Report No. 06-01623-220 September 28, 2007

VA Office of Inspector General 

Washington, DC 20420 

Department of Veterans Affairs 

Office of Inspector General 

Audit of Veterans Benefits 

Administration Controls to Minimize 

Compensation Benefit Overpayments 
To Report Suspected Wrongdoing in VA Programs and Operations 

Call the OIG Hotline – (800) 488-8244 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Contents 

Page 

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

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

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

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

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

Results and Conclusions ....................................................................................4

Controls Over Compensation Benefit Adjustments Needed Strengthening.................. 4

Appendixes 

A. Overpayments by VA Regional Office .................................................................. 11

B. Sampling Methodology and Estimates................................................................... 12

C. Monetary Benefits in Accordance with IG Act Amendments ............................... 14

D. Under Secretary for Benefits Comments................................................................ 15

E. OIG Contact and Staff Acknowledgments............................................................. 18

F. Report Distribution................................................................................................. 19

VA Office of Inspector General 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Executive Summary 

Introduction 

The VA Office of Inspector General (OIG) audited compensation accounts receivable to 

determine if Veterans Benefits Administration (VBA) controls to minimize avoidable 

overpayments were effective. Overpayments and the resulting collection efforts can 

cause veterans and their dependent family members (beneficiaries) undue financial 

hardships. 

Background

Title 38 Code of Federal Regulations (CFR), Part 3, provides for the payment of 

compensation to veterans for conditions they incurred or aggravated during military 

service. The amount of compensation a beneficiary is entitled to may change for reasons 

such as a change in the status of dependents or the death of a beneficiary. Compensation 

overpayments generally occur when beneficiaries receive payments to which they are not 

entitled because VBA has not updated its records to reflect the beneficiaries’ changes in 

status. It is in the interest of both the beneficiaries and the Government for VBA staff to 

take prompt action to adjust compensation benefits to reduce overpayments and the need 

for collection actions that can present financial hardships for beneficiaries. 

When VBA receives evidence showing a change in a beneficiary’s status, VBA is 

required to notify the beneficiary of any decision to adjust (reduce or terminate) benefits. 

If a beneficiary (first party) is the source of the evidence, VBA staff should take action 

immediately and send a notice to the beneficiary explaining the change. If the source of 

the evidence is from a third party (other than the beneficiary), VBA staff should notify 

the beneficiary of a proposed adverse action that could adjust benefits (predetermination 

notification), and should provide the beneficiary an opportunity to provide additional 

evidence to contest the action. A beneficiary has 60 days to respond to this notification 

and VBA allows an additional 5 days for mail receipt. 

VBA refers beneficiary debts, including debts caused by compensation benefit 

overpayments, to the VA Debt Management Center (DMC). The DMC notifies a 

beneficiary of the debt and the requirement to respond within 30 days with one of four 

actions: (1) dispute the debt, (2) request a waiver, (3) send payment in full, or (4) contact 

the DMC to make reasonable repayment arrangements. This initial demand letter notifies 

a beneficiary that if they do not respond within 30 days, VBA will withhold the 

beneficiary’s monthly benefits. If a beneficiary does not respond, a second demand letter 

notifies the beneficiary that the DMC will refer the delinquent debt to the Treasury Offset 

Program (TOP) for further collection action unless the beneficiary makes an acceptable 

repayment arrangement. When the DMC refers a debt to the TOP, the DMC reports the 

debt to credit bureaus, which could limit a beneficiary’s ability to secure credit. The 

VA Office of Inspector General i 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

DMC will also report delinquent debts to the U.S. Department of Housing and Urban 

Development, which can limit beneficiaries’ ability to obtain other benefits, such as VA 

guaranteed home loans. The DMC can also refer accounts for additional collection 

efforts to private collection agencies. 

From January 2004 through March 2006, beneficiaries were paid $63.7 billion for 

compensation, and VBA established 181,835 compensation accounts receivable totaling 

$481.4 million. We selected a stratified sample from the universe of 181,835 accounts 

receivable using statistical sampling software. The audit sample included 940 accounts 

receivable totaling $56.9 million. It consisted of all 340 accounts receivable over 

$100,000, totaling $47.8 million, and a random stratified statistical sample of 600 

accounts receivable, totaling $9.1 million, selected from the remaining 181,495 accounts 

receivable. 

