Report No. 06-03541-219 September 28, 2007

VA Office of Inspector General 

Washington, DC 20420 

Department of Veterans Affairs 

Office of Inspector General 

Audit of the 

Civilian Health and Medical Program of 

the Department of Veterans Affairs 
To Report Suspected Wrongdoing in VA Programs and Operations 

Call the OIG Hotline – (800) 488-8244 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Contents 

Page 

Executive Summary ........................................................................................................ i 

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

Purpose ................................................................................................................................ 1 

Background.......................................................................................................................... 1 

Scope and Methodology ...................................................................................................... 2 

Results and Conclusions ............................................................................................. 3 

Issue 1: Oversight of Health Administration Center Management of the Civilian Health 

and Medical Program of the Department of Veterans Affairs Needed 

Improvement.......................................................................................................... 3 

Issue 2: Claim Payment Controls Needed Improvement.................................................... 6 

Issue 3: Accounts Receivable Controls Needed Strengthening........................................ 10 

Appendixes

A. Sampling Methodology and Estimates ........................................................................ 13 

B. Monetary Benefits in Accordance with IG Act Amendments..................................... 15 

C. Under Secretary for Health Comments........................................................................ 16 

D. OIG Contact and Staff Acknowledgments .................................................................. 26 

E. Report Distribution ...................................................................................................... 27 

VA Office of Inspector General 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Executive Summary 

Introduction 

The Office of Inspector General (OIG) conducted an audit to evaluate the effectiveness of 

the Veterans Health Administration’s (VHA) management of the Civilian Health and 

Medical Program of the Department of Veterans Affairs (CHAMPVA). The audit 

objectives were to determine if: (1) VHA oversight of CHAMPVA was adequate; 

(2) CHAMPVA claim payments were accurate, timely, reasonable, and sufficiently 

protected from duplication and fraud; (3) CHAMPVA overpayments were adequately 

billed and collected; and (4) CHAMPVA information management system controls were 

adequate. 

The Veterans Healthcare Expansion Act of 1973 authorized VA to establish CHAMPVA. 

The program provides healthcare benefits for dependents of veterans rated permanently 

and totally disabled as a result of service-connected conditions or who died as a result of 

service-connected conditions. CHAMPVA is essentially a health insurance program 

where beneficiaries obtain medical services from private providers. Beneficiaries usually 

pay 25 percent of the cost of medical care up to an annual catastrophic cap of $3,000 plus 

an annual outpatient deductible of $50 per individual or $100 per family. CHAMPVA 

pays the remaining 75 percent of the beneficiaries’ medical care. In fiscal year 

(FY) 2006, 285,006 beneficiaries were enrolled in CHAMPVA, and 187,279 (66 percent) 

used the program. 

The Health Administration Center (HAC), located in Denver, CO, is responsible for 

administering CHAMPVA. HAC staff review claims submitted by beneficiaries and 

providers to ensure that beneficiaries are eligible for care and that services are covered 

and medically necessary. In FY 2006, the HAC spent approximately $615.3 million to 

pay 5.6 million CHAMPVA claims. 

Results 

The HAC’s controls over fraud detection for CHAMPVA payments were generally 

effective. However, management of CHAMPVA would be more effective if VHA 

improved its oversight of CHAMPVA and if HAC management improved controls over 

claim processing and accounts receivable. Without sufficient VHA oversight and strong 

internal controls, VA does not have reasonable assurance that the HAC manages 

CHAMPVA in accordance with sound business practices, Federal laws and regulations, 

and VA policies. Specifically, the audit identified three issues that required management 

attention: 

1. VHA needed to improve its oversight of the HAC’s policy decisions and internal 

control program. VHA’s Chief Business Office (CBO) did not ensure that HAC 

VA Office of Inspector General i 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

policy changes complied with Federal laws and regulations or were supported by 

sufficient analyses. Before making changes to policy, the HAC did not disclose the 

proposed changes to ensure the public could review them and make comments. These 

policy changes require consultation with the VA Office of General Counsel (OGC) 

and may require further action. Furthermore, the CBO did not require that the HAC 

annually certify and document its internal control activities as required by VHA 

policy. The audit report makes three recommendations—two to develop oversight 

mechanisms for policy decisions and internal control reviews and one to determine if 

further action is required to address HAC policy changes. 

2. The HAC needed to improve its claim payment controls to prevent improper 

payments and identify overpayments that required recovery. We identified the 

universe of claim payments greater than $100 the HAC made during the 1-year 

review period July 2005–June 2006. That universe consisted of 651,991 claim 

payments totaling $322.9 million, from which we selected a stratified statistical 

sample of 216 claim payments totaling $8.7 million. Based on our sample review, we 

found that the HAC made a significant number of eligibility, claim processing, and 

software programming errors. We also found that the HAC’s internal audits did not 

sufficiently identify claim payment errors. As a result, we estimate that for the 1-year 

review period, the HAC authorized net overpayments of $12.0 million. In addition, 

we estimate that the HAC did not identify $5.1 million in claim payments that it 

should have recovered. To address these issues, the audit report makes three 

recommendations to provide refresher training, correct programming errors, and 

expand the coverage of HAC internal audits. 

3. The HAC needed to strengthen its controls to ensure timely establishment and 

monitoring of accounts receivable and proper supervisory reviews of write-offs. 

During the 1-year review period July 2005–June 2006, the HAC established 6,936 

accounts receivable valued at $2.5 million. We reviewed a statistical sample of 152 

accounts receivable valued at $56,788. In addition, we reviewed all 22 write-offs 

valued at $25 or more. Based on our sample review, we found that the HAC was not 

timely in collecting funds and inappropriately wrote off $114,276 in accounts 

receivable. The HAC did not provide sufficient operational oversight, implement VA 

fiscal policies, or provide adequate staff training. The audit report makes two 

recommendations to provide training on VA fiscal policies and procedures and to 

establish and monitor performance measures in this area. 

In addition, the audit identified two minor issues regarding information system access 

controls; however, the HAC’s Chief Information Officer corrected these user and 

programmer access deficiencies during the audit. 

VA Office of Inspector General ii 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Recommendations 

1. We recommended that the Under Secretary for Health develop oversight mechanisms 

to ensure that future CHAMPVA policy decisions have appropriate risk and cost 

analyses and comply with Federal laws. 

2. We recommended that the Under Secretary for Health consult with the OGC to 

determine whether further action is required regarding claim filing deadlines and the 

preauthorization limit for durable medical equipment. 

3. We recommended that the Under Secretary for Health develop oversight mechanisms 

to ensure the HAC conducts effective internal control reviews.

4. We recommended that the Under Secretary for Health provide refresher training and 

increased management supervision to ensure HAC staff follow procedures for 

determining and verifying eligibility, processing claims, and identifying 

overpayments. 

5. We recommended that the Under Secretary for Health require the HAC to correct the 

programming errors in the Claims Processing and Eligibility software. 

6. We recommended that the Under Secretary for Health expand the HAC’s internal 

audits to incorporate reviews of eligibility documentation, claim histories, and 

recovery actions. 

7. We recommended that the Under Secretary for Health provide training for HAC staff 

on VA financial accounting policies and procedures. 

8. We recommended that the Under Secretary for Health establish and monitor 

performance measures for the timely collection of CHAMPVA overpayments.

