REVIEW OF THE CAUSES OF

VETERANS BENEFITS ADMINISTRATION’S

COMPENSATION AND PENSION

OVERPAYMENTS

Report No. 7R1-B01-105

Date: December 2, 1996

Office of Inspector General

Washington DC 20420

VBA can further enhance their

overpayment prevention efforts and

reduce program costs.
Memorandum to the Acting Under Secretary for Benefits (20)

Review of the Causes of Veterans Benefits Administration’s

Compensation and Pension Overpayments

1. The purpose of the review was to identify the causes of Veterans Benefits

Administration’s (VBA’s) compensation and pension (C&P) overpayments. This is one of

a series of reviews evaluating Department of Veterans Affairs (VA) debt management.

2. The C&P program pays benefits to eligible service-connected and nonserviceconnected veterans and their survivors. During fiscal year (FY) 1995, VA paid about

$17.8 billion in C&P benefits to 3.3 million beneficiaries. During the same period,

beneficiaries received excess benefit payments, or overpayments, of about $303 million.

These overpayments represent beneficiary debts owed to VA. Overpayments occur when

beneficiaries receive money to which they are not entitled, generally as a result of changes

in their entitlement status (income, dependency, hospitalization status or death).

3. The review focused on C&P overpayments, valued at $120 million, that were

established and remained outstanding at the end of FY 1995. Based on the results of a

statistical sample we estimated that overpayments valued at $26.2 million, could be

prevented annually, if overpayment cases were properly processed and if some VBA

policy and procedures were revised. We also believe that C&P overpayments could be

further reduced by at least $4.2 million annually, if management actions are taken to

simplify the pension program and enhance communications with beneficiaries regarding

their responsibility to timely report beneficiary status changes.

4. During the review, we found VBA management was concerned with preventing

overpayments and was addressing this issue as part of their National Performance Review

and Business Process Reengineering initiatives. We also noted several VAROs have

implemented innovative procedures to prevent overpayments. We concluded that VBA

management could further prevent overpayments by ensuring that changes in beneficiaries’

status are properly and timely processed, and by revising procedures that currently

contribute to overpayments.

5. We recommended that you reduce C&P overpayments by: (a) directing VARO and

VBA staff to make overpayment prevention a continuous special focus area of their quality

reviews; (b) gathering and disseminating innovative best practices that help prevent

overpayments; (c) revising due process notification procedures for veterans receiving longterm care, fiduciaries of incompetent veterans, dependent school children, and for

beneficiaries reporting status changes that result in a reduction of benefits; (d) revising
ii

procedures for certain cases involving direct deposit of benefit payments; and

(e) encouraging VAROs to enlist the assistance of veterans service organizations to

improve timeliness of status changes reported by beneficiaries.

6. You concurred with the findings and recommendations. Based on your concerns

regarding the Court’s jurisdiction in the Semenchuk consent decree, you stated VBA would

delay action on recommendations involving revision of due process procedures, until the

Court’s jurisdiction ends on August 10, 1997. You indicated that at that time, OIG

assistance in reviewing revisions to these due process procedures would be welcomed.

You provided acceptable implementation plans for the remaining four recommendations.

However, your alternative action planned in response to recommendation (a), to hold a

conference call emphasizing the need to prevent overpayments, should be monitored to

ensure overpayment prevention measures taken were successful. We consider the report

resolved, but recommendations involving revisions to due process procedures are

unimplemented. We will follow up on your future actions to address these

recommendations, including preparation of appropriate implementation plans, until they

are completed. You chose not to comment on our estimate of monetary benefits, and

provided no alternative estimate. Our estimate of monetary impact is based on a statistical

sample, and we consider it to be reasonable and reliable.

For the Assistant Inspector General for Auditing
TABLE OF CONTENTS

Page

Memorandum to the Acting Under Secretary for Benefits .......................... i

RESULTS AND RECOMMENDATION

Identifying Causes of Compensation and Pension Overpayments Will

Help Prevent Future Beneficiary Debts and Reduce Program Costs ................ 1

Conclusion .................................................................................................... 6

Recommendation .......................................................................................... 7

APPENDIXES

I BACKGROUND ........................ ................................................................. 9

II OBJECTIVE, SCOPE AND METHODOLOGY .......................................... 10

III DETAILS OF REVIEW

Sampling Plan and Results ........................................................................... 11

Analysis of Sampled Cases ........................................................ .................. 12

IV CALCULATION OF MONETARY IMPACT ............................................. 18

V MONETARY IMPACT IN ACCORDANCE WITH IG ACT

AMENDMENTS ......................................................................................... 19

VI ACTING UNDER SECRETARY FOR BENEFITS’ COMMENTS ............. 20

VII FINAL REPORT DISTRIBUTION .............................................................. 23
1

RESULTS AND RECOMMENDATION

Identifying Causes of Compensation and Pension (C&P) Overpayments Will Help

Prevent Future Beneficiary Debts and Reduce Program Costs

A nationwide statistical sample from 40,494 C&P overpayments established during fiscal

year (FY) 1995 showed Department of Veterans Affairs (VA) could have prevented

overpayments in 29.6 percent of cases reviewed. Future overpayments could be prevented

if VA Regional Office (VARO) staff process beneficiary status changes correctly and if

VA can revise some existing policies and procedures. Based on our sample results, we

estimated that C&P overpayments of $26.2 million, could be prevented annually. We

further estimated that improved communication with beneficiaries could prevent an

additional $4.2 million in C&P overpayments annually.