VBA M21-4, dated October 3, 1996, includes timeliness goals for processing 

notifications depending on the action required. For example, if a VA Regional Office 

(VARO) receives a notice of a dependency change from a beneficiary, the VARO has 25 

days to complete the action from the date of receipt. Although VBA had implemented 

significant process changes since 1996, it had not revised the timeliness goals. For 

example, in 2001 VBA established the Claims Processing Task Force to improve 

timeliness and reduce pending claims. The task force recommended that VAROs make 

organizational structure and processing changes and, in 2005, implemented the current 

Claims Processing Improvement Model. Because timeliness goals had not been revised 

since 1996, we met with senior VBA officials to establish a reasonable timeframe for 

evaluating processing timeliness. VBA officials stated that 30 days was a reasonable 

standard to initiate action for all compensation benefit adjustments if VBA staff were not 

required to develop or issue a predetermination notification. If a predetermination 

notification was required (usually for a third party notification), 95 days was a reasonable 

standard. These 95 days consisted of 30 days for VARO staff to initiate the action, 60 

days for the beneficiary to respond to the predetermination notification, and 5 days for 

mail time. 

Results 

VBA did not have effective controls to ensure that VARO staff took prompt action to 

adjust compensation benefits. Beneficiaries indebted to VA because of compensation 

overpayments can experience financial hardships if the DMC takes collection action. 

Our review of 940 accounts receivable showed, and management agreed, that VARO 

staff did not take prompt action to adjust 209 (22 percent) cases, which resulted in $5.8 

million in avoidable overpayments. For each case, we reviewed claims folders and 

Benefit Delivery Network records to determine when and how VBA became aware of a 

beneficiary’s change in status. We used this information to determine when VBA staff 

should have adjusted an award, and if they did, within either 30 days for first party 

VA Office of Inspector General ii 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

notifications or 95 days for third party notifications. We estimated that VBA and 

beneficiaries could have avoided $50.8 million of the $481.4 million in overpayments 

had VBA staff processed adjustments promptly. 

For the 209 avoidable overpayments, 53 were first party notifications with delays of more 

than 30 days, and 156 were third party notifications with delays of more than 95 days. 

The 53 first party notification delays averaged 29 months and the 156 third party 

notification delays averaged 32 months. Many of these delays occurred before VARO 

staff placed the required actions under control. Placing information under control is 

VBA’s mechanism to manage and account for workload by assigning an end product 

code (EPC) to information received at a VARO. For example, when a beneficiary 

submits a divorce decree to the VARO, the VARO mailroom will date stamp the 

document and forward it to the VARO staff responsible for processing the adjustment. 

The action is not placed under control until the VARO staff assigns it an EPC. The 

VARO risks losing accountability and visibility over the required action until staff place 

the document under control. 

Procedures did not ensure that VARO staff processed compensation adjustments 

promptly. We identified avoidable overpayments at 46 of the 57 VAROs. For the 46 

VAROs, 38 Veterans Service Center Managers (VSCM) attributed the cause to VBA’s 

emphasis on processing pending disability rating claims, which have increased 19 percent 

from approximately 320,000 in fiscal year (FY) 2004 to 380,000 in FY 2006. As a result, 

VARO VSCMs gave a lower priority to other workload, including compensation benefit 

adjustments. 

VSCMs at 11 VAROs attributed the cause to limited staffing resources. We 

acknowledge that staffing limitations contributed to the processing delays, and if VARO 

managers use additional staff to process adjustments, timeliness should improve. The FY 

2008 VBA budget submissions included funding requests for at least 470 additional 

Veterans Service Center full-time equivalent employees. VBA expects that additional 

staff resources will assist in improving timeliness of adjustment cases and minimizing the 

potential financial hardship resulting from overpayments and collection actions. 

During the period of our review, VBA did not effectively monitor and report 

compensation benefit adjustment workload. For FY 2007, VARO Director’s 

performance goals were revised to require that 97 percent of adjustments be completed in 

less than 1 year. However, we do not believe this goal adequately addresses the need to 

minimize compensation benefit overpayments because a 1-year delay in processing 

adjustments can result in significant overpayments to beneficiaries. 

Conclusion 

VBA needed to improve timeliness of processing compensation benefit adjustments. 

VBA should improve standards and establish a mechanism to routinely monitor and 

VA Office of Inspector General iii 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

report the timeliness of compensation benefit adjustments. Routinely monitoring and 

reporting the timeliness of adjustments will increase emphasis on compensation benefit 

adjustments and better ensure that VARO staff promptly adjusts compensation benefit 

payments. Improving timeliness of processing compensation benefit adjustments should 

reduce overpayments and the resulting collection efforts that can burden beneficiaries. 

Recommendations 

1. We recommended that the Under Secretary for Benefits establish a 30-day standard 

for initiating action for compensation benefit adjustments and allow 65 additional 

days for a predetermination notification response when required. 

2. We recommended that the Under Secretary for Benefits monitor the timeliness of 

compensation benefit adjustments. 

3. We recommended that the Under Secretary for Benefits implement corrective actions 

to improve the timeliness of compensation benefit adjustments when monitoring 

shows unacceptable compliance with established standards. 

