensation Service aspect that we will make sure that matching 

agreement remains viable going forward. 

Mr. ABRAHAM. Well if you could give me, I would appreciate it 

if you could give me that name of that IT person. But who, who 

is ultimately responsible for this? I mean, whose doorstep does it 

land at, at the end of the day? 

Ms. MURPHY. I would say now going forward I will be watching 

this. It is my responsibility. I work with other partners. We work 

with a bigger universe, including IT, working with the Bureau of 

Prisons and Social Security, all the right parties working together 

to make sure we have that data feed. 

Mr. ABRAHAM. And again I, you know, I am, you know me, I am 

pretty stickler about accountability. Who was it, whose responsibility was it at the time it lapsed? 

Ms. MURPHY. Sir, I would say, and I am not being evasive, I have 

asked. I have looked into this. There were a lot of factors at play. 

And if I could comment on that a little bit? This was over a long 

time period. 

Mr. ABRAHAM. Mr. McLenachen, do you know that answer, to 

who was overall responsible for this lapse period here? 

Mr. MCLENACHEN. I cannot provide you a name either, but I can 

tell you that this is administered at the service level, the Compensation Service level. But if you look back the history is pretty 

long regarding this issue. Congress first enacted this law in 1980. 

The data that we get from the Bureau of Prisons and from Social 

Security is not really clean data that we can use, like we have in 

other non-rating circumstances, to automate how we do this. Until 

we get the data to that point, just because of the nature of the law, 

we are always going to have a certain period of time where we are 

having to go back and adjust these— 

Mr. ABRAHAM. But my point is, and hopefully you understand, 

somebody has got to own this. Somebody has to be accountable for 

this seven-year lapse. I mean, it is just not responsible government. 

It is not responsible business. It is not responsible for our taxpayers. And it is not responsible for the veterans’ families. 

Mr. MCLENACHEN. So, during the period that I was Deputy 

Under Secretary for Disability Assistance, one of the programs I 

administered was the compensation program. To that extent I am 

accountable because this has not happened. It is administered at 

the service level. Nonetheless, it was under my control during 

about the 2014 to July of 2016 period. 

Mr. ABRAHAM. Well I thank you for that. 

Mr. MCLENACHEN. So I will tell you that I was accountable during that time. 

Mr. ABRAHAM. I appreciate that. I am out of time. Ms. Titus? 

Ms. TITUS. Thank you, Mr. Chairman. I would just ask Mr. Missal about his perspective of the bigger picture. I know this is a 

problem and we need to focus on it. But let us work on the whole 

non-rating workload. Could you remind us of the last time that the 

IG’s office took a look at that whole workload? And would you say, 

I think I know but I want to hear it from you, would you say it 

is fair that you all did not focus your auditing efforts on the nonrating workload because you were focused on the rating workload 

for all the more recent years? 

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Mr. MISSAL. We are looking at all of the benefit payment programs that they have on a fairly regular basis. Part of the audit 

group that I have is divided into benefit inspection teams that look 

at it, so we are looking at both rating and non-rating claim processes as well. And this is not something that we thought was unusual given the focus on the rating claims. 

Ms. TITUS. Well what, can you tell us what the state of that is 

now, what you are looking at with these different teams? 

Mr. MISSAL. We have a number of different programs that we are 

looking at now. We have put out various reports over time and we 

have a number of projects in the work stream. 

Ms. TITUS. Well I have information here that looks like you, the 

last time you looked at the non-rating workload and issued a report 

it was February, 2008. Now apparently a lot can happen in almost 

ten years, or eight years. So I would not say that is kind of keeping 

up with the problem. 

Mr. MISSAL. We do look at it. I have been in the job now almost 

five months— 

Ms. TITUS. And I understand that is not fair to blame you for 

something in 2008. 

Mr. MISSAL [continued]. and with respect to our benefits team, 

in fact, we had recent discussions on that in terms of going forward, what we are looking at. And we actually expanded our benefits inspection team. We now have three separate teams that are 

going to be working so we are going to be expanding our look at 

the benefit programs. 

Ms. TITUS. I think that would be helpful so we do not get so far 

behind the curve. That makes it more difficult to make improvements when you do find problems and things like this come out. 

Mr. MISSAL. We agree. 

Ms. TITUS. Thank you. All right I would like to kind of shift over 

to Ms. Murphy. Just to go back to some of the details of how this 

process works, some context to how the non-rating claims related 

to the prisoners’ process versus the other people’s claims, how we 

could change the law to make it better. Do you not really think it 

is silly that you are relying on a prisoner to call you up and say, 

hey, I got arrested, cut off my benefits? I mean, give us a little help 

here so it is not just a hearing about accountability, we can actually do something. 

Ms. MURPHY. Ranking Member Titus, thank you. And thank you 

for your comments earlier for the context that this incarcerated 

veteran population of non-rating claims are just over one percent 

of all of our non-rating claims that we are working with. So it is 

a small subset, but all of our claims are important and we are not 

trying to put anything off. We have been focused on the rating 

claims, as you mentioned. But the more rating claims we do, potentially the more folks are entitled to benefits, and then non-rating 

claims flow from that. 

During this time period where we were giving prioritization to 

backlog, we have designated non-rating and appeals folks. And during their daylight hours we said you have to continue to do rating 

and appeals work. So we did not take them off of that work during 

their regular hours. So there was continued work and focus on nonrating and appeals. 

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As far as non-rating work in the last few years, we have really 

been looking at automation to help us standardize and make this 

go smoother and faster. Getting the essential data elements we 

need from Bureau of Prisons will help that. Support for our IT systems will help that. So that we have either claims that we do not 

have to touch, or that we do not have to touch, with data support 

and evaluation support tools. So I think automation is a piece, getting the right feed, and support tools are a big part of this. 

Ms. TITUS. Should we not have somebody here from the prison 

side of things to talk about what they need to do to help you with 

this to do it better? 

Ms. MURPHY. Well we are working with them now just to make 

sure that we can get as much information as possible, also with Social Security. I would say that they are good partners. We just have 

to really get down into the weeds of what we need to have to stop 

chasing this in a manual way. 

Ms. TITUS. Do you need additional resources from us? Have you 

asked for any additional resources? 

Ms. MURPHY. Yes, ma’am. In the fiscal year 2017 budget request 

that is still pending there is about 300 more FTE for non-rating 

that has been asked for. We also appreciate the support from Congress in the past. We have added some non-rating FTE, full time 

employees, in the past couple of years. And that is helping. We are 

bringing down the dependency claims. We have made great strides 

in that, drill pay adjustments as well, so they are some of the very 

large buckets that put money into veterans’ hands that we are 

working through and have made great strides. 

Ms. TITUS. Thank you. Mr. Chairman? 

Mr. ABRAHAM. Mr. Lamborn, you are recognized for five minutes. 

Mr. LAMBORN. Thank you. I am going to build on the questions 

that have already been asked by the Chairman and Ranking Member. You said you are asking for 300 more FTEs. Is that just for 

this problem? Or is it a wider range of issues that that 300 people 

would be working on if you received them? 

Ms. MURPHY. That would be for the whole category of non-rating 

claims that we complete. And this incarcerated veteran piece of 

that is about one percent of that total. So there are other adjustments in the non-rating bucket. 

Mr. LAMBORN. Okay, that helps put it in perspective. 

Ms. MURPHY. Yes. 

Mr. LAMBORN. Because that would otherwise eat up the entire 

recovery. So it sounds like you know what you want to do but you 

have not started doing it, is that a fair assessment? I mean, you 

have not talked to SSA. You have not talked to BOP. Or you have 

talked to them but no one has sat down and hammered out a final 

agreement? 