C&P Overpayments Occurred after Changes in Beneficiary Entitlement Status

Our review of a statistical sample of 324 of the 40,494 FY 1995 C&P overpayments,

valued at $989,580, showed the overpayments had occurred after 1 of the 5 entitlement

status changes shown below:

Miscellaneous causes 6%

Hospitalization 6% Changes in dependency 23%

Death of beneficiary 20%

Change in income 45%

(See Appendix III on page 11 for a description of our sampling plan and results to provide

management detailed information to help prevent overpayments.)
2

There were Three General Causes of Overpayments

Our analysis determined responsibility between VA, beneficiaries and an unavoidable

category for the 324 overpayments as shown below. The bar graph provides further detail

on the type of status changes involved in cases where VA was responsible for the

overpayment.

Beneficiary

48%

VA

30%

Unavoidable

23%

Miscellaneous 7

Dependency 27

Death 16

Income 33

Hospitalization 13

Due to rounding the percentages shown above do not equal 100%.

VA Could Reduce Overpayments by Improving Claims Processing and Revising Certain

Procedures

As shown in the above graph, the results of our statistical sample disclosed that VA could

have prevented 96 overpayments. These overpayments were valued at about $210,000

($2,188 per overpayment). Based on our sample results we estimated that $26.2 million in

11,986 C&P overpayments could be prevented annually. (See Appendix IV on page 18 for

calculation of monetary impact.) In 76 instances, overpayments could have been

prevented if VAROs had processed status changes in accordance with VA policy and

procedures. The following example illustrates an overpayment that VARO staff could

have prevented if they had properly processed the status change.

On September 17, 1994, a VARO reduced a widow’s pension award,

effective May 1,1993, because she had reported annual rental income of

$3,600 on her Eligibility Verification Report (EVR) received August 9, 1994.

This action created a $5,110 overpayment. Our analysis showed the widow

had also reported this income on her EVR received May 5, 1993, but the

VARO had taken no action. If the VARO had properly processed the

May 5, 1993 EVR, they could have prevented the $5,110 overpayment. At

the time of our review, $2,460 of the beneficiary’s debt remained

outstanding.
3

In an additional 20 instances, revision of existing policy and procedures would result in

the prevention of overpayments. Sixteen of the procedural revision cases involved the

following due process procedures: 1

• Potentially reducible hospitalized beneficiaries are not furnished a 60-day

predetermination notice until their benefits actually become reducible. Furnishing

these predetermination notices to beneficiaries admitted to long-term care (i.e., in a

VA nursing home, or a community nursing home at VA expense), at the time of

their admissions, would prevent overpayments. Similarly, furnishing

predetermination notices to fiduciaries of incompetent beneficiaries admitted to VA

care, at the time of admissions, would prevent overpayments. We realize VA is

concerned that due to the stressful nature of hospital admissions, veterans may not

be able to understand the complicated possibility of benefit reductions. For this

reason we believe early predetermination notices should be utilized in the types of

admissions described above. In addition, prior audit experience has shown veterans

admitted to nursing home care and incompetent veterans admitted to any level of

care, are most likely to remain hospitalized long enough for their C&P benefits to

become reducible. We noted 7 occurrences of these types of overpayments that

could have been prevented.

• Beneficiaries must notify the VARO in writing of status changes that will result in a

reduction of benefits. Accepting oral notifications of status changes that will result

in a reduction of benefits would prevent overpayments. We noted 6 instances

where such overpayments could have been avoided.

• Beneficiaries are not furnished a 60-day predetermination notice until they fail to

return a VA form certifying the school attendance of dependent children. Including

the 60-day predetermination notice with requests that beneficiaries complete forms

certifying school attendance could prevent overpayments. We noted 3 instances

where such overpayments could have been avoided.

The following example illustrates an overpayment that could be prevented if VA can revise

due process notification procedures.

On July 11, 1995, a beneficiary receiving a pension telephoned a VARO to

report she had begun receiving social security benefits, effective June 1995.

In accordance with current VA procedures, on July 14 the VARO provided

the beneficiary with a 60-day predetermination letter and requested a copy of

her social security award letter. By the time the beneficiary responded and

her benefit award was reduced, an $896 overpayment was created. The

 

1

 VA due process procedures were initiated in response to the Semenchuk court decision in the state of Illinois. The

court’s jurisdiction in the consent decree ends on August 10, 1997.
4

VARO agreed that if VA procedures had allowed them to verify the

beneficiary’s identity over the telephone and take immediate award action,

they could have prevented the entire $896 overpayment. At the time of our

review the beneficiary’s $896 debt remained outstanding.

In addition to due process procedures, we noted, and VAROs confirmed, a significant

problem involving beneficiaries who receive benefit payments by direct deposit/electronic

funds transfer (DD/EFT) and fail to keep VAROs informed of their current address. We

identified four of these cases. This situation can allow benefits to continue after

entitlement status changes. The following example illustrates problems that can result

from this situation.