Under Secretary for Benefits Comments 

The Under Secretary for Benefits agreed with the finding and recommendations of the 

report and provided acceptable implementation plans. (See Appendix D, pages 15-17, for 

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

recommendations, the Under Secretary agreed to issue procedural guidance requiring 

VARO staff to initiate action within 30 days of receipt on first and third party 

information that could reduce a beneficiary’s compensation benefits. If a 

predetermination notice is required, a 65-day response time will be the standard. The 

Under Secretary also agreed to reiterate the required controls needed to monitor timely 

completion of compensation benefit adjustments. VBA staff will monitor timeliness and 

VARO directors whose stations are significantly out-of-line in processing the adjustments 

will be contacted. We will follow up on the planned actions in this report until they are 

completed. 

 (original signed by:) 

 BELINDA J. FINN 

 Assistant Inspector General 

 for Auditing 

VA Office of Inspector General iv 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Introduction 

Purpose 

We audited compensation accounts receivable to determine if VBA controls to minimize 

avoidable overpayments were effective. Overpayments can cause beneficiaries undue 

financial hardships created by collection efforts. 

Background

Title 38 CFR, Part 3, provides for the payment of compensation to veterans for conditions 

they incurred or aggravated during military service. The amount of compensation a 

beneficiary is entitled to may change for reasons such as a change in the status of 

dependents or the death of a beneficiary. Compensation overpayments generally occur 

when beneficiaries receive payments to which they are not entitled because VBA has not 

updated its records to reflect beneficiaries’ changes in status. It is in the interest of both 

the beneficiaries and the Government for VBA staff to take prompt action to adjust 

compensation benefits to reduce overpayments and the need for collection actions that 

can present financial hardships for beneficiaries. 

When VBA receives evidence showing a change in a beneficiary’s status, VBA is 

required to notify the beneficiary of any decision to adjust benefits. If a beneficiary (first 

party) was the source of the evidence, VBA staff should take action immediately and 

send notice to the beneficiary explaining the change. If the source of the evidence is 

from a third party (other than the beneficiary), VBA staff should notify the beneficiary of 

a proposed adverse action that could adjust benefits (predetermination notification), and 

should extend the beneficiary an opportunity to provide additional evidence to contest the 

action. A beneficiary has 60 days to respond to this notification, and VBA allows an 

additional 5 days for mail time. 

VBA M21-4, dated October 3, 1996, includes timeliness goals for processing 

notifications depending on the action required. For example, if a VARO receives a notice 

of a dependency change from a beneficiary, the VARO has 25 days to process the action 

from the date of receipt. Although VBA implemented significant process changes since 

1996, VBA has not revised the timeliness goals. For example, in 2001 VBA established 

the Claims Processing Task Force to improve timeliness and reduce pending claims. The 

task force recommended that VAROs make organizational structure and processing 

changes and, in 2005, implemented the current Claims Processing Improvement Model. 

VBA refers beneficiary debts, including debts caused by compensation benefit 

overpayments, to the DMC. The DMC notifies a beneficiary of the debt and the 

requirement to respond within 30 days with one of four actions: (1) dispute the debt, 

(2) request a waiver, (3) send payment in full, or (4) contact the DMC to make reasonable 

VA Office of Inspector General 1 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

repayment arrangements. This initial demand letter notifies a beneficiary that if they do 

not respond within 30 days, VBA will withhold the beneficiary’s monthly benefits. 

If a beneficiary does not adequately respond to an initial demand letter, a second demand 

letter notifies the beneficiary that VBA will refer the debt to the TOP for further 

collection action unless the beneficiary makes an acceptable repayment arrangement. 

The TOP reduces Federal payments such as: 

• Income tax refunds. 

• Federal wages, including military pay. 

• Retirement pay, including military and civil service retirement pay. 

To maximize collection of delinquent debts owed the Government, the Debt Collection 

Improvement Act of 1996 requires quick and aggressive actions to enforce recovery of 

debts and adequate monitoring of the accounts. To reduce losses, agencies are required 

to share information among Federal agencies. When the DMC refers a debt to the TOP, 

the DMC reports the debt to credit bureaus, which could limit a beneficiary’s ability to 

secure credit. The DMC will also report delinquent debts to the U.S. Department of 

Housing and Urban Development, which can limit beneficiaries’ ability to obtain other 

benefits, such as VA guaranteed home loans. The DMC can also refer accounts for 

additional collection efforts to private collection agencies. 

Scope and Methodology

The audit included reviews of applicable laws, regulations, policies, procedures, 

guidelines, and interviews of employees at VBA Central Office, VBA Area Offices, the 

DMC, and eight VAROs. The audit also included reviews of Benefits Delivery Network 

records and a national statistical sample of accounts receivable. We obtained written 

agreement from VARO management for each case identified with an avoidable 

overpayment. We interviewed DMC officials to determine the impact that collection 

procedures had on beneficiaries’ accounts receivable. 