Ms. MURPHY. We have the agreement back in place. It is running. It has been in place since June. We have been getting the 

data information from Bureau of Prisons. We continue to get it 

from Social Security Administration. So that flow of information is 

coming. We have been working these. 

Another thing I want to point out is that during all of this time 

period, we were working these. We did get information from the 

veterans. Many do call us. We do get information from other 

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sources. So when we identified these in working a claim, if we 

know that someone is in prison, we make that adjustment. 

Mr. LAMBORN. No, and I am glad that it is done on a case by case 

basis. 

Ms. MURPHY. Yes. 

Mr. LAMBORN. But it obviously has to be automated and you 

have to have the accurate social security numbers and you have to 

know the dates of incarceration. Is there anything else out there? 

Or just those two bits of information? 

Ms. MURPHY. That primarily is the information we would need. 

I think Mr. McLenachen may have more to add to that. 

Mr. MCLENACHEN. Congressman, part of the problem is the nature of incarceration. It is a lot different than other things that we 

can automate, because you have the whole recidivism issue, we 

have early release, we have pre-trial confinement. It is just the nature of incarceration that makes this one of the harder things to 

do, and one of the more complex things to do. And for that reason 

the data that would allow us to automate is just not there yet. So 

it is not just getting the data elements, the additional data elements, it is the nature of incarceration that makes it very difficult 

to automate. 

Mr. LAMBORN. Does it go back to the date of incarceration? Or 

is it 60 days forward? 

Mr. MCLENACHEN. It is the 61st day of incarceration after a conviction for a felony or a misdemeanor, depending on whether it is 

compensation or pension. 

Mr. LAMBORN. Okay. And I understand that there are a lot of 

wrinkles here. Halfway houses— 

Mr. MCLENACHEN. Exactly. 

Mr. LAMBORN [continued]. —all those things. 

Mr. MCLENACHEN. We do not reduce for certain circumstances, 

like a halfway house. We do take those types of things into consideration. And again, you have to assume that the Bureau of Prisons, 

or a state or local penal institution, has accurate data about when 

somebody is released after an incarceration, or when the transition 

occurs from pre-trial confinement to actual incarceration for a conviction, and that is part of the problem. And then we have, individual veterans who go in and out of the system many times during 

a certain period of time. 

Mr. LAMBORN. This is complicated. Paragraph five on this handout says the amount not payable may be apportioned to a spouse, 

dependent children, or parents. What does that mean? 

Mr. MCLENACHEN. That means that if a veteran is incarcerated 

and they have a family that they are providing support for, the 

benefits can be apportioned by VA to the spouse so that while the 

veteran is incarcerated the spouse can continue to receive the veteran’s benefits for support. 

Mr. LAMBORN. So if someone is married they would get that consideration? 

Mr. MCLENACHEN. Yes, they have to apply— 

Mr. LAMBORN. Or if they are single, they will not? 

Mr. MCLENACHEN [continued]. They have to apply for it. If there 

is a veteran who has the responsibility to support family members— 

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Mr. LAMBORN. Is it routine to grant that? 

Mr. MCLENACHEN [continued]. It depends on the circumstances. 

They have to provide information about their ability to support 

themselves while their spouse is incarcerated: those type of situations. But in general, if the spouse can establish that they need the 

support of the compensation benefits, for example, then we would 

grant the apportionment. 

Mr. LAMBORN. And in terms of recouping debts, is that ever 

done? Or is that basically blown off? 

Mr. MCLENACHEN. That is done. I believe Ms. Murphy has some 

information on how often we do that. 

Ms. MURPHY. So there is a process and we look at various standards of equity and good conscience. The fault of the veteran, whether they should have told us that they had gone into prison, undue 

hardship, things like that are taken into a case by case account. 

The latest information I was able to get roughly overall with our 

overpayments and requests for waivers, it is a little over half of 

them are granted. But again, it is on a case by case basis and it 

depends on the facts and circumstances. 

Mr. LAMBORN. Well I wish you would start doing this. I mean, 

it is complicated and it is going to take a lot more work and it 

needs to get to the automated stage and it is not there yet. The 

IG’s report is very helpful but we just have not really followed 

through quite yet like we need to. Mr. Chairman, I yield back. 

Mr. ABRAHAM. Thank you. Ms. Brownley, five minutes, please. 

Ms. BROWNLEY. Thank you, Mr. Chairman. Ms. Murphy you had, 

in your testimony you said we are focused on this issue now, and 

I think, you know, my question is, you know, do you have any sort 

of checks and balances, you know, to know about problems that 

exist in the overall organization before the OIG has to investigate 

it and surface those issues? So you know, in the ideal world I 

would much prefer that you would be coming to us and saying, I 

have got this problem, I need your help in solving the problem, as 

opposed to the OIG having to raise the problem and then say, well 

now it is a priority. So could you comment on that? 

Ms. MURPHY. Absolutely, Congresswoman. So we have a lot more 

data analysis and data available to us than ever before. The more 

we get into our electronic systems the better we are doing at tracking all the different types of actions that we have and being able 

to automate some of that. So we are able to move some of the folks 

from rating to non-rating, and balance out that work load. But as 

far as internal controls and checks and balances, our new national 

work queue is something that we are doing a better job of that as 

we move forward— 

Ms. BROWNLEY. Were you aware of the problem before the OIG 

raised it? 

Ms. MURPHY. So we have been aware of the fact that this is happening. But I think the fact that these were coming in and we were 

working them as we learned of them from other sources, or from 

the veteran themself, was part of the situation. So we knew we 

were working some and that there were, again, different pieces of 

the organization that were involved with getting the data, making 

sure the data matches were happening, making sure the flow was 

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coming through IT in a secure, private manner. And there was 

some clunkiness in those pieces. 

Ms. BROWNLEY. So understood. And I want to say that I think 

that, you know, your folks with VBA are working hard. Our office, 

my local office in my district, we are in touch with them all the 

time. I just hope that you understand the point that I am trying 

to make is that, you know, I would feel better if you were raising 

the issue versus the OIG having to raise the issues. And I know 

in many respects you are partners. But it would still, you know, 

I would feel better that we are recognizing the problem and trying 

to address it ahead of the OIG. 

So now that we have prioritized this as an issue, you know, if 

you could comment a little bit on what will be your process. You 

talked about, you know, future payments and being deducted from 

those future payments I think you said could be the solution. But 

what specifically, you know, is the process and have you decided 

on a process and is there, you know, a formula that is not one size 

fits all, or is it a formula depending on, you know, the particular 

set of circumstances, etcetera? 

Ms. MURPHY. So very quickly a couple of points. In the old days 

and until just recently under this matching agreements, these work 

items adjustments that may need to be made on these incarcerated 

veterans was a paper process. Since we have gone into more of an 

electronic environment we were able to have that feed starting August 1st. So now that these are going out in an electronic work 

item to the regional offices. So we are not working with a paper 

process. So that is one thing. Number two, we have been able— 

Ms. BROWNLEY. Well does the electronic process have a formula, 

of how to treat this? Or I am not sure how that answer— 

Ms. MURPHY. Not so much a formula but there is less of a lag 

as to when we know that we have this work to do. And also as we 

get all of our work into the national work queue, that will help to 

balance the work and decide instead of 56 different regional offices 

deciding what is the next right case to work, the system helps us 

determine that in a global sense. 

Ms. BROWNLEY. Yes, I think I am just trying to drive at sort of, 

you know, specifically, you know, once you have the claim and now 

you are going to act on it more quickly, then how are you going to 

treat it? You know? And what is the formula? How much are you 

going to take out of that future check and really trying to understand the specifics of it. So in terms of, you mentioned that veterans, that some veterans do actually give notice, and not looking 

into the future but looking into the past, when those veterans did 

give notice were they addressed in terms of, you know, the deductions that they should be receiving? Or were they also sort of put 

on the back burner like the other claims? 