Under Secretary for Health Comments 

The Under Secretary for Health agreed with the findings and recommendations of the 

report and provided acceptable implementation plans. (See Appendix C, pages 16–25, 

for the full text of the Under Secretary’s comments.) In response to the audit 

recommendations, the Under Secretary agreed that increasing CBO oversight would be 

beneficial to CHAMPVA and noted that a recently added position, the Deputy Chief 

Business Officer for Purchased Care, will have direct supervision over the HAC. The 

Under Secretary reported that HAC policy analysts have received training on cost 

analysis development, and four analysts will complete regulation training. He also 

reported that VHA met with the OGC, and the OGC recommended issuing Federal 

Register notices to inform the public of policy changes concerning durable medical 

equipment and timely filing. The Under Secretary’s planned actions also included 

VA Office of Inspector General iii 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

developing and implementing a compliance program that ensures the HAC conducts 

effective internal control reviews. He stated that his implementation plan included 

increasing refresher training to ensure that HAC staff correctly determine and verify 

eligibility matters. The Under Secretary also agreed to correct the programming errors in 

the Claims Processing and Eligibility software and to expand the HAC’s internal audits to 

incorporate reviews of eligibility documentation, claim histories, and recovery actions. 

He also reported that the HAC has established a performance goal of 31.5 days to bill 

first- or third-party debt cases and is monitoring billing and collection activities on a daily 

basis. We incorporated technical comments provided by the Under Secretary into the 

report as appropriate. We will follow up on the implementation of the planned 

improvement actions. 

 (original signed by:)

BELINDA J. FINN 

Assistant Inspector General 

for Auditing 

VA Office of Inspector General iv 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Introduction 

Purpose 

The purpose of the audit was to determine if VHA effectively managed CHAMPVA. 

The four audit objectives were to determine if: (1) VHA oversight of CHAMPVA was 

adequate; (2) CHAMPVA claim payments were accurate, timely, reasonable, and 

sufficiently protected from duplication and fraud; (3) CHAMPVA overpayments were 

adequately billed and collected; and (4) CHAMPVA information management system 

controls were adequate. 

Background 

CHAMPVA provides healthcare benefits for dependents of veterans rated permanently 

and totally disabled as a result of service-connected conditions or who died as a result of 

service-connected conditions. These veterans are known as CHAMPVA sponsors. The 

HAC, located in Denver, CO, is responsible for administering CHAMPVA. In this role, 

the HAC determines eligibility; processes claims; and develops, reviews, and approves 

CHAMPVA policy. VHA’s CBO is responsible for program management of 

CHAMPVA and supervision of the HAC Director. 

Public Law 93-82, The Veterans Healthcare Expansion Act of 1973, authorized VA to 

establish CHAMPVA.1

 CHAMPVA is essentially a health insurance program where 

beneficiaries obtain medical services from private providers, such as physicians or 

hospitals. Beneficiaries usually pay 25 percent of the cost of any inpatient or outpatient 

care up to an annual catastrophic cap of $3,000 plus an annual outpatient deductible of 

$50 per individual or $100 per family. Beneficiaries or providers then submit claims to 

the HAC to request reimbursement for the remaining 75 percent of the cost of care. HAC 

staff review the claims to ensure that beneficiaries are eligible for care and that services 

are covered and medically necessary. Reimbursements are based upon the ZIP Code 

where the services are performed and the type of services provided. 

In 2001, Congress enacted Public Law 107-14, The Veterans’ Survivor Benefits 

Improvements Act of 2001, which authorized the extension of CHAMPVA benefits to 

beneficiaries over the age of 65. Prior to 2001, beneficiaries over the age of 65 were not 

eligible for CHAMPVA because they were eligible for Medicare. As a result of this 

extension, the HAC experienced a significant increase in CHAMPVA workload. At the 

beginning of FY 2002, 96,489 beneficiaries were enrolled. By the end of FY 2006, 

285,006 beneficiaries were enrolled—a 195 percent increase in 5 years. Furthermore, of 

 

1

 CHAMPVA benefits are similar to those of the Department of Defense’s Civilian Health and Medical Program of 

the Uniformed Services (CHAMPUS), a healthcare program for active duty and retired military personnel and their 

family members. CHAMPUS is now referred to as TRICARE. 

VA Office of Inspector General 1
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

the 285,006 enrolled beneficiaries, 187,279 (66 percent) used the program. In FY 2006, 

the HAC spent approximately $615.3 million to pay 5.6 million CHAMPVA claims and 

had an administrative budget of $42.9 million. For FY 2007, the HAC expects to pay 

approximately $690.6 million for an estimated 5.8 million claims. 

Scope and Methodology 

We conducted the audit from September 2006 through April 2007 and made three onsite 

visits to the HAC. To address the objectives of the audit, we interviewed HAC senior 

management and staff involved in CHAMPVA eligibility determination, policy and 

compliance, claim processing, fiscal operations, and information technology 

management. We also interviewed VA officials from the OGC and Office of Regulation 

Policy and Management, VHA officials from the CBO and Chief Financial Office, and 

officials from the Department of Defense TRICARE Management Activity. We 

reviewed related Federal regulations and VA and local policies, organizational charts, 

staffing reports, and workload and performance data. We did not review the 

appropriateness and quality of care received by beneficiaries under the program. 

Statistical Samples of Claim Payments and Accounts Receivable. To evaluate 

controls over claim payment processing, we used automated data from VA’s Financial 

Management System (FMS) to identify the universe of claim payments greater than $100 

the HAC made during the 1-year period July 2005–June 2006. That universe consisted of 

651,991 claim payments totaling $322.9 million, from which we selected a stratified 

statistical sample of 216 claim payments totaling $8.7 million. We determined the 

sample size using a confidence level of 95 percent, a desired precision rate of 10 percent, 

and an expected error rate of 15 percent. (See Appendix A, pages 13–14, for more details 

on our sampling methodology.) 

To evaluate whether the HAC adequately billed and collected CHAMPVA 

overpayments, we also used FMS to identify the universe of accounts receivable 

established during the 1-year review period. During this period, the HAC established 

6,936 accounts receivable valued at $2.5 million. We determined the sample size using a 

confidence level of 95 percent, a desired precision rate of 10 percent, and an expected 

error rate (overpayment processing error) of 10 percent. From the universe, we selected a 

statistical sample of 152 accounts receivable valued at $56,788. In addition, we reviewed 

all 22 write-offs valued at $25 or more. 

We assessed the reliability of FMS automated data by comparing selected data elements 

to hardcopy claim payment supporting documentation, recovery requests, and electronic 

claims. The data was sufficiently reliable for the accomplishment of the audit objectives. 

Our assessment of internal controls focused only on those controls related to our audit 

objectives. We conducted the audit in accordance with generally accepted government 

auditing standards. 

VA Office of Inspector General 2
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Results and Conclusions 

Issue 1: Oversight of Health Administration Center 

Management of the Civilian Health and Medical Program of 

the Department of Veterans Affairs Needed Improvement 

Finding

VHA needed to improve oversight of the HAC’s policy development process and internal 

control program. VHA Manual M-1, Part 1, Chapter 29, states that VHA’s CBO is 

responsible for managing CHAMPVA, supervising the HAC Director, ensuring 

CHAMPVA policies are consistent with public laws and regulations, establishing 

centralized reporting requirements, and performing periodic reviews.2

 VHA’s oversight 

was inadequate because the CBO had not implemented effective procedures to monitor 

CHAMPVA policies, procedures, and controls. Without improved oversight, the HAC 

does not have the necessary “checks and balances” to ensure effective use of VA 

resources and compliance with Federal laws and regulations and VA policies. 