On October 7, 1994, a VARO received notification from Social Security

Administration (SSA) that a Dependency and Indemnity Compensation

beneficiary had expired on November 1, 1989. The VARO confirmed the

beneficiary’s death and on May 9, 1995, terminated her award effective

November 1, 1989, creating a $56,120 overpayment. Our analysis showed

that VA mail for the beneficiary, who received payments via DD/EFT, had

been returned by the post office for at least 5 years. The VARO had

unsuccessfully attempted to develop a current address through the post office.

If the VARO had either suspended payments because the beneficiaries

whereabouts were unknown, or contacted her financial institution to

determine her status or whereabouts, about $31,000 of the overpayment could

have been avoided. At the time of our review $54,120 of the beneficiary’s

debt remained outstanding.

We believe this issue will become even more significant as DD/EFT becomes more widely

accepted. However, we noted at least one facility, VARO Cleveland, had developed a

standardized letter, which was mailed to the beneficiaries financial institution, to determine

the status or address of DD/EFT beneficiaries. The letter addresses the issue of Title 12

U.S.C. 3413 “Right to Financial Privacy,” by specifying the requested information is

necessary for, and will be used solely for, administration of veteran’s benefits. VARO

management advised us this letter is nearly always successful.

Beneficiaries Often Failed to Timely Report Status Changes that Affected Their

Entitlement

Of the 155 overpayments that resulted from beneficiaries’ failure to timely report status

changes, 111 (72 percent) involved nonservice-connected (NSC) pension beneficiaries. In

our opinion, many occurrences of beneficiaries’ failure to timely report status changes can

be attributed to complicated reporting requirements and the age and health of beneficiaries,

especially pension beneficiaries. We believe improved communication, such as contacting

beneficiaries by telephone, rather than only in writing, to explain what information is
5

needed, would help reduce this number. In addition, we found over 60 percent of the

155 beneficiaries were represented by service organizations, such as the American Legion

and Disabled American Veterans. In our opinion, increased utilization of the expertise

offered by these service organizations, to both help disseminate general information and to

assist in specific cases, would also help reduce overpayments. As indicated above, VBA’s

due process policy can further add to beneficiaries’ overpayment burden. In 39 of the

155 cases the due process policy added an average of $418 of debt to each beneficiary.

Some Overpayments were Unavoidable

The 23 percent, shown in the graph as unavoidable overpayments involved cases where

status changes were reported timely, but too late to avoid an overpayment due to claims

processing requirements. For example, if a beneficiary expires on or near the last day of a

month, even if the beneficiary’s death is immediately reported, it is nearly impossible to

avoid an overpayment.

VBA was Working to Prevent C&P Overpayments

During the review we found VBA management was concerned with preventing

overpayments and was addressing the issue as part of their National Performance Review

(NPR) and Business Process Reengineering (BPR) initiatives. For example, as part of their

NPR review VBA had coordinated with SSA to automate the process by which VAROs

obtain social security data. Also, one of the BPR goals is to simplify the pension program.

Achievement of this goal would help reduce overpayments resulting from beneficiaries

failing to timely notify VA of changes in their status.

We also noted several VAROs have implemented innovative procedures to prevent

overpayments. For example, VAROs New York and Houston had improved

communication with their beneficiaries. VARO New York uses telephone contact

extensively to ensure beneficiaries are aware of what information the VARO needs from

them. VARO Houston had developed simplified income information requests and

worksheets. We believe these types of actions, along with the assistance of service

organizations, will help reduce overpayments resulting from beneficiaries failing to timely

notify VA of changes in their status. For every 10 percent reduction in overpayment cases

of this type, we estimated that $4.2 million of overpayments could be prevented annually.

(See Appendix IV on page 18 for calculation of monetary impact.)
6

Conclusion

We concluded that VBA management could further reduce overpayments by ensuring that

changes in beneficiaries’ status are properly and timely processed. We believe the best

method to ensure status changes are properly and timely processed is to make preventing

overpayments a continuous special focus area of VBA and VARO quality reviews. We

recognize that quality reviews currently address payment accuracy and other quality

factors. However, we believe that including overpayment prevention as a special focus of

these reviews would ensure VAROs detect and trend factors that contribute to

overpayments, including current policy and procedures, and lead to improved strategies for

preventing overpayments to beneficiaries. This would be much the same situation as when

VAROs responded to our individual overpayment analyses during this review, they

frequently indicated the case had been discussed with responsible individuals or teams for

the particular type of processing, to prevent recurrence. We also believe that gathering and

disseminating innovative procedures to all VAROs would help ensure status changes are

properly processed as well as help reduce overpayments resulting from beneficiary

reporting timeliness. We further concluded that overpayments would be reduced by

revising certain due process and other procedures that contribute to overpayments. We

believe the 60-day predetermination notice should be issued to veterans receiving longterm care (i.e., in a VA nursing home or a community nursing home at VA expense) or to

fiduciaries of incompetent veterans, at the time of admission to reducible VA care.

Similarly, the 60-day predetermination notice should also be issued at the time

beneficiaries are asked to complete the certification of school attendance form.