From January 2004 through March 2006, beneficiaries received compensation payments 

totaling $63.7 billion and VBA established 181,835 compensation accounts receivable 

totaling $481.4 million. We selected a stratified sample from the universe of 181,835 

accounts receivable using statistical sampling software. The audit sample included 940 

accounts receivable totaling $56.9 million. It consisted of all 340 accounts receivable 

over $100,000, totaling $47.8 million, and a random stratified statistical sample of 600 

accounts receivable, totaling $9.1 million, selected from the remaining 181,495 accounts 

receivable. (See Appendix B for the details of our stratified sample.) 

Because timeliness goals had not been revised since 1996, we met with senior VBA 

officials to establish a reasonable timeframe for evaluating benefit adjustment processing 

timeliness. VBA officials stated that 30 days was a reasonable standard to initiate action 

VA Office of Inspector General 2 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

for all compensation benefit adjustments if VBA staff were not required to develop or 

issue a predetermination notification. If a predetermination notification was required 

(usually for a third party notification), 95 days was a reasonable standard. These 95 days 

consisted of 30 days for VARO staff to initiate the action, 60 days for the beneficiary to 

respond to the predetermination notification, and 5 days for mail time. 

We compared DMC computer-generated data identifying a beneficiary, claim number, 

accounts receivable amount, and date created to information in VBA claims folders and 

Benefits Delivery Network records. We determined the computer-generated data was 

sufficiently reliable for the audit objective. 

The audit focused only on the internal controls related to the audit objective of 

determining if VBA controls minimized the financial hardship on beneficiaries caused by 

avoidable compensation benefit overpayments. Our assessment was not intended to form 

an opinion on the adequacy of VBA’s internal controls overall. Therefore, we do not 

render such an opinion. The audit was conducted in accordance with generally accepted 

government auditing standards. 

VA Office of Inspector General 3 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Results and Conclusions 

Controls Over Compensation Benefit Adjustments Needed 

Strengthening 

Findings 

VBA staff did not take prompt action on compensation benefit adjustments resulting in 

overpayments. These overpayments can increase financial hardships on beneficiaries 

when the DMC initiates collection actions. VBA management needed to strengthen 

controls by establishing requirements to routinely report and monitor the timeliness of 

compensation benefit adjustments. We estimated VBA could have minimized 

beneficiaries’ financial hardships and avoided $50.8 million of the $481.4 million in 

overpayments had VBA staff processed adjustments promptly. 

Compensation Benefit Adjustments Need To Be Timely. Our review of 940 sample 

cases showed, and VARO management agreed, that staff did not take prompt actions to 

adjust 209 (22 percent) of the cases, which resulted in $5.8 million in avoidable 

overpayments. Table 1 shows that for the 209 avoidable overpayments, 53 were first 

party notifications with delays of more than 30 days, and 156 were third party 

notifications with delays of more than 95 days. The 53 first party notification delays 

averaged 29 months and the 156 third party notification delays averaged 32 months. 

Many of these delays occurred before VARO staff placed the required actions under 

control. Placing information under control is VBA’s mechanism to manage and account 

for workload by assigning an EPC to information received at the VARO. For example, 

when a beneficiary submits a divorce decree to the VARO, the VARO mailroom will 

date stamp the document and forward it to the VARO staff responsible for processing the 

adjustment. The action is not placed under control until the VARO staff assigns an EPC 

to the action. The VARO risks losing accountability and visibility over the required 

action until staff place the document under control. 

Table 1. Average Months From VA Notification to Authorization 

Average Months 

Type of 

Notification 

Total Cases 

with 

Overpayments

From 

Notification to 

EPC Control

From EPC 

Control to 

Authorization

Total: From 

Notification to 

Authorization

1st Party 53 26 3 29 

3rd Party 156 28 4 32 

For each case, we reviewed claims folders and Benefit Delivery Network records to 

determine when and how VARO staff became aware of a beneficiary’s change in status. 

(See Appendix A for the details of our sample results.) We used this information to 

VA Office of Inspector General 4 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

determine when VBA staff should have adjusted the award and whether processing 

delays occurred. The primary categories and amounts reviewed were death of 

beneficiary, change of dependent’s status, beneficiary incarcerated for felony, beneficiary 

was a fugitive felon, beneficiary hospitalized at VA expense, and other lesser used 

categories. 

Chart 1. Cases with Processing Delays 

$1,332,219

$1,690,837

$435,256 $193,494

$1,020,606

$1,131,324

Death (25 cases)

Dependent Status (81 cases)

Fugitive Felon (31 cases)

Hospitalization (12 cases)

Incarceration for Felony (39 cases)

Other (21 cases)

Chart 1 categorizes the 5 primary changes in beneficiaries’ status for 188 (90 percent) of 

the 209 cases that led to $4.7 million in avoidable overpayments. The remaining 21 cases 

with processing delays and $1.1 million in avoidable overpayments were attributed to 

less common changes in the beneficiary’s status. Some of the more significant examples 

for each of the categories are included below. 