VHA Did Not Effectively Oversee HAC Policy Decisions. The CBO did not ensure 

that HAC policy changes complied with Federal laws and regulations or were supported 

by sufficient analyses. Before making changes to the Code of Federal Regulations, the 

Administrative Procedure Act (APA) requires Federal agencies to publish proposed rules 

and revisions in the Federal Register to ensure that the public can review them and make 

comments. HAC management made significant policy changes related to claim filing 

deadlines and preauthorization limits for healthcare services without public review or the 

participation of the CBO or officials from other VHA or VA offices, including the OGC 

and Office of Regulation Policy and Management. Furthermore, HAC management 

made these decisions without adequate risk or cost analyses. As a result, VHA did not 

have assurance that CHAMPVA policies complied with laws and regulations or were 

appropriate. 

In 2001, the HAC contracted with a private health benefits organization to review its 

operational processes and make recommendations for improvement. The consultant 

expressed concern about adequate external oversight of CHAMPVA. In particular, the 

consultant emphasized the need for ensuring adequate checks and balances, since the 

HAC both created and administered CHAMPVA policy. The report also stated that the 

consultant would be remiss not to note the inherent risks associated with program 

oversight and administration residing within the same entity. Although the HAC Director 

 

2

 The VHA Manual uses the term “Director, Administrative Services Office of VHA.” In 2002, as part of a 

reorganization, VHA established the CBO, which assumed responsibility for CHAMPVA. 

VA Office of Inspector General 3
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

summarized the consultant’s report findings for VHA, he provided his opinion that there 

were checks and balances in place and that the consultant’s concern was not an issue. 

The following examples illustrate significant policy changes HAC management made 

without VHA oversight or public review. 

Elimination of Claim Filing Deadlines. In August 2006, the HAC changed 

a CHAMPVA policy manual to eliminate claim filing deadlines for 

providers and beneficiaries. The policy change conflicted with an existing 

Federal regulation pertaining to CHAMPVA—Title 38, Code of Federal 

Regulations, Section 17.275—that imposed filing deadlines and waiver 

conditions. In addition, the CBO did not review the HAC’s cost analysis, 

which estimated $2.8 million in annual administrative savings. The HAC 

based the estimate in part on anecdotal information, but did not estimate the 

additional costs that could result from eliminating the deadline. Officials 

from the CBO, OGC, Office of Regulation Policy and Management, and 

HAC agreed that VA should have published the change in the Federal 

Register for public comment. 

Preauthorization Limit for Durable Medical Equipment. In August 2006, 

the HAC published a CHAMPVA policy manual change that raised the 

preauthorization limit for durable medical equipment from $300 to $2,000. 

This change conflicted with Title 38, Code of Federal Regulations, Section 

17.273, which set the $300 limit. The HAC did not conduct an adequate 

cost analysis or consider a HAC Policy and Compliance Division 

supervisor’s concern that durable medical equipment was a high-risk area 

susceptible to fraudulent claims. Before making the change, a HAC 

manager asked a VA OGC attorney for an informal opinion as to whether 

the HAC could make the change to the Code of Federal Regulations and the 

CHAMPVA policy manual concurrently. The OGC attorney agreed with 

the HAC that the policy would not be challenged by the public, but advised 

that legally, the HAC needed to publish the proposed change in the Federal 

Register. Although the OGC attorney expressed this informal opinion, the 

HAC changed the policy without first publishing it in the Federal Register

for public comment. As of May 22, 2007, the HAC had not submitted the 

proposed policy change to the Office of Regulation Policy and 

Management for publication in the Federal Register. OGC staff 

acknowledged that the CHAMPVA policy change will continue to conflict 

with the Code of Federal Regulations until the policy change is submitted 

through the APA process. 

The CBO did not review these significant CHAMPVA policies to ensure that the 

program policies complied with laws and regulations or that the policies were supported 

VA Office of Inspector General 4
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

by adequate analyses. Stronger VHA oversight is needed to ensure that the cost impact 

of policy changes is fully considered and to reduce the risk of legal challenges resulting 

from not complying with the APA or existing Federal laws. 

VHA Did Not Effectively Oversee the HAC’s Internal Control Program. The CBO 

did not have adequate procedures in place to ensure that the HAC had an effective 

internal control program. According to the Government Accountability Office, internal 

controls are the first line of defense for safeguarding assets and preventing and detecting 

errors and fraud. VHA Directive 2001-076 requires that each reporting organization 

annually certify and document its internal control activities.3

 At a minimum, the 

organization’s management control documentation must provide a sufficient paper trail 

showing the type and scope of the review, responsible officials, pertinent dates and facts, 

key findings, and corrective actions taken. These requirements provide assurance that 

organizations have systems of internal controls in place, regularly evaluate the systems, 

and make appropriate improvements. 

In FYs 2004 and 2005, the HAC did not submit the required internal control 

certifications, and they did not have sufficient documentation to show that they 

completed adequate evaluations of their internal control program. In FYs 2003 and 2006, 

the Director certified the HAC had an effective internal control program; however, HAC 

management could not provide sufficient documentation to show that they conducted 

adequate evaluations. For example, the HAC used a spreadsheet to evaluate the controls, 

but did not have an associated paper trail, and reviewers did not consistently identify how 

and what areas they reviewed. As a result, VHA did not have assurance that the HAC 

effectively used VA resources and that CHAMPVA policies complied with Federal laws 

and regulations. If the HAC had conducted effective internal control reviews, they may 

have identified the types of issues we found during this audit, such as the need to 

strengthen controls over policy development, claim payments, and accounts receivable. 

Conclusion 

VHA needed to improve its oversight of HAC management of CHAMPVA. In our 

discussions with the Acting Chief Business Officer, he acknowledged that VHA 

oversight of the HAC, and CHAMPVA in particular, could be improved. The CBO did 

not effectively monitor HAC policy development and controls. Without this oversight, 

VHA does not have assurance that HAC controls are effective in managing VA resources 

and that CHAMPVA policies comply with Federal laws and regulations and are 

adequately supported or appropriate. 

 

3

 The VHA Directive provides policies and procedures for fulfilling the requirements of the Office of Management 

and Budget’s (OMB’s) revised Circular A-123, “Management Accountability and Control,” dated June 21, 1995, 

and the internal control requirements of OMB Circular A-127, “Financial Management Systems,” dated 

July 23, 1993.

VA Office of Inspector General 5
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Recommendations 

1. We recommended that the Under Secretary for Health develop oversight mechanisms 

to ensure that future CHAMPVA policy decisions have appropriate risk and cost 

analyses and comply with Federal laws. 

2. We recommended that the Under Secretary for Health consult with the OGC to 

determine whether further action is required regarding claim filing deadlines and the 

preauthorization limit for durable medical equipment. 

3. We recommended that the Under Secretary for Health develop oversight mechanisms 

to ensure the HAC conducts effective internal control reviews. 

The Under Secretary for Health agreed with our finding and recommendations and 

planned to complete all corrective actions by July 2008. The Under Secretary agreed that 

increasing CBO oversight would be beneficial to CHAMPVA and noted that a recently 

added position, the Deputy Chief Business Officer for Purchased Care, will have direct 

supervision over the HAC. Additionally, the HAC will fill a new data manager position 

to provide additional support in the development of comprehensive cost analyses. The 

Under Secretary reported that HAC policy analysts have received training on cost 

analysis development, and four analysts will complete regulation training. He also 

reported that VHA met with the OGC, and the OGC recommended issuing Federal 

Register notices to inform the public of policy changes concerning durable medical 

equipment and timely filing. The Under Secretary’s planned actions also included 

developing and implementing a compliance program that ensures the HAC conducts 

effective internal control reviews. The VHA Chief Officer for Compliance and Business 

Integrity will supervise the HAC’s compliance officer to assure organizational 

independence. We consider these planned actions acceptable, and we will follow up on 

their implementation.