Ms. MURPHY. We were working non-rating claims, as I said, all 

along. And incarcerated veterans were part of that. So just for a 

reference, the last couple of fiscal years we completed 11,500 of 

these in fiscal year 2015, and completed so far this year almost 

15,000 so far. And we have about 13,000 pending overall, Federal, 

state and local. So this is a body of work that has been moving. 

But again, the non-rating work was not prioritized at the same 

level as the rating workload was. 

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You asked about the process. Again, very high level. We make 

the review of the incarcerated veteran. We look to see what their 

circumstances are. We send them notification to say we see that 

you are in a penal institution. After 60 days of being there we propose to reduce your benefit according to the law. The veteran has 

60 days for due process to respond, tell us anything that might be 

relevant, including, hey, maybe you have the wrong person. After 

that 60 days is over we make the adjustment and send the final 

notification to the veteran with notification that they should contact our debt management center in St. Paul, which is our agent 

to collect those debts. They can contact St. Paul and request a 

waiver of this, a partial or a full waiver of this monies due. Then 

we engage on our Committee on waivers, look at the facts and circumstances and decide based on the standards of equity and good 

conscience if we are going to waive a portion of these overpayments 

in total or in part. And our debt management center finally also 

can set up a repayment plan that is a little more forgiving, 

stretches the payments out a little bit so it is not such a hardship 

on the veteran. 

Ms. BROWNLEY. Thank you. I yield back. 

Mr. ABRAHAM. Thank you. Mr. Costello? 

Mr. COSTELLO. Let me commend my colleagues for their questions. There are still so many questions that were not asked that 

I do not know where to start. So let me speak with a couple of, Mr. 

Clark, first for you, towards the IG report VBA has planned to improve the process for incarceration adjustments had not been implemented as of June 14, 2016. Has the VA implemented the plan 

as of this date? And if so when? And if not, why? 

Mr. CLARK. Mr. Costello, thank you for that question. And yes, 

we have. Starting on May 11th of this year we actually started 

processing those claims and with the expectation that we will complete them by the end of this calendar year, December 31st. 

Mr. COSTELLO. So it was implemented as of May, so prior to 

June 14th, actually? 

Mr. CLARK. That is correct. 

Mr. COSTELLO. Okay. Mr. Missal, do you think the VBA’s proposed plan to improve processing of incarceration adjustments will 

be effective? If so, why? If not, why not? 

Mr. MISSAL. As part of our work we made six recommendations 

which we felt best addressed the situation. As part of our process 

we monitor their progress toward meeting those recommendations 

and we do not release them from their obligation until they do so. 

So we will be doing that on a regular basis and our goal is to make 

sure it is an effective program based on the recommendations we 

made. 

Mr. COSTELLO. Can we reconcile, and honestly if it is a week or 

two off it really does not matter I think in the grand scheme of 

things. But Mr. Clark is saying May 11th implementation occurred. 

Your IG report says as of June 14th implementation had not yet 

occurred. Can somebody try and reconcile that? I do not want to 

spend too much time on this. But because if it has now been implemented, whether it was implemented May 28th or June 15th or 

June 20th, at least it is now implemented. 

Mr. MISSAL. Yes— 

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Mr. COSTELLO. Do you know whether it has been implemented 

now? 

Mr. MISSAL [continued]. Yes, I would like to defer to Mr. Dahl, 

who is closer to this audit. 

Mr. DAHL. When we checked in June just before we were ready 

to issue our report the response we got was that they were not 

working the claims yet. Maybe they had gotten the word out in 

May, but we were told in June that they had not started yet. 

Mr. COSTELLO. Okay, Mr. Clark? 

Mr. CLARK. Yes, sir. We issued guidance on May 11th, and with 

the expectation to be completed by the end of December. So I can 

go back and check the actual day that the first person started. But 

we issued guidance— 

Mr. COSTELLO. Okay. 

Mr. CLARK [continued]. —on May 11, 2016. 

Mr. COSTELLO. It would be nice for you to provide something in 

writing for the IG to basically sign off on that or say yes, we are 

on the same page now. Next question, and this really is something 

that bothers me, and it is not just exclusive to this proceeding 

today but writ large our oversight capacity here at the VA. It is my 

understanding that VA Committee staff has been told that the individual who failed to maintain the computer matching agreement 

has since retired, is that correct? 

Ms. MURPHY. Congressman, as I mentioned earlier there are a 

lot of folks that are involved in this and over a long period of time. 

So I cannot— 

Mr. COSTELLO. You do not know offhand? Sure, I am not going 

to, if you do not know offhand, you do not know offhand. 

Ms. MURPHY. I do not know. 

Mr. COSTELLO. Okay. It is my understanding that the person 

who failed to maintain the CMA has retired and therefore there 

was no disciplinary action taken against that individual. Could you 

confirm whether that is accurate or not for me by follow-up? 

Here is something else that frustrates me. Staff has also been 

advised that we do not even know who that individual’s supervisor 

is. And here is my, and that is also a source of frustration because, 

I mean, everybody has a supervisor, right, unless you are at the 

top. Why that is bothersome to me is when we are talking about 

using better technology in order to get to the bottom line to hold 

people accountable, and yet a computer matching agreement is intended to do that. And so if the computer matching agreement is 

intended to make things interoperable and you have an individual 

who is tasked with maintaining it does not do their job, I mean, 

the whole point of technology is if it is not working another set of 

eyes will be able to identify that rather quickly and so then you 

will be able to solve the problem. And that is a big source of concern for me. So I would appreciate any follow-up on that point. 

My final point, another question, is this. I understand that someone gets incarcerated, and the question I have for you, Mr. 

McLenachen, if you can answer at some point here is you said the 

nature of incarceration makes it difficult. I used to be a county 

commissioner and a lawyer. I sort of understand what you are saying with that. But I would ask you to embellish on that a little bit. 

But the question I have is the due process which has to occur in 

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order for the 60-day notice, has to occur for you to stop the payment, must the due process go out before the stop payment—can 

the stop payment precede the due process notice? Or must the due 

process notice happen and only from that date forward stop payment can occur? And the reason why that is very important is if 

you are sitting on a pile of, you know, you are saying you are going 

to prioritize more of them. But if you are sitting on a pile of them 

until that due process goes out, payments are going to continue. 

And that is a real problem. Because until you send out the due 

process all these potentially improper payments are going to continue. Can somebody shed some light on that? And then I am over 

my time. 

Mr. MCLENACHEN. You are absolutely correct. To answer your 

question about due process, yes, as a general rule we have to give 

due process before we take adverse action on a benefit payment. 

Mr. COSTELLO. But can the, but the payment, can you, you cannot claw back a payment from a date that precedes the due process 

notice, correct? I would not think— 

Mr. MCLENACHEN. No, that is not correct. We can— 

Mr. COSTELLO. You can? 

Mr. MCLENACHEN. We can retroactively recover— 

Mr. COSTELLO. Okay. Very good. 

Mr. MCLENACHEN [continued]. —overpaid. 

Mr. COSTELLO. All right. So the actual date on which the due 

process notice goes out is not quite as significant because you can, 

you can— 

Mr. MCLENACHEN. We can always go back, the same thing when 

we are generally paying benefits. Basically, there is retroactive action in everything we do. And I want to share with the Committee 

that a big focus for VA is our compliance with the Improper Payments Elimination and Recovery Act. That is discussed at the highest level in the department, it is tracked very carefully. This is 

among the types of improper payments that we have to report on 

in VA in every one of our benefit programs. So it is a big issue for 

us and that is why this program integrity oversight is very important. But basically we have improper payments in every part of our 

business and the idea is we have got to shrink the amount of time 

that it takes to make these adjustments to; we will always have 

improper payments but we need to make them smaller— 

Mr. COSTELLO. Right. 