Death of Beneficiary. Title 38 CFR, Part 3.500, requires that the effective date to 

discontinue compensation be the last day of the month before a beneficiary’s death. Our 

sample included 308 cases with accounts receivable totaling $8.4 million related to 

beneficiaries who had died. Of these 308 cases, 25 (8 percent) with avoidable 

overpayments totaling $1.7 million resulted from processing delays ranging between 42 

days and 15 years and averaging 6 years. In 14 of the 25 cases, VARO staff delayed 

processing adjustments for over 5 years. For example, a beneficiary died on 

May 15, 1989, and VARO staff received a record of interment from the VA National 

Cemetery on June 1, 1989. However, VBA staff did not terminate benefits until 

December 20, 2004. The VARO’s VSCM agreed that VBA could have avoided 

$147,258 (98 percent) of a $150,108 overpayment if staff had promptly acted when the 

VA Office of Inspector General 5 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

VARO staff received the information in 1989. In April 2006, a Federal court found the 

son of the beneficiary guilty of theft of Government funds. 

Changes in Dependent Status. VA criteria require reduction of benefits for the loss of a 

dependent due to marriage, annulment, divorce, or death. Our sample included 315 cases 

with accounts receivable totaling $23.5 million related to beneficiaries who had a change 

in the status of dependents. Of these 315 cases, 81 (26 percent) with avoidable 

overpayments totaling $1.3 million resulted from processing delays ranging between 60 

days and 10 years and averaging 2 years. In 32 of the 81 cases, VARO staff delayed 

processing the adjustments for over 1 year. For example, a widow receiving dependency 

and indemnity compensation remarried in 1986 and notified VBA of the marriage on 

April 7, 1995, and again on March 7, 2003. However, VARO staff did not terminate 

benefits until January 7, 2004. The VARO’s VSCM agreed that VBA could have 

avoided $104,886 (58 percent) of a $179,966 overpayment had VARO staff taken prompt 

action when notified of the remarriage in 1995. 

Beneficiary Incarcerated for Felony. VA criteria require reduction of benefits for a 

beneficiary who has been incarcerated for more than 60 days following conviction for a 

felony. Our sample included 80 cases with accounts receivable totaling $8.5 million 

related to beneficiaries incarcerated for a felony. Of these 80 cases, 39 (49 percent) with 

avoidable overpayments totaling $1 million resulted from processing delays ranging 

between 110 days and 19 years and averaging 2 1⁄2 years. In 16 of the 39 cases, VARO 

staff delayed processing the adjustments for over 1 year. For example, a beneficiary was 

incarcerated for a felony in 1993. On September 1, 2002, a VA Form 21-0538 (Status of 

Dependents Questionnaire) was received unsigned. VARO staff should have investigated 

to determine why the form was unsigned; however, no further action was initiated until 

July 22, 2005, when another unsigned VA Form 21-0538 was received. VBA did not 

reduce benefits until January 25, 2006. The VARO’s VSCM agreed that VBA could 

have avoided $35,868 (33 percent) of a $107,819 overpayment if VARO staff had taken 

prompt action to follow up after receiving the unsigned questionnaire in 2002. 

Beneficiary was a Fugitive Felon. VA criteria prohibit payment to beneficiaries while 

they are fugitive felons. Our sample included 55 cases with accounts receivable totaling 

$3.3 million related to beneficiaries who were fugitive felons. Of these 55 cases, 31 (56 

percent) with avoidable overpayments totaling $435,256 resulted from processing delays 

ranging between 113 days and 3 1⁄2 years and averaging 1 year. In 18 of the 31 cases, 

VARO staff delayed processing the adjustments for over 6 months. For example, VARO 

staff were notified on March 15, 2004, that a beneficiary was a fugitive felon. VARO 

staff did not initiate action to suspend benefits until November 8, 2005. The VARO’s 

VSCM agreed that VBA could have avoided $45,872 (26 percent) of a $175,669 

overpayment had VARO staff taken timely action in 2004. 

Beneficiary Hospitalized at VA Expense. Title 38 CFR, Part 3.552, requires that 

additional compensation paid for aid and attendance be discontinued when a beneficiary 

VA Office of Inspector General 6 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

is hospitalized at VA expense. Our sample included 28 cases with accounts receivable 

totaling $2.4 million related to beneficiaries who were hospitalized at VA expense. Of 

these 28 cases, 12 (43 percent) with avoidable overpayments totaling $193,494 resulted 

from processing delays ranging between 99 days and 18 1⁄2 years and averaging 4 years. 