Beneficiaries’ oral notification of status changes should also be accepted. Regarding due

process, we recognize VBA is concerned with the court’s jurisdiction in the Semenchuk

decision, and may wish to wait until expiration of the court’s jurisdiction, August 10, 1997,

to revise procedures. Regarding earlier predetermination notifications on hospitalization

cases, we believe this would be effective, even if limited to long-term care and fiduciary

cases. We also believe procedures should be revised to allow VAROs to suspend

payments in DD/EFT cases when they cannot determine the whereabouts of the

beneficiary. We recognize this would not be necessary in many cases, so to better

maintain current addresses, we believe a standardized letter to financial institutions, such

as that utilized at VARO Cleveland, should be routinely used. The issue of revising due

process procedures was also addressed in a separate Office of Inspector General report

“Audit of the Effectiveness of Benefit Award Notification” (Report No. 6D2-B01-049 dated

September 20, 1996).
7

Recommendation

The Under Secretary for Benefits should reduce C&P benefit overpayments by:

a. Directing VARO and VBA staff to make overpayment prevention a continuous special

focus area of their quality reviews, enabling them to detect and trend factors

contributing to overpayments, including reevaluating current policy and revising

procedures to prevent benefit overpayments.

b. Gathering and disseminating innovative VARO best practices that should help other

VAROs prevent overpayments, including practices to improve beneficiary reporting

timeliness.

c. Revising due process notification procedures to allow 60-day predetermination notices

to be issued to veterans receiving long-term care (i.e., in a VA nursing home or a

community nursing home at VA expense), or to fiduciaries of incompetent veterans, at

the time of admission to reducible VA care.

d. Revising due process procedures to remove the requirement that beneficiaries must

inform the VA in writing of status changes that will result in a reduction of benefits.

e. Revising VA Form 21-8960 “Certification of School Attendance or Termination” to

include a 60-day predetermination notice that the dependent school child will be

removed from the beneficiary’s benefit award, effective either the child’s 18th birthday

or the last day of the month in which school attendance was last certified, if the

completed form is not returned.

f. Revising procedures to require that VAROs contact financial institutions to determine

current mailing addresses for beneficiaries who receive payment via DD/EFT and for

whom mail has been returned.

g. Encouraging VAROs to enlist the assistance of veterans service organizations to help

beneficiaries better fulfill their obligations to timely report beneficiary status changes.

Monetary impact associated with the recommendation is shown in Appendix V on page 19.

Acting Under Secretary for Benefits Comments

The Acting Under Secretary for Benefits concurred with the findings and

recommendations, and offered no comment on the estimated monetary impact. Based on

his concerns regarding the Court’s jurisdiction in the Semenchuk consent decree, the

Acting Under Secretary stated VBA will delay action on recommendations (c), (d) and (e),

involving revision of due process procedures, until the Court’s jurisdiction ends on
8

August 10, 1997. In response to the remaining four recommendations, the Acting Under

Secretary planned to complete corrective actions no later than March 1997. The Acting

Under Secretary stated that debt prevention was an issue of great concern to VA and that

he welcomed OIG recommendations in that regard.

(See Appendix VI on page 20 for the Acting Under Secretary’s comments.)

Office of Inspector General Comments

We recognize the Acting Under Secretary’s concerns regarding the timing of VBA’s

actions addressing the due process findings discussed in the report and will plan to provide

future assistance in addressing these problems. While we accept the Acting Under

Secretary’s decision to delay action on recommendations (c), (d) and (e), we would expect

that VBA could begin addressing our recommendations by September 1997, after the

Semenchuk consent decree expires. The Acting Under Secretary’s implementation actions

for recommendations (a), (b), (f) and (g) are acceptable. However, in addressing

recommendation (a), which deals with making overpayment prevention a continuous

special focus of quality reviews, the Acting Under Secretary stated he concurred with this

recommendation because VBA’s quality reviews already address payment accuracy, along

with other quality factors, which are the underlying causes of overpayments. He went on

to state that VBA would emphasize the importance of payment accuracy and debt

prevention in an upcoming Adjudication Officers’ Conference Call. We accept this

implementation action and, as noted in the report, are aware that quality reviews address

payment accuracy and other quality factors. However, we believe that in addition to

making a conference call to emphasize prevention of overpayments, periodic focused

reviews of overpayments should be conducted to identify and prevent systemic causes.

Such reviews can help to avoid recurrence of the type of preventable overpayments

identified by our review.

We consider the report resolved but recommendations (c), (d) and (e) are unimplemented.

We will follow up on VBA’s future actions to address these recommendations, including

preparation of appropriate implementation plans, until they are completed. The Acting

Under Secretary chose not to comment on our estimate of monetary benefits, and provided

no alternative estimate. Our estimate of monetary impact is based on a statistical sample

and we consider it to be reasonable and reliable.
APPENDIX I

9

BACKGROUND

During fiscal year 1995, Department of Veterans Affairs (VA) paid about $17.8 billion to

3.3 million beneficiaries under its compensation and pension (C&P) programs. During the

same period beneficiaries received excess benefit payments, or overpayments, of about

$303 million.

• The compensation program paid about $14.8 billion to 2.5 million veterans with

service-connected (SC) conditions, and survivors of veterans who died while in

service, or whose death resulted from SC conditions.

• The pension program paid about $3 billion to 799,000 veterans with nonserviceconnected conditions, who served on active duty during wartime, and their

survivors.

VA’s C&P programs are administered by Veterans Benefit Administration (VBA). Claims

for C&P benefits are processed by the Adjudication Division in VA regional offices

(VAROs). There are 57 VARO Adjudication Divisions throughout the United States and

in San Juan, PR and Manila, PI.