Issue 2: Claim Payment Controls Needed Improvement 

Finding

HAC management needed to improve controls over CHAMPVA claim payments to 

reduce the risk of improper payments and ensure that HAC staff identify payments 

requiring recovery. OMB defines improper payments as payments made in the wrong 

amounts or that should not have been made, including duplicate payments, payments for 

services not received, payments made to ineligible recipients or for ineligible services, 

and payments without sufficient documentation. Generally, VA should take actions to 

recover or refund the payments when it identifies improper overpayments and 

underpayments. In cases of financial hardship or other extenuating circumstances, VA 

has policies and procedures to waive debts. 

VA Office of Inspector General 6
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Of the 216 claim payments we reviewed, 22 (10 percent) were improper and 6 (3 percent) 

required recovery due to the HAC receiving additional information about claims after 

they were paid. Based on these results, we estimate that during the review period the 

HAC authorized $12.2 million in overpayments and $192,000 in underpayments, for net 

overpayments of $12.0 million. Additionally, we estimate that the HAC did not identify 

$5.1 million in claim payments that needed to be recovered. 

The HAC made these improper payments and failed to identify payments requiring 

recovery for three reasons: 

• The HAC’s claim processing staff did not consistently follow desk procedures for 

determining and verifying eligibility, processing claims, and identifying payments 

requiring recovery. We could not determine conclusively why claims processing staff 

did not consistently follow these procedures. However, contributing factors included 

staff not understanding medical claim forms or how other insurance coverage affected 

CHAMPVA eligibility. Also, staff did not select the appropriate types of medical 

services or set up the vendor file correctly. Although staff received focused claim 

processing training, additional refresher training and increased management 

supervision in these areas may increase compliance with established desk procedures. 

• The HAC’s Claims Processing and Eligibility software contained programming errors 

that miscalculated the beneficiaries’ portions of the cost of care. 

• The HAC’s internal audits were not sufficient to identify claim payment errors. 

During the HAC’s quarterly internal audits, the auditors only reviewed the accuracy 

of data entry in the claim processing system and whether payments were correct, 

based on the information contained in the claims. However, they did not review 

eligibility documentation, claim histories, and recovery actions, which may have 

helped them identify the systemic issues addressed above. 

HAC Staff Made Eligibility, Claim Processing, and Software Programming Errors 

that Resulted in Improper Payments. For the 216 payments in our sample, we 

identified 24 eligibility and claim processing errors, resulting in 22 improper payments 

(16 overpayments totaling $1.8 million and 6 underpayments totaling $6,920). Of the 22 

improper payments, the HAC authorized 21 (95 percent) for CHAMPVA providers and 1 

for a CHAMPVA beneficiary. 

Eligibility Errors. Four (17 percent) of the 24 errors occurred because claim processing 

staff did not verify or document CHAMPVA eligibility. 

• For two claim payments, staff did not appropriately follow up on a beneficiary 

reported as Medicare eligible. The beneficiary was ineligible for CHAMPVA care 

because the beneficiary was Medicare eligible but did not enroll in Medicare Part B. 

VA Office of Inspector General 7
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Public Law 107-14 requires most CHAMPVA beneficiaries who are Medicare 

eligible to be enrolled in the supplementary medical program, Medicare Part B. 

• For one claim payment, staff authorized a payment for a beneficiary who was 

ineligible for CHAMPVA care because the beneficiary’s sponsor was not 

permanently and totally disabled from a service-connected condition. HAC staff did 

not follow HAC desk procedures to verify information provided by Veterans Benefits 

Administration (VBA) staff and did not detect that VBA staff incorrectly identified 

the sponsor as permanently and totally disabled from a service-connected condition.

• For one claim payment, staff authorized a payment for a beneficiary who was 

ineligible for CHAMPVA care because the beneficiary and sponsor were divorced. 

Processing Errors. Fourteen (58 percent) of the 24 errors occurred because claim 

processing staff did not ensure that data entry and vendor selections were correct, that 

medical documentation accompanied claims when required, and that all evidence was 

considered before releasing a claim for payment. 

• For six claim payments, staff made data entry errors, such as not entering all services 

on a claim or not entering other health insurance information. 

• For four claim payments, staff selected the wrong type of medical services or 

established the vendor file with an incorrect ZIP Code, resulting in payments in the 

wrong amounts. 

• For two claim payments, staff did not obtain skilled nursing and physical therapy 

documentation required by CHAMPVA policy. 

• For two claim payments, staff released the claims for payment even though they had 

evidence that the beneficiary was incarcerated. CHAMPVA Policy 1-2.3 states that 

incarcerated beneficiaries are not eligible for CHAMPVA care. The HAC could not 

determine whether the payments were proper because it did not obtain documentation 

of the beneficiary’s incarceration status until almost 1 year after claim processing staff 

authorized the payments. 

Software Programming Errors. Six (25 percent) of the 24 errors occurred because HAC 

information technology staff did not program Claims Processing and Eligibility software 

to correctly calculate the beneficiaries’ portions of the cost of care and correctly apply it 

to their annual catastrophic caps of $3,000. If beneficiaries are not aware that their 

portions of the cost of care are incorrect, they may pay more out-of-pocket costs than 

necessary. Two beneficiaries notified the HAC’s customer service center that their 

portions of the cost of care were incorrect, and a HAC staff member noticed that the 

portion of the cost of care was incorrect for another beneficiary. HAC staff adjusted the 

three beneficiaries’ portions of the cost of care and appropriately applied the correct 

VA Office of Inspector General 8
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

amounts to their catastrophic caps; however, HAC staff did not correct the programming 

errors that led to the miscalculations. 

HAC Staff Did Not Identify Overpayments Requiring Recovery. HAC claim 

processing staff did not consistently identify overpayments that required recovery after 

receiving additional information about paid claims. Of the 216 claim payments in our 

sample, the HAC did not identify 6 payments to CHAMPVA providers totaling $339,494 

that should have been recovered because the HAC received information that the 

beneficiaries had other health insurance or that a third party was responsible for the 

payments. In these situations, CHAMPVA was not the primary payer for medical 

services. 

• The staff did not identify and recover five claim payments where CHAMPVA paid as 

first payer but should have been second payer because the beneficiary had other 

health insurance. 

• The staff did not identify and recover a claim payment where the beneficiary was 

involved in a motor vehicle accident and an automobile insurance company was liable 

as first payer. 

Conclusion 

The HAC did not implement sufficient claim payment controls to ensure payments were 

accurate and supported. As a result, the HAC authorized claim payments for ineligible 

beneficiaries and for the wrong amounts and did not have documentation to support 

payments. Furthermore, the HAC did not consistently identify CHAMPVA 

overpayments that required recovery. 

Recommendations 

4. We recommended that the Under Secretary for Health provide refresher training and 

increased management supervision to ensure HAC staff follow procedures for 

determining and verifying eligibility, processing claims, and identifying 

overpayments. 

5. We recommended that the Under Secretary for Health require the HAC to correct the 

programming errors in the Claims Processing and Eligibility software. 