In 8 of the 12 cases, VARO staff delayed processing the adjustments for over 1 year. For 

example, a VA Nursing Home Care Unit admitted a beneficiary on March 19, 1985, and 

subsequently transferred the beneficiary to a VA medical center. The claims folder 

contained VA medical center progress reports dated as early as April 28, 1987. However, 

VARO staff did not reduce benefits until November 16, 2005. VARO staff waived the 

overpayment in December 2005 when the beneficiary requested a waiver, and the VARO 

determined that the beneficiary was not at fault. The staff waived the overpayment 

because VARO staff had received several reports stating the beneficiary had transferred 

to a VA medical center as early as May 1986. The earliest progress reports in the claims 

folder were dated April 28, 1987. Therefore, the VARO’s VSCM agreed that VBA could 

have avoided $52,031 (93 percent) of a $55,971 overpayment had VARO staff taken 

timely action in April 1987. 

Other Changes in Beneficiary’s Status. Our sample included 110 cases with accounts 

receivable totaling $8.5 million related to beneficiaries who were on active duty, had 

changes in employment status, had been awarded tort claims, had apportionment 

adjustments, or had school benefit adjustments. Of these 110 cases, 21 (19 percent) with 

avoidable overpayments totaling $1.1 million resulted from processing delays ranging 

between 51 days and almost 12 years and averaging 2 1⁄2 years. In 13 of the 21 cases, 

VARO staff delayed processing adjustments for over 1 year. For example, a beneficiary 

was awarded a tort claim settlement for personal injury resulting from medical treatment 

at a VA medical center in 1992. The beneficiary was also receiving compensation for 

that same disability injury suffered at the medical center. Title 38 CFR, Part 

3.8000(a)(2), requires that when a tort claim is concluded by settlement based on the 

same disability for which entitlement to compensation benefits is established, such 

compensation benefits are to be offset. VA’s General Counsel decided to settle the claim 

to pay the beneficiary and notified VARO staff on March 7, 2000. However, VARO staff 

did not take action until July 27, 2005. The VARO’s VSCM agreed that VBA could have 

avoided $152,829 (96 percent) of a $159,288 overpayment had VARO staff taken action 

when notified of the tort claim in 2000. 

VBA Needs To Emphasize Controls over Compensation Benefit Adjustments. 

Current procedures did not ensure that VARO staff processed compensation adjustments 

promptly. VBA staff should take action immediately when they are notified of a 

beneficiary’s change of status from various sources. For example, a computer match 

with the Social Security Administration identifies VA beneficiaries who may be 

deceased. Upon notification, VBA staff should initiate action to contact the beneficiary’s 

family to verify and obtain the date of death. 

VA Office of Inspector General 7 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

We identified avoidable overpayments at 46 of VA’s 57 VAROs. For the 46 VAROs, 38 

VSCMs attributed the cause to the emphasis on processing pending disability rating 

claims, which had increased 19 percent from approximately 320,000 in FY 2004 to 

380,000 in FY 2006. As a result, VBA gave a lower priority to other workload, including 

compensation benefit adjustments. 

VSCMs at 11 VAROs cited limited staffing resources as the cause for avoidable 

overpayments. We acknowledge that staffing limitations contributed to the processing 

delays, and if VARO managers use additional staff to process adjustments, timeliness 

should improve. The FY 2008 VBA budget submissions included funding requests for at 

least 470 additional Veterans Service Center full-time equivalent employees. VBA 

expects these additional staff to provide resources to improve timeliness of adjustment 

cases and to minimize potential financial hardship resulting from overpayments and 

collection actions. 

During the period of our review, VBA did not effectively monitor and report 

compensation benefit adjustment workload. For FY 2007, VBA revised the VARO 

Directors’ performance goals to require 97 percent of the adjustments be completed in 

less than 1 year. However, we do not believe this goal adequately addresses the need to 

minimize compensation benefit overpayments. A 1-year delay in processing adjustments 

can result in significant overpayments to beneficiaries. 

VBA Needs To Minimize the Financial Hardship on Beneficiaries. We estimated that 

VBA could have avoided $50.8 million in overpayments and reduced financial hardships 

on beneficiaries by implementing better controls over the processing of compensation 

benefit adjustments. When VARO staff do not take prompt action to adjust benefits, the 

amount of debt can accumulate to such a level that repayment within a reasonable time 

becomes difficult for beneficiaries with limited income. The following examples show 

the monetary impact on beneficiaries when VARO staff do not take prompt action to 

process compensation benefit adjustments. 

• On November 18, 2002, a VA medical center admitted a beneficiary for care. The 

beneficiary’s claims folder contained admission reports dated November 27, 2002, 

and January 3, 2003, that were annotated ”No Action Necessary” by VBA staff. The 

VSCM agreed that VARO staff should have initiated action and adjusted 

compensation benefits in January 2003 based on the VA hospitalization, which would 

have eliminated most of the debt. However, VARO staff did not reduce benefits until 

June 23, 2005. The VSCM agreed that, had the staff taken prompt action, VBA could 

have avoided $65,286 (90 percent) of the $72,666 overpayment. As a result, VBA 

reduced the beneficiary’s monthly benefit from $3,531 to $1,972 to repay the debt. 