Overpayments to C&P beneficiaries generally result when there are changes in the

beneficiaries' entitlement status and benefit awards are not reduced timely. These changes

include increased income, hospitalization at VA expense, loss of dependents, or the death

of the beneficiary.

As of September 30, 1995, VA’s C&P debt resulting from overpayments totaled about

$574 million. The number of debtors totaled about 192,238, or an average debt of $2,986.

About $367 million, or 64 percent of the debt, had been delinquent for over 1 year. Given

VA’s collection difficulties, overpayment prevention should be a major focus of its debt

management program. The major goal of overpayment prevention is to correct the

underlying causes, while reducing the amount of debt established. The importance of

overpayment prevention is underscored by the fact that VA collects an average of about 28

percent of it's C&P overpayments. Preventing beneficiary debt is also less costly than

trying to collect it.

An April 1995 General Accounting Office review, “VA Can Prevent Millions in

Compensation and Pension Overpayments” recommended that to help prevent

overpayments: VBA establish procedures that identify beneficiaries who will soon become

eligible for social security (SS) benefits and timely adjust their benefits; and collect and

analyze information on the causes of overpayments to develop strategies for preventing

additional overpayments. VBA implemented a procedure to remind beneficiaries prior to

them becoming 60, 62, or 65, that SS benefits needed to be reported immediately. This

should help reduce overpayments in cases where beneficiaries are awarded SS Retirement

benefits. VBA was also attempting to develop information on causes of overpayments.

Our review will assist VBA in this effort by identifying conditions that contributed to

overpayments and making recommendations to prevent future overpayments.
APPENDIX II

10

OBJECTIVE, SCOPE AND METHODOLOGY

Objective

The purpose of the review was to identify the causes of Veterans Benefits

Administration’s (VBA) compensation and pension (C&P) overpayments. This is one of a

series of reviews evaluating Department of Veterans Affairs’ (VA) debt management

program.

Scope and Methodology

To identify the causes of C&P benefit overpayments, the review focused on a population

of C&P debt resulting from overpayments that were established during fiscal year 1995,

and which remained outstanding as of the end of the fiscal year. The total population of

this group was 40,494 cases, valued at about $120 million.

• About 63 percent of the C&P overpayment cases valued at $74 million pertained to

nonservice-connected pension beneficiaries.

• About 37 percent valued at $46 million corresponded to service-connected

compensation beneficiaries.

We statistically sampled 324 of the 40,494 cases. For each sampled case, we reviewed the

beneficiary claims folder maintained by VA Regional Offices (VAROs). In addition to our

statistical sample we also:

• Reviewed the applicable VA policy and procedures for the sampled cases.

• Analyzed results of a questionnaire regarding VARO overpayment prevention

procedures.

• Conducted an on-site review at one VARO.

• Reviewed written responses to our case analyses from the responsible VAROs.

• Discussed our review process, findings, and proposed recommendation at various

stages of the review with VBA program officials.

The review was conducted in accordance with government auditing standards for

qualifications, independence, due professional care and included such tests of procedures

and records as we considered necessary under the circumstances.
APPENDIX III

11

Page 1 of 7

DETAILS OF REVIEW

Sampling Plan and Results

Review Universe

We analyzed the Veterans Benefits Administration’s (VBA's) September 30, 1995,

automated compensation and pension (C&P) file and extracted records where a C&P debt

had been established during fiscal year (FY) 1995 and which remained outstanding, with a

balance of at least $100, at September 30, 1995. The extracted population totaled

40,494 records valued at about $120 million. In 25,631 (63 percent) of the 40,494 cases,

the beneficiaries received nonservice-connected (NSC) benefits and 14,863 (37 percent)

received service connected (SC) benefits.

Sample Design

The sample included 324 randomly selected cases and was based on a non-stratified

attribute sampling design at a 95 percent confidence level. We validated the C&P

overpayment data for the sampled cases by verifying the information to the beneficiaries’

claims folders. We did not independently validate that the beneficiaries within the

population tested comprised the total universe. However, nothing came to our attention

that would lead us to believe that any beneficiaries were missing from our review universe.

Sample Results

We noted in 73 cases (23 percent) of the 324 cases sampled, the overpayments were

unavoidable because even though status changes were reported timely, they were too late

to prevent an overpayment due to claims processing requirements. In an additional

155 cases (48 percent), overpayments resulted from beneficiaries’ failure to timely report

status changes. We found in 96 cases (30 percent) of the 324 cases sampled, the

overpayments could have been avoided.

Estimated Rate Estimated Number of

Category of of Confidence Preventable Overpayments

Preventable Overpayment Occurrence Interval in the Population 

C&P overpayments could 29.6 % +/- 5.0 % 11,986

be avoided.

Occurrence rate in 40,494 +/-2,025

case population. cases
APPENDIX III

12

Page 2 of 7

Analysis of Sampled Cases

We are providing the following detailed information on the types of overpayments

disclosed by our review because we believe it will be helpful to VBA management. We

believe that by knowing what causes overpayments VBA management will be in a better

position to develop long-term strategies and plans that will reduce future overpayments, by

considering the type, cause and value of overpayments.

Overpayments Related to the Death of the Beneficiary

Our review identified 65 cases (20 percent), of the 324 beneficiary overpayments, valued

at $180,261, were caused when SC or NSC beneficiaries were issued VA benefit

payments, subsequent to their deaths.