6. We recommended that the Under Secretary for Health expand the HAC’s internal 

audits to incorporate reviews of eligibility documentation, claim histories, and 

recovery actions. 

The Under Secretary for Health agreed with our finding and recommendations and 

planned to take corrective actions by December 2007. His implementation plan included 

VA Office of Inspector General 9
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

increasing refresher training to ensure that HAC staff correctly determine and verify 

eligibility, process claims, and identify overpayments; reviewing and updating desk 

procedures; and increasing internal monitoring programs. In addition, to improve 

eligibility verification controls, the HAC has negotiated a matching agreement with 

VBA. The Under Secretary also agreed to correct the programming errors in the Claims 

Processing and Eligibility software and to expand the HAC’s internal audits to 

incorporate reviews of eligibility documentation, claim histories, and recovery actions. 

We consider these planned actions acceptable, and we will follow up on their 

implementation. 

Issue 3: Accounts Receivable Controls Needed 

Strengthening 

Finding 

HAC management needed to strengthen controls over accounts receivable to establish 

accounts receivable more timely, provide supervisory reviews of write-offs, and better 

monitor accounts receivable. Without these fundamental accounting controls, the HAC 

was not timely in collecting funds that could have been used more efficiently and allowed 

$114,276 in accounts receivable to be written off inappropriately. VA Directive 4800 

requires that staff take prompt and aggressive action and implement effective follow-up 

procedures for the collection of debts owed to VA. However, as previously discussed, in 

cases of hardship, beneficiaries may request VA to waive a debt. The accounts 

receivable problems occurred because the HAC’s Chief Financial Officer did not provide 

sufficient operational oversight, implement VA fiscal policies, or provide adequate staff 

training. The Chief Financial Officer position had a high rate of turnover between 

FY 2000 and FY 2005, with five Chief Financial Officers during that period. The current 

Chief Financial Officer stated that when he started in June 2005, his focus was on the 

budget process and the reorganization of the Financial Management Division (FMD). 

HAC Staff Did Not Establish Accounts Receivable Timely. FMD staff took an 

average of 154 days to establish accounts receivable and issue bills of collection for the 

reviewed 152 accounts receivable (value = $56,788) established during the 1-year period 

July 2005–June 2006. This occurred because the HAC had not established performance 

measures for issuing a bill. Although VA Directive 4800 requires prompt and aggressive 

action, it does not specify how many days it should take to issue a bill. However, the 

CBO has a 60-day performance measure for issuing a Medical Care Collections Fund bill 

of collection, and TRICARE has a 30-day performance measure for issuing a bill. Based 

on these performance measures, FMD’s average number of days to issue a bill was not 

prompt and aggressive. 

HAC Supervisors Did Not Review Write-Offs of Accounts Receivable. FMD 

supervisors allowed staff responsible for accounts receivable maintenance to write off 

VA Office of Inspector General 10
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

receivables without supervisory review, although VA Manual MP-4 prohibits this 

practice. Without supervisory review, FMD staff wrote off all 22 write-offs we 

reviewed.4

 We determined that 15 (68 percent) of the 22 were recoverable. During our 

interviews with the Chief Financial Officer, he stated that the HAC had not implemented 

or provided training on VA fiscal policies and had not provided adequate supervisory 

oversight. The 15 write-offs prevented the HAC from collecting $114,276 in 

overpayments to providers. 

HAC Staff Did Not Monitor Accounts Receivable. Thirty-two (21 percent) of the 

152 accounts receivable we reviewed had 1 or more problems related to inadequate 

monitoring. The HAC needed to strengthen monitoring in four areas: (1) ensuring the 

amounts billed were correct, (2) sending follow-up letters, (3) adjusting accounts 

receivable timely when payments were received, and (4) following up on established 

repayment plans. VA Manual MP-4 requires that accounts receivable transactions be 

accurate, and VA Handbook 4800.1 requires that follow-up letters be sent at 30-day 

intervals and that financial organizations follow up on delinquent payments under debt 

repayment plans. 

Conclusion 

The HAC did not establish accounts receivable timely, provide supervisory reviews of 

write-offs, or adequately monitor accounts receivable. These problems occurred because 

the HAC’s Chief Financial Officer did not provide sufficient operational oversight, 

implement VA fiscal policies, provide adequate training to staff, or establish performance 

measures. 

Recommendations 

7. We recommended that the Under Secretary for Health provide training for HAC staff 

on VA financial accounting policies and procedures. 

8. We recommended that the Under Secretary for Health establish and monitor 

performance measures for the timely collection of CHAMPVA overpayments. 

While the Under Secretary for Health agreed with our findings and recommendations, he 

disagreed with the reasons we cited. However, he did not explain the basis for his 

disagreement or provide alternative causes. As a result, we made no changes to the 

causes and findings, as they were supported by our audit work. 

In response to our recommendations, the Under Secretary reported that before 

December 2007, the HAC Training Division will provide training for HAC staff on VA 

 

4

 Fifteen write-offs were for CHAMPVA providers, and seven write-offs were for CHAMPVA beneficiaries. 

VA Office of Inspector General 11
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

financial accounting policies and procedures. He also reported that the HAC has 

established a performance goal of 31.5 days to bill first- or third-party debt cases and is 

monitoring billing and collection activities on a daily basis. He noted that since 

December 2006, the HAC has reduced the number of bills entered but not issued from 

6,168 to 18 as of the week ending July 27, 2007. We consider these planned actions 

acceptable, and we will follow up on their implementation.

VA Office of Inspector General 12
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Appendix A 

Sampling Methodology and Estimates 

Universe of Claim Payments 

For the purpose of sample selection, the audit universe consisted of CHAMPVA claim 

payments greater than $100 made during the 1-year period July 2005–June 2006. VA’s 

FMS listed 651,991 of these payments. 

Sample Design 

We used statistical stratified sampling techniques to randomly select a sample of 

216 claim payments. We assigned each sample claim payment to one of four strata based 

upon the value of the payment. We determined the sample size using a confidence level 

of 95 percent, a desired precision rate of 10 percent, and an expected error rate of 

15 percent. We used attribute sampling techniques to evaluate the effectiveness of the 

HAC’s controls over payments. In reviewing the sample claim payments, we tested for 

three attributes: 

• Whether the beneficiary was eligible for CHAMPVA. 

• Whether the payment amount was correct. 

• Whether the payment needed to be recovered. 

Sample Results and Estimation 

We identified overpayments, underpayments, and unidentified payments requiring 

recovery in each of four strata. Using SRO-Stats (version 3.0), a statistical software 

package developed by the Government Accountability Office and designed to assist the 

user in selecting random samples and evaluating audit results, we calculated point 

estimates for the number of overpayments, underpayments, and unidentified payments 

requiring recovery in the universe. To estimate the monetary impact, we multiplied the 

average value of the errors in each stratum by its point estimate. 

For 22 of the 216 claim payments, controls did not effectively prevent improper 

payments. Additionally, for 6 of the 216 claim payments, controls did not identify 

payments requiring recovery. The following tables show estimates of sample results to 

the 651,991 claim payments. 