As of November 2006, the debt balance was $38,958 with the monthly benefit 

payment reduction scheduled to continue until January 2009. 

VA Office of Inspector General 8 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

• On May 30, 2001, VBA awarded benefits to a beneficiary at the 100 percent 

compensation level because he was unemployable. The beneficiary notified VA as 

early as August 2001 that he was employed. However, VBA staff did not reduce 

benefits until June 2005. The VSCM agreed that staff should have taken action to 

discontinue the additional benefits for unemployability in August 2001, which would 

have eliminated $55,353 (85 percent) of a $64,753 overpayment. As a result, VBA 

reduced the beneficiary’s monthly benefit from $1,232 to $632 to repay the debt. As 

of November 2006, the debt balance was $55,206 with the monthly benefit payment 

reduction scheduled to continue until July 2014. 

• On November 20, 1995, a beneficiary was incarcerated for a felony. VBA staff were 

notified in September 2001 that the beneficiary was incarcerated, but VBA staff did 

not adjust benefits until July 2005. The VSCM agreed that staff did not take prompt 

action and could have avoided $81,803 (43 percent) of a $190,229 overpayment. The 

prison released the beneficiary on September 30, 2004. However, due to the 

overpayment, VBA reduced the beneficiary’s $2,393 monthly benefit to $1,293 to 

repay the debt. As of November 2006, the debt balance was $54,002 with the 

monthly benefit payment reduction scheduled to continue until January 2011. 

Monitoring and reporting the timeliness of actions taken will strengthen controls and 

better ensure that VARO staff promptly adjusts compensation benefit payments, thereby 

reducing potential financial hardships on beneficiaries. Based on the sample results, we 

estimated that $50.8 million in compensation overpayments could have been avoided had 

VBA staff processed compensation benefit adjustments promptly. 

Conclusion 

VBA needed to improve timeliness of processing compensation benefit adjustments. 

VBA should improve standards and establish a mechanism to routinely monitor and 

report the timeliness of compensation benefit adjustments. Routinely monitoring and 

reporting the timeliness of adjustments will increase emphasis on compensation benefit 

adjustments and better ensure that VARO staff promptly adjusts compensation benefit 

payments. Improving timeliness of processing compensation benefit adjustments should 

reduce overpayments and the resulting collection efforts that can burden beneficiaries. 

VA Office of Inspector General 9 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Recommendations 

1. We recommended that the Under Secretary for Benefits establish a 30-day standard 

for initiating action for compensation benefit adjustments and allow 65 additional 

days for a predetermination notification response when required. 

The Under Secretary for Benefits agreed and stated that VBA will issue procedural 

guidance requiring staff to initiate action within 30 days of receipt on first and third 

party information that will potentially result in a reduction of compensation benefits. 

When a predetermination notice is required, the standard 65-day response time will 

continue following issuance of the predetermination notice. A Fast Letter addressing 

these procedures will be provided to the VAROs by November 1, 2007, and the VBA 

manual will be updated by December 31, 2007. 

2. We recommended that the Under Secretary for Benefits monitor the timeliness of 

compensation benefit adjustments. 

The Under Secretary for Benefits agreed and stated that the Fast Letter, to be provided 

to the VAROs by November 1, 2007, will clearly outline the controls necessary to 

facilitate monitoring. 

3. We recommended that the Under Secretary for Benefits implement corrective actions 

to improve the timeliness of compensation benefit adjustments when monitoring 

shows unacceptable compliance with established standards. 

The Under Secretary for Benefits agreed and stated that VBA will re-emphasize the 

importance of timely completion of compensation benefit adjustments that result in 

overpayment of benefits on the weekly Associate Deputy Under Secretary for Field 

Operations conference call and the monthly Veteran Service Center Managers 

conference call. The Fast Letter, to be provided to the VAROs by November 1, 2007, 

will also discuss the importance of timely completion of adjustments, and timeliness 

will be added as an area of review under the Internal Controls Systematic Analyses of 

Operations. The VARO directors are responsible for ensuring that programs and 

policies are implemented, assessing through an effective internal controls process, and 

adjusting as necessary to achieve appropriate results. VBA will monitor the end 

product timeliness of corrective actions and contact VARO directors whose stations 

are significantly out-of-line in processing the adjustments. 

VA Office of Inspector General 10 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments

Appendix A 

Overpayments by VA Regional Office 

For each VARO, we identified the number of first and third party cases with avoidable 

overpayments. We identified the percentage of cases in error and the total dollar value of 

the avoidable overpayments at each VARO.