Mr. MCLENACHEN [continued]. —rather than larger. 

Mr. COSTELLO. Yeah. The question I failed to ask, since no one 

has shut me up, is I see the number, you know, 3,000, 1,800, a couple of different numbers. How many actually were done timely and 

properly so that we understand, you know, how many, we see how 

many were improperly paid, right? How much, how often did the 

system actually work? I do not have that information in front of 

me. Because to your point, improper payments are going to happen 

in a system that large. We get it. The question is, how often is it 

happening? 

Mr. MCLENACHEN. So it depends on the definition— 

Mr. COSTELLO. I will yield back now that I am three minutes 

over. 

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Mr. MCLENACHEN [continued]. —the definition we are going to 

use for timely. There is no such standard. We are not doing them 

as fast as we should now, that is the bottom line. There is no 

standard. But just because of the fact that we need to get notice 

of the incarceration, provide 60 days of due process, and go through 

the steps that Ms. Murphy described, we are always going to have 

an improper payment that we have to retroactively go back and collect. But we need to do them quicker to shrink that. 

Mr. ABRAHAM. Okay. Thank you, Mr. Costello. Just for the record 

I will follow-up a little bit with what Mr. Costello asked. We would 

also like, the Committee, the date that the VA started processing 

the backlog, okay? We are going to, we have a little time so we are 

going to have another round of questions right quick. And I will 

start them. This is going to be for you, Inspector General Missal. 

In 2015, the Major Management Challenge Report, your office had 

identified overpayments and improper payments as one of VA’s 

management challenges. Do you agree that $100 million of improper payments to incarcerated beneficiaries was the result of 

poor management? 

Mr. MISSAL. Yes. I think our report outlines the various areas 

where we thought this was not managed in a proper way, and we 

thought this was a significant improper payment. 

Mr. ABRAHAM. Okay. Thank you. And this next question is to 

you, too. The IG report addressed issues related to the VA’s failure 

to reduce benefit payments when the veteran begins their incarceration sentence. Do you know if the VA is similarly failing to adjust 

veterans’ payments back to their pre-incarceration level upon release? 

Ms. MURPHY. So as we mentioned earlier— 

Mr. ABRAHAM. That was to Mr. Missal. 

Ms. MURPHY. Oh, I am sorry. 

Mr. MISSAL. I am sorry. Could you repeat that? 

Mr. ABRAHAM. I can. The IG report addressed issues relating to 

the VA’s failure to reduce benefit payments when the veteran begins their incarceration sentence. Do you know if the VA is similarly failing to adjust veterans’ payments back to their pre-incarceration level on release? 

Mr. MISSAL. That was not part of our audit scope so we did not 

look at that. However, I would say that given the problems not only 

with having an agreement in place but even when an agreement 

was in place the information still was not being transferred because they did not have the necessary hookup, you would assume 

that they would have similar problems on the other side after the 

veteran was released from prison. 

Mr. ABRAHAM. Ms. Murphy, do you have a comment on that? Go 

ahead. 

Ms. MURPHY. I would agree generally. I would also mention that 

the similar situation that the veteran is required to notify us when 

they get out of prison. And for financial reasons they tend to be 

more compliant with notifying us when they get out of prison. 

Mr. ABRAHAM. Okay. And I would like to know just for the record 

how many days on average it takes for the VA to restore the full 

amount of benefit payments to veterans once their debt to society 

is paid and they are released from prison. 

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Mr. McLenachen, one last question for you. You used to be the 

Deputy Under Secretary for Disability Assistance, so I would like 

your perspective on these overpayments. 

Mr. MCLENACHEN. Mr. Chairman, I recall back in about January 

of this year, I did an interview with I believe it was NPR. And that 

was basically the question that they asked was, ′′are we doing a 

good enough job on these?′′ And my response to that was, ′′no, we 

are not. We need to do them faster. In particular, there was a veteran who was actually released from incarceration, was still getting 

the full amount of benefits, and had a debt, of I believe about 

$38,000 upon release that he had to contend with. And those were 

the facts that were presented. Basically the same situation we are 

talking about here today. My response was, ′′we are not doing a 

good enough job on these.′′ 

Mr. ABRAHAM. Okay. And I think it is safe to say that the situation with, you know, these improper payments arose because the 

VA dropped the ball. And let me go back to you, in your opinion 

balancing fairness to the veterans with good stewardship, do you 

think the VA should waive repayment? Or should the department 

try to recoup the money? 

Mr. MCLENACHEN. We have a legal obligation to recoup the 

money. Congress has created an equitable relief for veterans, not 

the equitable relief under Section 503, but under Section 5302. 

Congress has created an equitable consideration and that is what 

Ms. Murphy was talking about when she mentioned the debt management center and the Committee on waivers process provides equitable relief based on the hardship they may have. 

Mr. ABRAHAM. Okay. Thank you. Ms. Titus? 

Ms. TITUS. Thank you. We have kind of danced all around the 

issue of veterans as prisoners. Perhaps we should be talking about 

are there any patterns of what kinds of crimes are committed by 

veterans? Are there mental health problems of veterans who end 

up in prison? Do VA medical centers have outreach to prisons to 

deal with veterans while they are there? Those seem to be some 

major issues that we want to probably look at in the future, maybe 

not today. But let us put that on the radar. Do you want to address 

it? 

Ms. MURPHY. Congresswoman Titus, if I could mention it, there 

is a Healthcare for Reentry veterans program that is administered 

through VHA. They do some outreach to folks while they are in 

prison to help prepare them to get out, and with a particular focus 

to try to avoid homelessness. There are some mental health resources that are pointed out, resources in the community. So there 

is engagement with these veterans to try to make their reentry into 

society a positive one. 

Ms. TITUS. Is that a standard program? Or does it vary from hospital to hospital, place to place? I wonder if there is one, for example, with the new hospital in Las Vegas? 

Ms. MURPHY. Being a VHA entity, I do not know a lot about it. 

But I do know that it is a standardized program that is in VHA. 

Ms. TITUS. Well I will have to look into that. Another question 

I wanted to ask you is that we did a lot of work on that national 

work queue, to set that up to broker out the rating claims. And I 

know that worked in Reno. It helped and you brokered out a lot 

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of those claims. It helped bring down the backlog, bring down the 

wait time. And that has become pretty standard nationally. I would 

like to hear more about that work queue, actually. But my question 

today is are the non-rating claims in any kind of work queue? 

Should they be? Is that something we should address? Because 

from regional office to regional office there is a great deal of difference. For example, in Nevada they wait 475 days on average. 

The national average is 343. In Las Angeles it is 435. In San Diego 

it is 316. Is there something we need to look at making this more 

equal across the regional offices? 

Mr. CLARK. Ranking Member Titus, you are right. And we have 

plans to place non-rating workload into our national work queue 

and that is starting next year, second or third quarter of next year 

we are hopeful to have that in. Technology is the key. We understand that automation, you know, obviating the need to go out and 

query the veteran about getting information. That is the long way 

of taking care of work. It requires more manual labor on our part. 

And any time you get the human factor involved in doing that it 

sometimes increases errors. So national work queue, which as you 

stated, if you recall I worked with you there in Nevada. We 

brought down the backlog. 

Ms. TITUS. We did. 

Mr. CLARK. And the national work queue is going to do that for 

our non-rating portion of our work just like it did for our rating 

work. 