VA Office of Inspector General 13 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Monetary Estimates Based on Results from 

216 CHAMPVA Claim Payments Selected from FMS 

Table 1. Overpayment Estimates 

Stratum Value of Claims 

Universe 

Size 

Sample 

Size 

No. 

with 

Error 

Point Estimate 

(Payments in 

Error) 

Average 

Value of 

Error 

Estimated Value 

of Errors 

(Point Estimate x 

Average Value) 

1 $100.01–$1000.00 608,350 54 2 22,531 $200 $4,506,200

2 $1000.01–$10,000.00 40,799 54 3 2,267 $546 $1,237,782

3 $10,000.01–$80,000.00 2,735 54 4 203 $14,896 $3,023,888

4 $80,000.01+ 107 54 7 14 $242,950 $3,401,300

Total 651,991 216 16 $12,169,170

Precision +/- 4.9% 

Table 2. Underpayment Estimates 

Stratum Value of Claims 

Universe 

Size 

Sample 

Size 

No. 

with 

Error 

Point Estimate 

(Payments in 

Error) 

Average 

Value of 

Error 

Estimated Value 

of Errors 

(Point Estimate x 

Average Value) 

1 $100.01–$1000.00 608,350 54 0 0 $0 $0

2 $1000.01–$10,000.00 40,799 54 1 756 ($74) ($55,944)

3 $10,000.01–$80,000.00 2,735 54 2 101 ($1,258) ($127,058)

4 $80,000.01+ 107 54 3 6 ($1,442) ($8,652)

Total 651,991 216 6 ($191,654)

Precision +/- 0.2% 

Table 3. Unidentified Recovery Payment Estimates 

Stratum Value of Claims 

Universe 

Size 

Sample 

Size 

No. 

with 

Error 

Point Estimate 

(Payments in 

Error) 

Average 

Value of 

Error 

Estimated Value 

of Errors 

(Point Estimate x 

Average Value) 

1 $100.01–$1000.00 608,350 54 1 11,266 $244 $2,748,904

2 $1000.01–$10,000.00 40,799 54 1 756 $1,523 $1,151,388

3 $10,000.01–$80,000.00 2,735 54 1 51 $11,640 $593,640

4 $80,000.01+ 107 54 3 6 $108,694 $652,164

Total 651,991 216 6 $5,146,096

Precision +/- 3.5% 

VA Office of Inspector General 14
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Appendix B 

Monetary Benefits in Accordance with 

 IG Act Amendments 

Better Use of 

Recommendations Explanation of Benefits Funds

$12.0 million5 4–6 Strengthen eligibility and claim processing 

controls to reduce the risk of making improper 

payments. 

4–6 Strengthen overpayment identification 

processes to ensure recovery of improper 

payments. 

$5.1 million 

7 Implement VA policies that will prevent 

inappropriate write-offs. 

$114,276 

Total $17.2 million 

 

5

 Value shown is net overpayments ($12.2 million in overpayments – $191,654 in underpayments = $12.0 million 

net overpayments). 

VA Office of Inspector General 15
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs 

Appendix C 

Under Secretary 

for Health Comments

Department of 

Veterans Affairs Memorandum

Date: September 11, 2007 

From: Under Secretary for Health (10) 

Subj: OIG Draft Report: Audit of the Civilian Health and Medical Program of the 

Department of Veterans Affairs (CHAMPVA) 

(Project No. 2006-03541-R8-0222, (WebCIMS 386099) 

To: Assistant Inspector General for Auditing (52) 

1. I have carefully reviewed your draft report, and I concur with the findings and 

recommendations. Technical comments on the draft report have been sent 

under separate cover, for your consideration in preparing the final report. 

2. The Health Administration Center (HAC) has had elements of an internal 

controls program in place for years; however, as your report points out, it has not 

been uniformly applied throughout the organization. I agree that, in order to 

effectively identify and manage controls for all key business processes in the 

Civilian Health and Medical Program of the Department of Veterans Affairs 

(CHAMPVA), mechanisms for oversight need to be improved, and existing 

internal controls within the HAC should be expanded. 

3. I appreciate your acknowledgment that the HAC’s Chief Information Officer 

has already corrected user and programmer access deficiencies identified during 

the audit. Further, corrective actions are already in place or are in the process of 

being implemented for many of the report recommendations. Nonetheless, the 

attached action plan provides detailed corrective actions in response to each 

recommendation. 

4. Thank you for the opportunity to review this report. If additional information is 

required, please contact Margaret M. Seleski, Director, Management Review 

Service (10B5), at 565-7638. 

Attachment 

VA Office of Inspector General 16 
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Under Secretary for Health’s 

Comments to Office of Inspector General’s Report 

 

Recommendations/ Status Completion 

Actions Date 

Recommendation 1. We recommend that the Under Secretary for 

Health develop oversight mechanisms to ensure that future CHAMPVA 

policy decisions have appropriate risk and cost analyses and comply with 

Federal laws. 

Concur 

We agree that mechanisms for oversight can be improved. To that end, 

management from the Health Administration Center (HAC), the Office of 

General Counsel (OGC), and the Chief Business Office (CBO) met on 

May 30, 2007, to discuss process changes for increased oversight of 

substantive policy changes. 

Prior to the IG audit, all substantive policy changes requiring regulatory 

action were forwarded to the CBO for review and comment when the 

regulatory package was complete. It was agreed that increased 

oversight by the CBO at the time HAC initially considered a substantive 

policy change would be beneficial. 

At the time of the IG audit, a HAC Proposed Policy Initiative (PPI) 

process was in place to coordinate internal HAC review and comment 

with the executive leadership team. Modification of the desk procedures 

will include the CBO in this review, and a request for their concurrence 

with the recommendation was completed August 2, 2007. Additionally, 

the PPI format has now been revised to include a discussion of the risks 

along with the prior PPI requirements. The Deputy Chief Business Officer 

for Purchased Care (DCBO-PC), a new position recently added within 

the CBO, will have direct supervision over the HAC. PPIs will be routed 

through the DCBO-PC for review and additional oversight for substantive 

policy changes. 

A training session on cost analysis development was provided to all 

policy analysts on June 19, 2007, and follow-up class on this subject 

occurred 

August 9, 2007. Additionally, a new data manager (statistician) position 

will provide additional support in the development of comprehensive cost 

analyses. It is anticipated that this position will be filled in October 2007. 

Regulation training provided by The Regulatory Group in Washington, 

DC, was completed by two of the HAC Policy Analysts in July 2007, and 

two additional analysts are scheduled for the training in September 2007. 

In process October 31, 2007 

VA Office of Inspector General 17
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Recommendation 2. We recommend that the Under Secretary for 

Health consult with the OGC to determine whether further action is 

required regarding claim filing deadlines and the preauthorization limit for 

durable medical equipment. 

Concur 

A meeting was held on May 30, 2007, with representatives from the 

Health Administration Center (HAC), the Office of General Counsel 

(OGC), and the Chief Business Office (CBO) to discuss the actions 

required to resolve these issues. OGC recommended that a Federal 

Register (FR) Notice be issued in both cases to inform the public of the 

policy changes impacting durable medical equipment (DME) and timely 

filing. 

On July 26, 2007, a Federal Register (FR) Notice was forwarded to the 

CBO regarding the claim filing deadlines and waiver conditions. The FR 

Notice advises the public that from August 30, 2006 to November 20, 

2006, the timely filing requirement for CHAMPVA claims had been 

removed from the policy manual. During this time period (approximately 

90 days), the claims processing system continued to deny claims that did 

not meet the timely filing requirement. However, in this 90-day period, 

when claims that had been denied for timely filing were submitted for 

“reconsideration,” timely filing was waived and the claim was paid without 

first ensuring the required criteria for a waiver was met, as required by 38 

CFR 17.275(b). The policy manual has since been corrected. Desk 

procedures were updated to state requests for timely filing waivers must 

be reviewed and waiver granted only when it is established that the 

criteria described in 38 CFR 17.275(b) has been met. 