29

36

NSC beneficiary SC beneficiary

0

10

20

30

40

Related Average Overpayment (O/P)

Total Cases Type of Beneficiary Value Average O/P

29 NSC beneficiaries $ 17,372 $ 599

36 SC beneficiaries $162,889 $4,525

65 $180,261
APPENDIX III

13

Page 3 of 7

Overpayments Related to Changes in Beneficiary Income

Our review identified 145 cases (45 percent), of the 324 beneficiary overpayments, valued

at $442,723, were caused when there was a change in the beneficiary's income.

18 19

26

58

12

4

8

Social

Security (SS)

Retirement

SS

Disability 

Earned

Income

Other

Income

Combination

of Income

Unreimbursed

Medical

Expenses (UME)

Not Supported 

Eligibility

Verification

Report (EVR)

Not Returned

0

10

20

30

40

50

60

Related Average Overpayment for NSC Beneficiaries

Total Cases Type of Income Overpayment Reason Value Avg. O/P

 18 SS Retirement benefits Income not included in $ 24,984 $1,388

calculation of Pension Rate

 19 SS Disability benefits “ “ $ 39,012 $2,053

 26 Earned Income “ “ $101,889 $3,919

 58 Other Income “ “ $190,761 $3,289

 (e.g., Savings Interest)

 12 Combination of Income “ “ $ 63,323 $5,277

 4 UME Claim not supported $ 6,615 $1,654

 8 N/A Failure to return EVR $ 16,139 $2,017

145 $442,723
APPENDIX III

14

Page 4 of 7

Overpayments Related to Hospitalization of Reducible Beneficiaries

Our review disclosed 20 cases (6 percent), of the 324 beneficiary overpayments, valued at

$89,902, related to either a NSC or SC veteran being hospitalized and receiving more

benefits than entitled to.

12

7

1

NSC beneficiary SC beneficiary Paragraph 29

0

2

4

6

8

10

12

14

Related Average Overpayment

Total Cases Type of Beneficiary Reason for Overpayment Value Avg. O/P

12 NSC beneficiaries Paid Non-Hospital Rate while $55,806 $ 4,651

 Hospitalized at gov’t. expense

 7 SC beneficiaries Paid Non-Hospital Rate while $23,986 $ 3,427

 Hospitalized at gov’t. expense

 1 SC beneficiaries Paid at 100% SC Rate, under $10,110 $10,110

 Paragraph 29, subsequent to

20 hospital discharge $89,902
APPENDIX III

15

Page 5 of 7

Overpayments Related to Changes in Beneficiary Dependency Status

Our review identified 76 cases (23 percent), of the 324 beneficiary overpayments, valued

at $243,242, that were caused when there was a change in the beneficiary's dependency

status. These included 61 SC and 15 NSC cases, as shown below:

61 SC Benefit Cases, Valued at $217,200

15

12

5

1

19

4

2

3

Divorce

Death

Apportioned

Child's

Marriage

School

Remarriage

Chapter

35

Questionnaire

0

5

10

15

20

25

Related Average Overpayments for SC Benefit Cases

Total Cases Reason for Overpayment Value Avg. O/P

15 Paid for a spouse, subsequent to divorce $ 36,532 $2,435

12 Paid for a spouse, subsequent to spouse’s death $ 27,997 $2,333

 5 Award was retroactively apportioned $ 1,973 $ 395

 1 Paid for dependent school child, subsequent to $ 1,570 $1,570

 child’s marriage

19 Paid for dependent school child, subsequent to $ 13,940 $ 734

 child’s terminating school

 4 Paid subsequent to remarriage $ 2,287 $ 572

 2 Paid for dependent child, subsequent to child’s $ 2,873 $1,437

 receipt of Dependents Educational Allowance

 (Chapter 35)

 3 Paid for dependents, subsequent to failure to return $130,028 $ 8162

61 Status of Dependents Questionnaire $217,200

 

2

 The average overpayment for cases where beneficiaries were paid for dependents subsequent to failure to return

“Status of Dependents Questionnaire” does not include one untypical case with an overpayment of $128,396, which

skewed average overpayment.
APPENDIX III

16

Page 6 of 7

Overpayments Related to Changes in Beneficiary Dependency Status (cont.)

15 NSC Benefit Cases, Valued at $26,042

6

4

2 2

1

Divorce Spouse's

Death

Apportioned School Questionnaire

0

1

2

3

4

5

6

7

Related Average Overpayments for NSC Benefit Cases

Total Cases Reason for Overpayment Value Avg. O/P

 6 Paid for a spouse, subsequent to divorce $ 5,452 $ 909

 4 Paid for a spouse, subsequent to spouse’s death $17,090 $4,273

 2 Award was retroactively apportioned $ 1,476 $ 738

 2 Paid for dependent school child, subsequent to child’s $ 1,816 $ 908

 terminating school

 1 Paid for dependents, subsequent to failure to return $ 208 $ 208

 Status of Dependents Questionnaire

15 $26,042
APPENDIX III

17

Page 7 of 7

Overpayments Related to Miscellaneous Changes in Beneficiary Status

Our review identified 18 cases (6 percent), of the 324 beneficiary overpayments, valued at

$33,452, that were caused by miscellaneous reasons.