Ms. TITUS. Well, good. I am glad to hear that. Because it was 

very helpful for the other claims. And so I think it might be helpful 

for these as well. Not just the prisoners, but all of those non-rating 

ones. And I would ask the Chairman if maybe we could have a 

hearing to kind of look at how that worked and get some of those 

statistics and how you are going to incorporate the new claims in 

there. Thank you very much. And thank you for helping us with 

Reno. We really appreciate it. 

Mr. COSTELLO. All right. Ms. Murphy, this goes back in time a 

little bit. I understand you were not in your current position at 

that time, but I suspect this is a question that you may have anticipated. Eighty-three months went by where the needed data was 

not yet obtained and when you finally, when the department finally 

received the data in May, 2015 OIG nevertheless found that it 

took, or that even five months after obtaining the data the VBA 

still had not used it. Is that your understanding? 

Ms. MURPHY. There were different renewals of the data matching 

agreements and the farther back in history we go the less I can 

speak to that. More recently we just renewed that most recent one 

with Bureau of Prisons in June and that is going forward for a 12- 

month period. We will watch that carefully to make sure it continues to be renewed. 

As far as getting the information, once there is a matching agreement in place that is also another piece of the puzzle and that requires a secure connection to make sure that we are getting that 

information with the appropriate security and data integrity and 

privacy attached to that. So there were some challenges with getting the feed over on the IT side of things. So there were a couple 

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of different pieces that had to come together successfully to get that 

information to our claims processors. 

Mr. COSTELLO. Do you have something to add, Mr. Clark? 

Mr. CLARK. Yes, Congressman Costello. I just want to bookmark 

the fact that we have placed a great deal of emphasis on non-rating, the total. These incarcerated veterans claims represent only 

one percent of all of the aggregate total of non-rating work that we 

do. We have an agency priority goal for dependency claims. We 

have lowered that inventory. We started last year at 227,000. We 

are at about 117,000 of those now pending, well ahead of schedule 

and getting to our goal of 100,000 by the end of next fiscal year. 

Mr. COSTELLO. Fair point. I am going to ask the IG to weigh in. 

But something for everybody to consider, and I understand we are 

talking about one percent, you mentioned one percent. This cohort 

is one percent. But we do have to extrapolate that and ask ourselves the following question. That one percent over a seven- or 

eight-year period resulted in over $100 million in improper payments being made. So if we were to take that one percent and multiply it times 100, that is a very scary number. So this one percent 

in a certain respect is a cohort that requires VA to improve considerably how we, the integrity of your systems, for lack of a better 

term. The IG, I was going to ask you to weigh in on the same question. 

Mr. MISSAL. Yes. As our report identified, we did not find in our 

audit that they moved as quickly as they could have once they had 

the information. We did make the recommendations, they concurred with them, they made obligations to fulfill them going forward, and we are going to continue to monitor their progress and 

not release them from their obligation until we are satisfied they 

have done so. 

Ms. MURPHY. And Congressman, if I could add also? 

Mr. COSTELLO. Sure. 

Ms. MURPHY. The IG talks about estimates and extrapolations. 

If I could talk about the reality of what we have looked at in our 

review so far. 

Mr. COSTELLO. Mm-hmm. 

Ms. MURPHY. 2008 to 2015 was the timeframe, and there were 

3,600 in that timeframe that we are reviewing. So granted, a long 

period of time. But of those 3,600 we are about halfway through 

that review. As Mr. Clark mentioned, they are due to have that 

done by the end of this calendar year. Of the half, roughly half we 

have looked so far, about a third of them do not need an adjustment and there are a number of reasons for that. It could be that 

they were some of the folks that already came in and told us they 

were in prison and we have done the adjustment. It could be that 

in the interim they applied for an increase in benefits and were 

granted that so there was an offset in what we would have had to 

recoup. It could be that we had the wrong data information, it was 

the wrong veteran— 

Mr. COSTELLO. Right. 

Ms. MURPHY [continued]. —from Bureau of Prisons. There are 

only about nine percent so far of those that we have reviewed that 

we have to go and make some sort of adjustment or recoupment. 

So when we are talking about extrapolations and estimates that is 

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different from what we are seeing in the actual reviews and the actual data. 

Mr. COSTELLO. I appreciate your follow-up. Does the IG have a 

follow-up? 

Mr. MISSAL. Well I would say that we did an audit using a statistical random sampling. We feel confident in our numbers to the degree of comfort stated in the report. So we believe the number is 

significant. 

Mr. COSTELLO. Stepping back, this question is more elementary 

than a lot of what has happened. And you know, layperson, it is 

very difficult to understand someone becomes incarcerated, they 

are a veteran, we obviously cannot totally rely on them to notify, 

right? I just, it is very difficult for me to understand why, whether 

it is the lag time, the confusing nature of the incarceration process, 

which I do understand a little bit about what you are saying there, 

Mr. McLenachen. But there is always somebody at every prison 

who you could send the notification to. Like you have a point of 

contact at every single prison in this country, correct? 

Ms. MURPHY. Generally, I would say that is true. Folks change, 

their personnel changes. We make calls to these institutions. Sometimes they do not get back to us. If that is the case we need to send 

a letter to the institution. We have a 30-day response time that we 

provide for that. So it is not an artful process. 

Mr. COSTELLO. And it may never be an artful process. We just 

want to make sure it is a more efficient process. 

Ms. MURPHY. Absolutely. 

Mr. COSTELLO. Okay. Thank you. I yield back. 

Mr. ABRAHAM. All right. Thank you. Well, ladies and gentlemen, 

thanks for being here again on behalf of the Subcommittee. Unfortunately even after what we have learned today, and I have 

learned a lot, I remain very concerned that the VA is not yet appropriately prioritizing its workload and properly safeguarding taxpayer funds. Both veterans and taxpayers have the right to expect 

that the VA will ensure that veterans receive the benefits they are 

entitled to, and respond fairly when the department’s errors disadvantage veterans. The Subcommittee will certainly continue to 

monitor this issue closely. Furthermore as I said in my opening 

statement I expect the VA to properly respond to the Subcommittee’s requests for information. I look forward to the VA’s answers 

by the end of this week. 

Again, thanks for being here. The complete written statement of 

today’s witnesses will be entered into the hearing record. I ask 

unanimous consent that all Members have five legislative days to 

revise and extend their remarks and include extraneous material. 

Hearing no objection, so ordered. I thank the members and witnesses for being here today. This hearing is now adjourned. 

[Whereupon, at 11:40 a.m., the Subcommittee was adjourned.] 

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1 Relevant Federal laws are Title 38 United States Code (USC) Section 3113, Title 38 USC 

Section 5313, and Title 38 USC Section 1505. 

A P P E N D I X 

Prepared Statement of Michael J. Missal 

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity 

to discuss the Office of Inspector General’s (OIG) June 2016 report, Veterans Benefits 

Administration: Audit of Compensation and Pension Benefit Payments to Incarcerated Veterans. I am accompanied by Mr. Nick Dahl, Director, OIG’s Audits and 

Evaluations Division in Bedford, Massachusetts. 

BACKGROUND 

Delivering timely and accurate benefits and services to the millions of veterans 

who served in our Nation’s Armed Forces is central to VA’s mission. The Veterans 

Benefits Administration (VBA) is responsible for administering a range of veterans 

benefits programs, including compensation, pension, education, home loan guaranty, 

vocational rehabilitation and employment, and life insurance. These programs are 

estimated to pay out over $92 billion in claims to veterans and their beneficiaries 

in fiscal year (FY) 2016 and comprise approximately half of VA’s total budget. 