The FR Notice for DME was forwarded to CBO on July 26, 2007. The 

notice advises the public that the preauthorization dollar requirement was 

changed from $300 to $2,000. A regulatory package to change the 

preauthorization dollar review was submitted to CBO on May 30, 2007. 

Payment controls within the claims processing system have remained in 

place at all times to continue to require review of DME claims submitted 

with a value of $300 or over to ensure the equipment is medically 

necessary and appropriate. 

Action Pending: Publication of Notices in the Federal Register 

In process July 2008 

Recommendation 3. We recommend that the Under Secretary for 

Health develop oversight mechanisms to ensure the HAC conducts 

effective internal control reviews.

Concur 

OMB Circular A-123 encourages the use of external reviews to assess 

vulnerabilities. The HAC will incorporate the findings of this OIG audit in 

its annual reporting. An annual certification of written assurance signed 

by the HAC Director will be submitted to the VHA CFO with supporting 

VA Office of Inspector General 18
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

documents on or before September 30, 2007, in compliance with OMB 

Circular A-123. 

The HAC hired a Compliance Officer in February 2007 to develop and 

implement a compliance program that ensures accountability, control, 

and promotes continuous improvement. A Compliance Committee has 

been established to provide oversight for compliance issues and the 

internal controls program. The Committee meets monthly and reports to 

the HAC Executive Leadership Team. 

To assure that the HAC’s CBI Officer will have the organizational 

independence to effectively perform the role, CBO will implement the 

external consultant’s recommendation from 2001 and arrange for the 

VHA Chief Officer for Compliance and Business Integrity (CBI), to 

directly supervise the CBI Officer at the HAC. 

The HAC is also conducting a center-wide risk assessment that 

encompasses all work processes within the HAC. Low, medium, and 

high vulnerabilities have been identified for each process and controls 

and recommendations for each risk are being implemented. The 

completed risk assessment is part of our internal control process for FY 

2007. 

In process September 30, 2007

Recommendation 4. We recommend that the Under Secretary for 

Health provide refresher training and increased management supervision 

to ensure HAC staff follow procedures for determining and verifying 

eligibility, processing claims, and identifying overpayments. 

Concur 

We agree with the recommendation to increase refresher training and 

increase process improvement and management oversight in addition to 

the controls already in place. 

Actions taken to address refresher training:

• Eligibility training: Eligibility Technicians completed refresher training 

in June 2007 to reinforce procedures and requirements as well as 

enhance their knowledge of eligibility policy. A monthly sustainment 

training plan has been developed and began August 2007. The 

sustainment training is designed to reinforce proper procedures and 

knowledge of eligibility policy. 

• Claims processing training: Refresher training is provided to all 

voucher examiners on a bi-weekly basis. Additionally, training to all 

staff within the Suspense Units was provided to address identified 

deficiencies. Since December 2006, training has been conducted 

on a variety of topics to include duplicate claims, vendor identification 

and selection, and other health insurance. Since December 2006, 

there have been 15 mandatory refresher training sessions for the 

claims processing staff and bi-weekly training will continue 

indefinitely. 

VA Office of Inspector General 19
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

• Customer service training: Customer Service Representatives 

(CSR) will be provided focused training on claim processing 

procedures, claim calculation methodologies, and claim queue 

management. Once initial training is complete, these topics will be 

added to the schedule for recurring refresher training. This will 

enable the CSRs to accurately identify overpayments while in 

communication with beneficiaries and health care providers. 

Actions taken to address increased management supervision/oversight 

of processes:

• Determining and verifying eligibility. At the time of the IG audit, HAC 

had the following determination and verification processes in place: 

1. Request for veteran and dependant data from the Veterans 

Benefits Administration (VBA) using Form 3884 and/or reviewing 

VBA data bases to obtain veteran and dependant information for 

all new applications; 

2. Annual verification of approximately 130,000 active files; and 

3. Random verification of 150 files on a monthly basis (1800 per 

year) that had not been reviewed in the prior year. 

• To tighten verification controls, HAC negotiated a matching 

agreement with VBA which was signed in July 2007. Through the 

matching agreement, VBA files will be matched to those of 

CHAMPVA on a monthly basis starting in September 2007. 

Discrepancies between the data sources will be flagged for HAC’s 

review and action. 

• Desk procedures. The IG auditors suggested greater focus be given 

within HAC to desk procedures and ensuring compliance with those 

procedures. 

In the Eligibility Section, a quality improvement team has been 

established to focus on the review and updating of eligibility desk 

procedures to ensure they are accurate and procedures are clearly 

and completely explained. The revised desk procedures are, in turn, 

used for the new hire and monthly sustainment training, and consist 

of 13 modules with a total of 46 sections. Since the IG audit, three 

sections of the desk procedures have been updated. Of note is that 

the IG provided guidance on utilizing the VBA database to determine 

whether the veteran’s permanent and total disability is due to a nonservice connected condition. This process has been added to the 

revised desk procedures and the eligibility technicians have also 

received training on this process. 

The Claims Processing Division (CPD) has an aggressive review 

schedule of their desk procedures which contains 12 chapters. 

Since the IG audit, six chapter updates have been completed and 

reviewed in the bi-weekly voucher examiner training. 

• Automated process improvements. The claims processing system 

utilized for CHAMPVA payments is highly automated. However, 

manual processes do continue in several areas leaving the 

VA Office of Inspector General 20
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

processing of claims vulnerable to errors. CPD identified system 

vendor file improvements and duplicate claim processing 

improvements that will improve the quality of claim adjudication. 

System requirements in these areas have been written and given 

critical priority status for completion. Of the five related system 

requirements that have been submitted for programming action, one 

was released to production July 2, 2007, two have been 

programmed and are currently in testing, and the remaining two are 

on schedule for programming and will be completed this calendar 

year. 

• Division internal monitoring programs: An ongoing internal 

monitoring program has been in place for both eligibility and claims 

processing for many years to ensure quality and identify areas for 

refresher training. 

A 3 percent review of eligibility actions completed by each employee 

had been a standard operating procedure prior to the IG audit. 

Changes were made to improve the process effective June 29, 2007, 

by requiring the eligibility supervisors to compile and utilize the 

findings from these internal reviews for refresher training. This 

ensures those areas most vulnerable to error are consistently 

addressed. 

CPD provides a quality review of every voucher examiner’s work. All 

new hires are placed on a 100 percent review of input. When they 

reach a 90 percent accuracy rate, they are placed on a 50 percent 

review of work. The percent of work reviewed continues to drop as 

the accuracy improves. When they reach the accuracy standard for 

their grade level, 2 percent of their work is reviewed. Their error rate 

is closely monitored and if the error rate for a voucher examiner is 

not within standard, the percent of review for that individual will be 

raised and remedial training for that person is provided. 

CPD also routinely monitors and reports on identified areas of 

vulnerability within the claims processing activities. The results are 

provided to the individual employees who were found to have made 

errors; and the results are also a source for identifying focus areas 

for the bi-weekly training. To further strengthen this review, a new 

position was established to focus on the quality monitoring and 

reporting. It is anticipated that this position will be filled by November 

1st and that the employee will complement the existing process by 

identifying the areas for improvement through training, and also 

identifying process improvements to eliminate or lessen areas of 

vulnerability. 

 In process December 31, 2007 

Recommendation 5. We recommend that the Under Secretary for 

Health require the HAC to correct the programming errors in the Claims 

Processing and Eligibility software. 