7

2

3

1

4

1

Duplicate

Payments

Rating

Error

Retired

Pay

Adjusted

Incarcerated SC

Beneficiary

Active Duty

Greater

Benefit

0

1

2

3

4

5

6

7

8

Related Average Overpayment

Total Cases Type of Beneficiary Reason for Overpayment Value Avg. O/P

 7 N/A Duplicate Benefit Payments $ 4,975 $ 711

 2 N/A Rating Errors: $ 7,250 $3,625

 1-Rating Decision Error

 1-Paid Higher Rate than Authorized

 by Rating Decision

 3 SC beneficiaries Military Retired Pay Not Properly $ 8,797 $2,932

 Adjusted

 1 N/A Paid Benefits while Incarcerated $ 5,491 $5,491

 4 SC beneficiaries Paid Benefits while on active duty $ 4,920 $1,230

 1 SC beneficiaries Benefit changed to pension, while $ 2,019 $2,019

 compensation remained a greater

18 benefit $33,452
APPENDIX IV

18

CALCULATION OF MONETARY IMPACT

Actual Projected

Preventable Preventable

Overpayment Overpayment

Compensation & Pension (C&P) Overpayments Can Be Prevented

• 96 preventable overpayments were noted in

324 sampled cases (29.6 percent). Preventable

overpayments totaled $210,124 or about $2,188

per case ($210,124 / 96). $210,124

• Based on our sample results, we project that C&P

overpayments for 11,986 cases (40,494 x

29.6 percent) can be prevented annually. These

cases were valued at $26,225,368 (11,986 x

$2,188 average overpayment).

(See Appendix III) $26,225,368

• Based on our sample results we estimate that C&P

overpayments for 1,944 cases (40,494 x 48 percent

[percentage of sample cases where overpayments

resulted from beneficiary failure to timely report

status changes] x 10 percent [estimated reduction

in rate of beneficiary failure to timely report]) can be

prevented annually through improved communication

with beneficiaries. These cases were valued at

$4,253,472 (1,944 x $2,188 average overpayment). 4,253,472

TOTAL $210,124 $30,478,840
APPENDIX V

19

MONETARY IMPACT IN ACCORDANCE WITH IG ACT AMENDMENTS

REPORT TITLE: Review of the Causes of Veterans Benefits Administration’s

Compensation and Pension Overpayments

PROJECT NUMBER: 6R1-057

Recommended

Better Use

Recommendation Category / Explanation of Benefits of Funds 

a-g Recommended Better Use of Funds.

Overpayments can be prevented in an estimated

11,986 cases. (See Appendix IV) $26,225,368

a-g Recommended Better Use of Funds.

Improved communication with beneficiaries

can prevent overpayments in an estimated

1,944 cases. (See Appendix IV) 4,253,472

TOTAL $30,478,840
APPENDIX VI

20

Page 1 of 3

MEMORANDUM FROM THE ACTING UNDER SECRETARY FOR

BENEFITS DATED NOVEMBER 21, 1996

Department of

Veterans Affairs Memorandum

Date: November 21, 1996

From: Acting Under Secretary for Benefits (20)

Subj: Compensation and Pension Debt Prevention Procedures

To: Assistant Inspector General for Auditing (52)

1. We have received your draft report entitled "Review of the Causes of Veterans Benefits

Administration's Compensation and Pension Overpayments" and have reviewed the draft report

and the revisions you furnished on October 18, 1996. We are pleased to respond to the

recommendations which accompanied your report.

2. Debt prevention is an issue of great concern to the Department. As pointed out in your report,

we are addressing this issue as part of our National Performance Review (NPR) and Business

Process Reengineering (BPR) initiatives. These initiatives emphasize application of information

technology to improve service to our beneficiaries and also address simplification of the pension

program. We strive to find a balance between preventing overpayments and ensuring that every

beneficiary is afforded appropriate notice and opportunity to be heard before reduction or

termination of benefits is effected. This balance is a delicate one, and we welcome

recommendations from OIG in this regard. We will address each of your recommendations.

Recommendation 1: Direct VAROs and VBA staff to make overpayment prevention a

continuous special focus for quality reviews in order to detect and trend factors contributing to

overpayments. You state that this would allow VBA to reevaluate current policy and revise

procedures to prevent overpayments.

We concur with this recommendation because our Quality Assurance and Quality Improvement

reviews already address payment accuracy, along with other quality factors which are underlying

causes of overpayments and debt. Whenever quality assurance and quality improvement reviews

point out patterns or national trends of erroneous claims processing, it is our routine practice to

use this information to review current procedures and establish new procedures to deal with such

patterns or trends. We follow this practice to improve quality of service to claimants, regardless

of whether overpayments are specifically involved. We will emphasize the importance of

payment accuracy and debt prevention in an upcoming Adjudication Officers' Conference Call.

Recommendation 2: Gather and disseminate to all VAROs information concerning innovative

procedures that should prevent debts and improve beneficiary reporting timeliness.

VA Form 2105

Mar 1989
APPENDIX VI

21

Page 2 of 3

Page 2

Assistant Inspector General for Auditing

We concur with this recommendation. We believe it is important to improve VA procedures, and the

sharing of good and innovative ideas is only one way to accomplish this. We will request that by

March 1, 1997, regional offices bring to our attention any local procedures that are in use to facilitate

debt prevention. We will disseminate that information to all VAROs for wider use.