Federal law requires VBA to reduce compensation and pension (C&P) benefits for 

veterans incarcerated in Federal, state, or local penal institutions longer than 60 

days. 1 Effective the 61st day of incarceration, VBA must reduce compensation benefits for veterans convicted of a felony. For veterans whose service-connected disability rating is 20 percent or higher, VBA reduces compensation benefits to the 10 

percent disability rate. For veterans whose service-connected disability rating is 10 

percent, VBA reduces compensation benefit payments by one-half. In addition, effective on the 61st day of incarceration, VBA must discontinue pension benefits for veterans convicted of a felony or misdemeanor. Once the veteran is released from the 

penal institution, VBA can restore full C&P benefits. 

VA Regional Office (VARO) and Pension Management Center (PMC) employees 

are responsible for making incarceration adjustments. VBA classifies incarceration 

adjustments as non-rating claims. Generally, these claims require development, review, and administrative decision or award action. Non-rating claims are different 

from disability rating claims because staff can process non-rating claims without a 

rating decision. VBA’s disability claims backlog includes claims that require a rating 

decision that have been pending for more than 125 days. Since non-rating claimsincluding incarceration adjustments-do not require a rating decision to complete, 

they are not considered part of the disability claims backlog. 

Within VBA, Compensation Service is responsible for developing policy requirements, disseminating procedures for the administration of compensation benefit programs, and establishing and maintaining computer-matching agreements between 

VBA and other Government agencies. The Office of Field Operations oversees operations and establishes workload priorities at the VAROs across the Nation that 

process disability claims and provide services to veterans. Pension and Fiduciary 

Service has jurisdiction and responsibility over the three PMCs, which are located 

in Philadelphia, Pennsylvania; Milwaukee, Wisconsin; and St. Paul, Minnesota. 

Computer Matching Agreements 

VBA has a computer matching agreement with the Federal Bureau of Prisons 

(BOP) under which VBA receives information on Federal prisoners whose VA benefits may be subject to reduction or termination. Similarly, VBA has an information 

exchange agreement with the U.S. Social Security Administration (SSA) under 

which VBA receives information on state and local prisoners whose VA benefits may 

be subject to reduction or termination. The purpose of these agreements is to identify veterans and beneficiaries who are in receipt of VBA benefits, including C&P 

benefits, and who are incarcerated for a period exceeding 60 days due to a felony 

or misdemeanor conviction. 

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2 Review of VA’s Compliance With the Improper Payments Elimination and Recovery Act for 

FY 2015, May 12, 2016 and VA’s Performance and Accountability Report, November 16, 2015. 3Office of Inspector General 2015 Major Management Challenges, November 16, 2015. 

4Follow-up Audit of VBA’s 100 Percent Disability Evaluations, June 6, 2014. Audit of VBA’s 

100 Percent Disability Evaluations, January 24, 2011. 

Improper Payments 

As we reported in our annual review of VA’s compliance with the Improper Payments Elimination and Recovery Act, VA estimates that for FY 2015, improper payments for VBA’s Compensation program rose by $648 million to $1.3 billion. 2 This 

increase was primarily due to improvements in VA’s estimates of improper payments. While we applaud the more extensive testing VA is performing to help identify improper payments, the large amount of improper payments are still a concern 

for how VBA manages its financial stewardship. We continue to identity overpayments and to report improper payments as one of VA’s Management Challenges. 3

Moreover, in November 2015, the Office of Management and Budget designated 

Compensation programs as high-priority since the program estimated improper payments in excess of OMB’s threshold of $750 million. 

Improper payments include payments made in the incorrect amount (payments 

not reduced timely) and payments made to ineligible recipients (payments not terminated timely). Some forms of improper payments include payments to incarcerated veterans; not reducing temporary 100 percent disability ratings; and any reductions in benefits where the veteran or beneficiary is not entitled, such as payments 

to ineligible children of veterans and continued payments to veterans for spouses 

when they are no longer married. 4 During our Benefits Inspection reviews, we have 

reported that VBA’s focus on reducing the disability claims backlog leaves little time 

for staff to process reductions in benefits. We made recommendations to VARO Directors to implement a plan to prioritize actions related to benefits reductions to 

minimize improper payments to veterans. 

INCARCERATION ADJUSTMENT ISSUES 

In June 2016, the OIG issued a report on the Audit of Compensation and Pension 

Benefit Payments to Incarcerated Veterans. This audit examined whether VBA was 

adjusting C&P benefit payments for veterans incarcerated in Federal, state, and 

local penal institutions in a timely manner and as required by Federal law. We reported that VBA needed to improve its processing of incarceration adjustments. We 

identified program weaknesses and determined that VBA did not consistently take 

action to adjust C&P benefits for incarcerated veterans as required by Federal law. 

VBA’s ineffective actions in processing incarceration adjustments resulted in significant improper benefit payments totaling more than $100 million. If conditions remain the same and improvements are not made, we project that VBA could make 

additional inaccurate payments (improper payments) of more than $200 million over 

a 5-year period from FY 2016 through FY 2020. 

Federal Incarceration Adjustments 

VBA needs to improve its processing of Federal incarceration adjustments. Based 

on BOP incarceration data from May 2008 through June 2015, we reviewed a random statistical sample of 132 veterans who had received C&P benefits prior to their 

incarcerations in Federal prisons. This included past incarcerations, as well as incarcerations that were current at the time of our audit. Based on our statistical 

sample review, we projected that VBA did not adjust veterans’ C&P benefits, as required, for about 1,300 of 2,500 cases (53 percent), which resulted in improper payments totaling nearly $60 million. 

Prior to July 2008, VBA had a computer matching agreement with BOP to receive 

data on individuals admitted to Federal penal institutions. In July 2008, the agreement with BOP expired. We determined that VBA did not receive data from BOP 

on Federal incarcerations from July 2008 through May 2015 (a total of 83 months). 

After the computer matching agreement with BOP expired in July 2008, a new 

agreement did not go into effect until October 2010. However, prior to the effective 

date of the new agreement, VA’s Office of Information and Technology revised VA 

policy to require that sensitive data be encrypted when transferred. In order to comply with this requirement, VBA needed to set up a secure connection with BOP. 

Even though a computer matching agreement was in place, VBA reported that it 

did not receive data from BOP because VBA did not fully implement a secure connection to receive electronic data until July 2012. 

Once VBA fully implemented the secure connection, BOP did not transfer Federal 

incarceration data because VBA had allowed the computer matching agreement to 

expire in April 2012. VBA could have extended the agreement for 1 year if VBA and 

BOP certified in writing that the matching program complied with the original 

agreement and would continue without change. However, VBA did not complete this 

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action within 3 months prior to the end of the agreement, as required. Therefore, 

the agreement was not in place to manage the data exchange needed. 

In April 2015, VBA finalized a new agreement with BOP to receive Federal incarceration data. In May 2015, BOP transferred 83 backup files to VBA with almost 

7 years of data on veterans incarcerated in Federal penal institutions from May 

2008 through March 2015. Once BOP provided the backup files to VBA, it agreed 

to provide monthly data files to VBA on Federal incarcerations. However, in December 2015, VBA Central Office staff told us that VBA had not yet used the 83 backup 

files or monthly data from BOP to make appropriate benefits adjustments for incarcerated veterans. We found that VBA did not process Federal incarceration adjustments primarily because they did not place priority on incarceration adjustments, 

as they do not consider these non-rating claims part of the disability claims backlog. 

State and Local Incarceration Adjustments 

VBA also needs to improve its processing of state and local incarceration adjustments. Based on SSA incarceration data from March 2013 through June 2015, we 

reviewed a random statistical sample of 331 state and local incarceration notifications for veterans who had received C&P benefits. Based on this statistical sample 

review, we projected that VARO and PMC staff did not effectively adjust veterans’ 

C&P benefits for about 3,800 of 21,600 cases (18 percent), which resulted in estimated improper payments totaling nearly $45 million. For instances where VBA 

made C&P benefit adjustments, it took an average of about 300 days to process 

those adjustments. 