Concur 

VA Office of Inspector General 21
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Several claims were identified during the IG audit in which the 

catastrophic cap did not correctly calculate. To determine whether all 

problems related to the catastrophic cap have been resolved or whether 

a problem continues to exist, a quarterly report has been established to 

identify claims with potential cost share/catastrophic cap calculation 

errors. Internal auditors from the HAC Business Process Office (BPO) 

will review the report to identify claims containing cost share calculation 

errors. Any errors identified will be referred to the Claims Resolution Unit 

for appropriate corrective action and to the CIO for review of the system 

logic to determine if there is a system problem. This procedure is 

scheduled to be implemented in October 2007. 

Additionally, BPO requested an enhancement to the current VistA 

functionality to enable the Customer Service Representatives (CSRs) 

and other designated HAC users to access a VistA menu option that lists 

and tabulates current and past calendar year beneficiary individual and 

family cost share/catastrophic cap accruals to date. The enhanced 

functionality will enable the CSRs to more easily identify potential cost 

share calculation errors and initiate appropriate corrective action. The 

implementation of this programming enhancement is expected in 

December 2007. 

 In process December 31, 2007 

Recommendation 6. We recommend that the Under Secretary for 

Health expand the HAC’s internal audits to incorporate reviews of 

eligibility documentation, claim histories, and recovery actions. 

Concur 

Periodic internal audits of eligibility and duplicate payments have been 

completed since 1995. In January 2005, a more formalized quarterly 

audit of eligibility and claims processing was established. In FY 2007, a 

quarterly duplicate payment audit was added to the audit schedule. 

In addition, processes are currently being updated to include increased 

review of eligibility documentation, review of claim histories, and 

recovery actions. The HAC Business Process Office is expanding the 

quarterly claims audit scope to include verification of current beneficiary 

eligibility status as it pertains to Medicare coverage and claims payment, 

review of cost share/catastrophic cap calculation accuracy and review of 

beneficiary claims history for episode of care payment accuracy. The 

revised claims audit plan will be completed by September 1, 2007, and 

implemented effective October 1, 2007. 

The quarterly eligibility audit scope is also expanding to more accurately 

measure eligibility determination performance and ensure that periodic 

review of active beneficiary eligibility is being performed in accordance 

with CHAMPVA policy. The size of the audit sample is being increased 

from 87 files to 150 in accordance with generally accepted audit 

practices for a statistically valid sample. The revised eligibility audit plan 

will be completed by September 2007 and implemented effective 

October 2007. 

VA Office of Inspector General 22
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Action pending: Revise the scope of audit plans for implementation in 

FY 2008. 

 In process October 31, 2007 

Recommendation 7. We recommend that the Under Secretary for 

Health provide training for HAC staff on VA financial accounting policies 

and procedures. 

Concur 

We concur with the recommendation contained in this report but not with 

the reasons cited as the cause of the problems associated with accounts 

receivable (AR) management. 

Copies of VA 4800 series handbooks were posted to the HAC financial 

division internal shared drive for staff to access and review as required in 

December 2006. 

Hard copies of VA’s non-healthcare debt guide were provided to all 

personnel assigned to debt management – completed December 2006. 

On December 1, 2006, the HAC CFO implemented write-off procedures 

essentially requiring that all requests for writing off accounts receivable 

must be endorsed by the Debt Management Supervisor and forwarded to 

the CFO for approval, or not, before additional action is taken. 

In conjunction with the HAC Training Division, selected financial 

management staff, to include the new billing supervisor, are developing 

institutionalized training curriculum around improving staff proficiency in 

the areas of debt management (VA 4800-series handbooks) and VISTA 

AR package utilization. We expect the curriculum to be developed by 

December 2007. 

Beginning August 2007, debt management staff will receive formal 

training on the VA 4800-series handbooks during monthly division 

meetings in addition to the training described above. 

Since June 2006, the Lead AR Tech, has provided on-the-job AR vista 

package training to most debt management employees. Examples of 

informal training provided include payment plans, how to hold/stop a bill, 

entering bills, auditing bills, entering comments on a bill, bill 

adjustments, and how to print demand letters. 

In process December 31, 2007 

Recommendation 8. We recommend that the Under Secretary for 

Health establish and monitor performance measures for the timely 

collection of CHAMPVA overpayments. 

Concur 

Untimely Billing

VA Office of Inspector General 23
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

As indicated in the OIG report, the VHA standard is 63 days to bill first or 

third party debt cases. The HAC has adopted the VA’s Best in Class 

standard for this metric of 31.5 days. Chart 1 depicts the number of bills 

entered into VistA AR but not yet issued. Additional personnel and 

management tracking tools have enabled us to make tremendous 

progress in this area. Since December 2006 we have reduced the 

number of bills entered but not issued from 6168 to 18 as of the week 

ending July 27, 2007. 

6168

3352

1775 1586

0 5 0 18

0

1000

2000

3000

4000

5000

6000

7000

DEC JAN FEB MAR APR MAY JUN Current

DEC JAN FEB MAR APR MAY JUN Current

Billing and collection activities are monitored on a daily basis. 

Management tools were established in May 2006 which track the number 

of requests received, entered, approved and audited on a daily basis. A 

check log that accounts for every check received has also been 

established. The check log is used to identify workload and to reconcile 

checks received against deposits to ensure and facilitate complete 

accountability. 

Since the time of the OIG visit, billing staff has been increased by 120 

percent from 5 to 11 FTE, and our recovery staff by 100 percent from 4 

to 8 FTE. As of the end of July 2007, the HAC is issuing bills of 

collection within 2 days of recoupment request and deposits within 2-

working days of receipt. 

On January 16, 2007, the HAC entered into an Agency Participation 

Agreement with the US Department of Treasury to participate in the 

Paper Check Conversion Over the Counter (PCCOTC) Program. 

PCCOTC focuses on collection of monies via check at accounts 

receivable locations. Checks collected are converted into electronic 

funds transfer (EFT) payments and deposited into our Federal Reserve 

Bank (FRB) account. 

To improve the monitoring of AR in October 2006, the HAC implemented 

a stringent separation of duty process. The individual entering the AR 

VA Office of Inspector General 24
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

cannot approve or audit the account. A second individual must approve 

the account and a third individual must audit it. Demand letters are 

computer form letters that are automatically generated at 30, 60 and 90 

days after the initial bill is issued. 

The HAC does not send these letters when the bill is being disputed by 

the vendor or Congressional action is pending or the payment was 

received and has not yet been posted. Those procedures are in 

compliance with VA’s 4800 series Handbooks. 

 In process August 31, 2007 

VA Office of Inspector General 25
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Appendix D 

OIG Contact and Staff Acknowledgments 

OIG Contact Claire McDonald (206) 220-6654 

Acknowledgments Gary Abe 

Sherry Ware 

Maria Foisey 

Amy Mosman 

Tom Phillips 

Theresa Zoun 

VA Office of Inspector General 26
Audit of the Civilian Health and Medical Program of the Department of Veterans Affairs

Appendix E 

Report Distribution

VA Distribution

Office of the Secretary 

Veterans Health Administration 

Veterans Benefits Administration 

National Cemetery Administration 

Assistant Secretaries 

Office of General Counsel 

Non-VA Distribution

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans Affairs, 

and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans Affairs, 

and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

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

http://www.va.gov/oig/publications/reports-list.asp. This report will remain on the OIG Web site 

for at least 2 fiscal years after it is issued. 

VA Office of Inspector General 27