Recommendation 3: Revise notification procedures to allow a 60-day predetermination notice to be

issued to veterans receiving long-term care (i.e., in a VA nursing home or a community nursing

home at VA expense), or to fiduciaries of incompetent veterans, at the time of admission to reducible

VA care.

We agree that our procedures for award adjustment and benefit notification for beneficiaries receiving

hospital or nursing home care at VA expense are in need of revision. Many of the award adjustment

and notification procedures now in place were implemented based on the court settlement in Alex

Semunchuk, et al. v. Harry N. Walters, 81C3132. The Semenchuk class was limited to Illinois

residents, and involved only contested reductions and terminations of VA disability pension awards.

However, we applied time limits and notification procedures to all situations involving reduction or

termination of a current award (other than those provided for in 38 U.S.C. 5112(b)(6)), rather than

only those specific to the Semenchuk class so that there would be a single procedure applicable to all

beneficiaries. The United States District Court for the Northern District of Illinois retains jurisdiction

in that case until August 10, 1997.

In response to a similar recommendation in OIG review, "Audit of the Effectiveness of Benefit Award

Notification," we expressed our concern that a generic predetermination notice issued at the time of

admission would be inadequate because it would lack specificity. We continue to object to a generic

approach to notification. However, as we said in our response to your prior review, we will be happy

to revisit the entire issue of notification procedures once the Court's jurisdiction in the Semunchuk

consent decree expires. At that time, your assistance in reviewing procedures and notification

requirements will be welcome.

Recommendation 4: Remove the requirement that beneficiaries furnish status changes in writing if

reduction of benefits will be involved.

We agree with this recommendation in principle. However, the language in the regulations that

requires written notice of a change in status before VA may take adverse action without issuing a

predetermination/reduction notice was adopted verbatim from the consent decree in the Semunchuk

settlement. While it would be inappropriate to take any action to amend that regulation now, we will

review the regulatory and manual provisions when the Court's jurisdiction expires and would

welcome your assistance at that time.
APPENDIX VI

22

Page 3 of 3

Page 3

Assistant Inspector General for Auditing

Recommendation 5: Revise VA Form 21-8960, "Certification of School Attendance or

Termination," to include a predetermination notice that benefits will be reduced on the child's

18th birthday or on the last day of the month in which the school attendance was last certified if the

form is not returned.

We agree with this recommendation in principle. As we indicated in our response to

Recommendation 3 above, we have a concern that a generic predetermination notice issued when the

annual certification form 21-8960 is sent out would be inadequate because it would lack specificity.

However, the entire subject of when a predetermination notice is required and when contemporaneous

notice is sufficient falls into the category of procedures we have already agreed to review, with your

assistance, once the Semunchuk order expires.

Recommendation 6: Revise procedures to require that VAROs contact financial institutions to

determine current mailing addresses for beneficiaries who receive payment via DD/EFT and for

whom mail has been returned.

We concur with this recommendation. Currently, sample language for a letter to be sent to a

financial institution requesting a current mailing address is contained in M21-1, Part IV, Chapter 31.

To assure that such contact is routinely made when mail is returned, we will review our procedural

manual to incorporate necessary changes and cross references. The projected date for completion of

this action is March 1, 1997.

Recommendation 7: Encourage VAROs to enlist the assistance of veterans service organizations to

help beneficiaries better fulfill their obligations to report beneficiary status changes timely.

We concur with this recommendation. We agree with you that veterans service organizations are an

excellent resource. We value and encourage close cooperation between these organizations and

regional office personnel. This is another recommendation we will address in an upcoming

Adjudication Officers' Conference Call.

3. With regard to the estimated dollar impact of the recommendations, we have no comments.

4. Thank you for providing a copy of your findings concerning debt prevention procedures.

[Signed]

Stephen L. Lemons
APPENDIX VII

23

FINAL REPORT DISTRIBUTION

VA Distribution

Secretary (00)

Acting Under Secretary for Benefits (20A11 )

Assistant Secretary for Management (004)

Assistant Secretary for Policy and Planning (008)

General Counsel (02)

Deputy Assistant Secretary for Congressional Liaison (60C)

Deputy Assistant Secretary for Public Affairs (80)

Director, Office of Management Controls (004B)

Chief Financial Officer (24)

Director, VA Regional Office Los Angeles (344 / 00)

Non-VA Distribution

Office of Management and Budget

U.S. General Accounting Office

Congressional Committees:

Chairman, Senate Committee on Governmental Affairs

Senate Ranking Minority Member, Committee on Governmental Affairs

Chairman, Senate Committee on Veterans' Affairs

Senate Ranking Minority Member, Committee on Veterans' Affairs

Chairman, Senate Committee on Appropriations

Chairman, Subcommittee on VA, HUD, and Independent Agencies, Senate Committee 

on Appropriations

Senate Ranking Minority Member, Subcommittee on VA, HUD, and Independent 

Agencies, Committee on Appropriations

Chairman, House Committee on Government Reform and Oversight

House Ranking Minority Member, Committee on Government Reform and Oversight

Chairman, House Committee on Veterans' Affairs

House Ranking Minority Member, Committee on Veterans' Affairs

Chairman, House Committee on Appropriations