When VBA receives an incarceration notification from SSA, staff are required to 

take prompt development action to determine whether the veteran’s benefits need 

to be adjusted. We identified issues and delays with VBA employees initiating development action after receiving incarceration notifications from SSA. We estimated 

that VARO and PMC staff had failed to initiate development action for about 53 

percent of state and local incarceration cases from March 2013 through June 2015. 

While staff had initiated development action for about 47 percent of the cases, it 

took an average of about 76 days from receipt of the incarceration notifications to 

initiate action. 

Once VBA staff complete development action, a determination is made whether 

a veteran’s C&P benefits should be adjusted. For cases in which an adjustment is 

needed, VBA staff send a due process notification to the veteran and allows them 

60 days to provide additional evidence showing that his or her benefits should not 

be adjusted. After 60 days, if VBA has not received additional evidence from the veteran, staff should adjust the veteran’s benefits as proposed-retroactively dating back 

to the veteran’s 61st day of incarceration. 

We identified delays in VARO and PMC staff making final incarceration adjustments after providing due process notification to veterans. We projected statistically 

that VBA staff made final incarceration adjustments in about 3,000 cases after 

sending due process notifications to the veterans. For these claims, it took staff an 

average of about 110 days to make final benefit adjustments from the date of due 

process notification. Since VBA should make final benefit adjustments after the 60- 

day due process period expires, we concluded that significant delays existed. We 

found that VBA did not process state and local incarceration adjustments timely primarily because they did not place priority on incarceration adjustments, as they do 

not consider these non-rating claims part of the disability claims backlog. 

We made six recommendations to the then Acting Under Secretary for Benefits. 

These recommendations include: 

• Increase the priority of Federal, state, and local incarceration workload by making timely benefit adjustments when appropriate. 

• Review BOP data on Federal incarcerations and issue bills of collection to recover improper benefit payments. 

• Monitor the terms of its computer matching agreements and take timely action 

to extend the agreements when appropriate. 

The then Acting Under Secretary concurred with all of our recommendations and 

agreed that VBA’s current process for award adjustments due to incarceration needed to be improved. The Acting Under Secretary provided action plans that were responsive to our recommendations. We will monitor VBA’s progress and follow up 

until all proposed actions are completed. 

CONCLUSION 

The OIG determined that because it was not a priority, VBA did not take consistent and timely action to make incarceration adjustments when appropriate. Incarceration adjustments are non-rating claims work and VBA has focused on eliminating the disability claims backlog as it relates to claims that require a rating decision. VBA needs to prioritize this workload, make improvements to ensure sound 

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financial stewardship over benefits earned through entitlements, and take timely 

actions that reduce improper benefit payments. 

Mr. Chairman, this concludes my statement. Mr. Dahl and I would be happy to 

answer any questions you or members of the Subcommittee may have. 

f 

Prepared Statement of Beth Murphy 

Good afternoon, Chairman Abraham, Ranking Member Titus, and Members of the 

Committee. VBA appreciates the opportunity to respond to concerns raised by the 

Committee regarding disability compensation and pension (C&P) benefits paid to incarcerated Veterans. Joining me today is Willie Clark, Acting Deputy Under Secretary for Field Operations and Dave McLenachen, Director for the Appeals Management Center. 

The VA Office of Inspector General (OIG) conducted an audit of C&P payments 

made to Veterans incarcerated in Federal institutions between May 2008 and June 

2015, and Veterans incarcerated in state and local institutions between March 2013 

and August 2014, to determine whether VBA offices were adjusting C&P payments 

to incarcerated Veterans in a timely manner. 

VA reviewed these findings and agreed that the current process for award adjustments due to incarceration needs to be improved. This statement will address OIG’s 

six recommendations, focusing on the Department’s responses to those recommendations to improve the program. In short, VBA accepted OIG’s six recommendations, 

which included prioritizing incarceration adjustment workload, recouping overpayments made between May 2008 and June 2015, and renewing the Federal Bureau 

of Prisons (FBOP) agreement. 

OIG’s findings estimate that approximately $59.9 million was improperly paid to 

Veterans incarcerated in Federal institutions and approximately $44.2 million was 

improperly paid to Veterans incarcerated in state and local institutions during the 

two time periods noted above. Additionally, OIG estimates that if incarceration adjustment issues continue through Fiscal Year (FY) 2020, it could cost VA an additional $203.8 million. 

Current Procedures 

Federal law requires VA to reduce disability compensation payments (38 United 

States Code (U.S.C.) § 5313) to individuals incarcerated for a period in excess of 60 

days for conviction of a felony and discontinue pension payments (38 U.S.C. § 1505) 

to individuals imprisoned for more than 60 days as a result of conviction of a felony 

or misdemeanor. VA is required to reduce compensation benefits of incarcerated 

Veterans rated 20 percent or higher to the 10 percent disability compensation rate 

(currently $133.17). Incarcerated Veterans rated at 10 percent service-connection 

are reduced to one-half (currently $66.58) of their compensation. Once a Veteran is 

released from prison, VBA can restore C&P payments upon notice of his or her release. 

Veterans receiving C&P payments are responsible for notifying VA of incarceration and dates of release. VBA offices include this important reminder in the notification letter to the Veteran when he or she receives an award of compensation or 

pension benefits or an increase in benefits. Upon notification of the incarceration, 

VA is responsible for verifying the incarceration and conviction date; providing the 

beneficiary with notice of proposed adjustment prior to compensation or pension 

benefits being reduced or terminated (i.e., 60-day due process period); and providing 

proper notice after reducing or terminating the award. 

Because Veterans do not always notify VA of their incarceration, VA has established data matching agreements with FBOP and the Social Security Administration (SSA). Through these agreements, VBA conducts an electronic data match of 

all disability C&P benefit recipients to identify Veterans confined in penal institutions at the Federal, state, or local levels. 

After verifying a Veteran’s incarceration, VA will reduce his or her service-connected disability compensation payments on the 61st day of incarceration following 

a felony conviction. Veterans in receipt of VA pension will have benefit payments 

terminated effective the 61st day after imprisonment in a Federal, state, or local 

penal institution for conviction of a felony or misdemeanor. 

Veterans should notify VA immediately upon release from prison. VA may reinstate compensation payments based upon the severity of the service-connected disabilities at that time. The level of severity assigned after release is generally the 

same as when the Veteran was incarcerated. Payments are not reduced for recipients participating in work release programs, residing in halfway houses (also known 

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as ‘‘residential re-entry centers’’), or under community control. According to law, VA 

may resume payments effective the date of release only if VA receives notice within 

1 year of release. 

Addressing OIG Recommendations 

Monitoring Computer Matching Agreements 

The OIG report recommended that VBA monitor the terms of the current agreement with FBOP and take timely action to extend the agreement, if appropriate. 

VBA agrees and has pursued action to expand the type of electronic data currently 

received from FBOP. This is critical because the current data feed from FBOP does 

not include the beneficiary’s date of conviction, which is required for claim processors to make the necessary adjustments. This requires additional, time-consuming 

research to determine the date of conviction (e.g., contacting the beneficiary or prison in writing and/or by phone and waiting for response). VBA is working with FBOP 

to determine the changes needed to improve the efficiency of payment adjustments 

and also support future automation of the process. VBA will continue to work with 

FBOP, and SSA, to obtain the needed data and identify additional ways to streamline the process. 

Increasing Priority of Processing of Incarceration Adjustments 

For the 7th year in a row, VBA completed over a million disability compensation 

claims. Even as VBA focused on its priority goal to eliminate the disability rating 

claims inventory for Veterans who have waited the longest, VBA remained focused 

on non-rating claims, including incarceration adjustments. As VBA completed 

record-breaking numbers of disability rating claims in recent years, one result is an 

associated increase in the volume of non-rating claims and appeals. In FY 2015, 

VBA completed a record 3.1 million non-rating claims, a 15-percent increase over 

FY 2014. 

OIG recommended that VA increase priority of processing incarceration adjustments. VBA agrees with this recommendation and has issued guidance to all regional offices to ensure prioritization of these claims. This includes retroactively adjusting awards of Veterans who are currently incarcerated, as well as those who 

were previously, but are no longer, incarcerated. OIG recommended that VA take 

action on both of these categories of adjustments. OIG also estimated that VA did 

not effectively adjust accounts for approximately 3,800 Veterans incarcerated in 

state and local institutions and for approximately 1,300 Veterans incarcerated in 

Federal penal institutions. VBA conducted its own review of Veterans incarcerated 

in Federal penal institutions and identified 3,615 cases which required review and 

possible adjustment. VBA has already completed action on 46 percent of the 3,615 

FBOP cases identified since May 5, 2016. In addition, VBA has directed offices to 

process claims based on the date of incarceration by working the oldest dates first. 

VBA will continue to balance available resources to maintain a focus on processing 

incarceration adjustments. 

VBA’s actions to prioritize incarceration adjustments, as noted above, also address 

OIG’s other recommendations to initiate more timely development of the work product after receiving notification of incarceration from SSA, and to make more timely 

adjustments after the proper due process notification has been issued. VA Headquarters will continue to monitor the progress of these adjustments. 

Debt Management Center 

Steps VA is taking to recoup such improper payments 

The Debt Management Center (DMC) is an organization within the Office of Management/Office of Finance that provides collection services to VA organizations. Currently, its primary customer is VBA. DMC’s role in recouping improper VBA payments is limited to collecting debts that have resulted from those improper payments. DMC is not involved in mitigating and identifying improper payments and 

establishing associated debts. DMC performs debt collection activities once the debts 

have been established by VBA. DMC collects all debts in accordance with VA regulations and policies (38 Code of Federal Regulations (C.F.R.)), the Debt Collection Improvement Acts of 1982 and 1996, and the Digital Accountability and Transparency 

Act of 2014 (DATA Act). 

DMC Operations, Guidelines, and Procedures 

DMC follows VA procedures and Federal debt collection laws, regulations, and 

policies to collect debts. In general, the VBA station of jurisdiction establishes the 

debt and electronically transfers the debt to DMC’s Centralized Accounts Receivable 

System. DMC performs standard debt collection activities, such as sending notificaleonard.horne on VACREP0180 with DISTILLER

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tion letters of indebtedness; notifying debtors of their rights and obligations; establishing repayment agreements; and referring accounts to credit bureaus, the Department of the Treasury, and Credit Alert System. DMC also utilizes VA’s authority 

to internally offset monthly benefit payments to satisfy the debt. 

Veterans who become indebted as a result of incarceration are notified that they 

have the right to request a waiver of the overpayment, offer a compromise, or establish a repayment plan to help ease the financial burden, once released. Repayment 

options include partial withholdings from future benefit payments. Veterans are 

provided with information on how to contact DMC for assistance in resolving their 

debts. VBA agreed with the OIG recommendation to initiate recoupment procedures 

to recover improper payments, where necessary, after the provision of due process 

notifications. 

Committee on Waivers and Compromises (COWC) 

Operations, Guidelines, and Procedures 

Currently, DMC functions as a liaison between indebted beneficiaries and VBA’s 

COWC. DMC receives all requests for waivers of debts and repayment offers prior 

to them being sent to VBA’s COWC for waiver decisions. DMC reviews the waiver 

package to determine if the request was received timely (within 180 days of the date 

of the initial notification of indebtedness) and complete. For those received beyond 

180 days, DMC notifies the debtor the waiver is denied for untimeliness and provides available options including establishing a repayment agreement, filing a notice 

of disagreement, or making a compromise offer. When DMC identifies an incomplete 

waiver request package, it makes one attempt to obtain the missing information. 

After 30 days, if DMC does not receive the information, then DMC forwards the 

waiver request package to VBA’s COWC for consideration to avoid delay. In addition, if DMC determines that the waiver request was received within 30 days, debt 

collection activities are suspended until VBA’s COWC has rendered its decision and 

notified DMC. Upon VBA’s notification of its decision, DMC takes the necessary 

steps based on the status of the debt. 

VA believes the existing waiver process prescribed by law (38 U.S.C. § 5302) is 

the appropriate remedy for beneficiaries who have pending claims adjustments due 

to their incarceration and may be financially unable to repay their debt. In that regard, each waiver decision considers whether recovery of the debt would be ‘‘against 

equity and good conscience.’’ This includes considering the circumstances surrounding the creation of the debt, to include VA’s own actions or inactions, along 

with the current financial impact to the debtor and other factors. 

Waivers are considered on a case-by-case basis. A blanket waiver of overpayment 

would erode the integrity of C&P programs by enabling VA beneficiaries to accrue 

personal wealth through receipt of Federal benefits without regard to their financial 

situation while the Government pays for all costs associated with their incarceration. Furthermore, equitable relief is not an option for these individuals. Equitable 

relief is a unique legal remedy that authorizes the Secretary to provide relief either 

(1) when benefits ‘‘have not been provided’’ because of an administrative error, or 

(2) when a beneficiary ‘‘has suffered loss as a consequence of reliance upon a determination by [VA] of eligibility or entitlement to benefits, without knowledge that it 

was erroneously made.’’ 38 U.S.C. § 503. 

In the case of C&P payments made to incarcerated VA beneficiaries, the first equitable relief circumstance is not satisfied because C&P payments were made to the 

incarcerated beneficiaries. In other words, there is no benefit that ‘‘ha[s] not been 

provided.’’ 

The second circumstance is also not satisfied in cases in which the creation of an 

overpayment was the result of the beneficiary’s inaction. Moreover, VA does not believe that the creation of an overpayment or debt due to delay in benefit adjustments would itself constitute a ‘‘loss’’ incurred in reliance on VA error for purposes 

of equitable relief. 

VA acknowledges that its delay in adjusting Veterans’ payments in a timely manner based on information received through data matching may have resulted in 

larger overpayments. However, VA does not believe that the creation of an overpayment or debt due to delay in benefit adjustments would itself constitute a ‘‘loss’’ incurred in reliance on VA error for purposes of equitable relief. A ‘‘loss’’ incurred in 

reliance on a VA decision ordinarily occurs if the individual took actions to his or 

her detriment based on the erroneous decision. 

Reintegration 

Upon release from incarceration, VA is prepared to assist Veterans to reintegrate. 

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carcerated Veterans successfully reintegrate back into the community after their release. A critical part of HCRV is providing information to Veterans while they are 

incarcerated, so they can plan for re-entry. A primary goal of the HCRV program 

is to prevent Veterans from becoming homeless once they are re-integrated back 

into the community and the program has regional and state HCRV Specialists who 

are VA points of contact for incarcerated Veterans and their family members. 

Conclusion 

VBA acknowledges the importance of executing the non-rating workload on behalf 

of Veterans, their families, and taxpayers. This includes timely processing of C&P 

payments and award adjustments to incarcerated Veterans and improving the computer matching programs with FBOP and SSA. VA does not take lightly the issues 

prompted by untimely processing of such work. Our approach will be to ensure the 

priority of such claims is recognized, and the claims are worked appropriately. VA 

also will continue to develop and improve electronic systems to enhance these abilities. 

Mr. Chairman, this concludes my statement. We would be pleased to respond to 

questions you or other Members may have. 

Æ 

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