First Party Notification Third Party Notification 

VARO 

No. of 

Cases 

Percentage 

of Cases 

Avoidable 

Overpayment 

for Cases 

No. of 

Cases 

Percentage 

of Cases 

Avoidable 

Overpayment 

for Cases 

Albuquerque, NM 1 33% $4,700 1 25% $10,665 

Anchorage, AK 0 0% 0 3 75% 1,709 

Atlanta, GA 3 27% 34,783 4 27% 53,414 

Baltimore, MD 0 0% 0 5 45% 432,489 

Boston, MA 2 29% 9,442 8 38% 267,878 

Cheyenne, WY 0 0% 0 1 100% 24,113 

Chicago, IL 1 9% 3,307 1 17% 18,980 

Cleveland, OH 2 15% 154,250 5 38% 128,661 

Columbia, SC 1 20% 4,074 2 33% 12,995 

Denver, CO 1 33% 4,965 6 60% 161,784 

Des Moines, IA 1 100% 8,121 0 0% 0 

Detroit, MI 0 0% 0 4 33% 132,677 

Hartford, CT 0 0% 0 3 60% 80,449 

Houston, TX 3 30% 27,114 9 33% 176,250 

Huntington, WV 1 25% 18,683 0 0% 0 

Indianapolis, IN 1 14% 2,394 0 0% 0 

Jackson, MS 0 0% 0 1 13% 449,204 

Little Rock, AR 1 20% 1,904 2 40% 144,126 

Los Angeles, CA 3 14% 1,167 2 18% 16,676 

Louisville, KY 0 0% 0 6 67% 249,749 

Milwaukee, WI 1 17% 172 4 25% 14,917 

Montgomery, AL 1 9% 9,472 7 70% 109,668 

Muskogee, OK 3 20% 24,274 7 32% 405,470 

Nashville, TN 1 25% 8,451 3 25% 12,460 

New Orleans, LA 1 8% 99,805 0 0% 0 

New York, NY 2 13% 62,355 3 43% 199,790 

Oakland, CA 2 11% 3,777 7 39% 127,952 

Philadelphia, PA 1 11% 8,365 2 13% 57,647 

Phoenix, AZ 1 9% 11,774 0 0% 0 

Pittsburgh, PA 0 0% 0 1 8% 6,821 

Portland, OR 0 0% 0 2 50% 9,809 

Reno, NV 0 0% 0 1 25% 89,442 

Roanoke, VA 3 33% 175,670 4 33% 29,966 

Salt Lake City, UT 0 0% 0 1 100% 4,372 

San Diego, CA 3 30% 3,490 5 42% 106,922 

San Juan, PR 0 0% 0 1 17% 30,678 

Seattle, WA 2 29% 16,925 4 17% 50,919 

St. Louis, MO 1 10% 8,177 4 40% 70,634 

St. Paul, MN 2 25% 17,224 1 8% 8,956 

St. Petersburg, FL 2 8% 10,896 12 27% 146,787 

Togus, ME 0 0% 0 2 33% 3,915 

Waco, TX 2 8% 159,165 11 30% 404,234 

Washington, DC 2 29% 107,185 4 67% 206,370 

Wichita, KS 0 0% 0 2 25% 25,166 

Wilmington, DE 0 0% 0 1 100% 5,280 

Winston-Salem, NC 2 15% 83,336 4 15% 228,326 

Total 53 13% $1,085,417 156 29% $4,718,320 

VA Office of Inspector General 11 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments

Appendix B 

Sampling Methodology and Estimates 

Universe

The universe consisted of 181,835 compensation accounts receivable totaling $481.4 

million established from January 2004 through March 2006. 

Sampling Design

We used a random sampling design that included five strata based on the accounts 

receivable amount. The following table shows details of our stratified universe of 

181,835 accounts receivable. 

Stratified Universe of Accounts Receivable 

Stratified Dollar 

Range 

Number of Accounts 

Receivable Dollar Amounts 

$0–$1,000 101,172 $ 36,654,887

$1,001–$5,000 64,216 149,773,209

$5,001–$25,000 13,742 132,745,641

$25,001–$99,999 2,365 114,417,149

$100,000–$479,443 340 47,780,734 

Total Universe 181,835 $481,371,620

We reviewed all 340 accounts receivable ranging from $100,000 – $479,443 and reviewed 

a random stratified statistical sample of 150 accounts receivable from each of the 

remaining 4 strata. The following table shows details of our stratified sample. 

Stratified Sample of Accounts Receivable 

Stratified Dollar 

Range 

Number of 

Accounts 

Receivable 

Dollar 

Amounts 

$0–$1,000 150 $ 51,365 

$1,001–$5,000 150 362,051 

$5,001–$25,000 150 1,405,846 

$25,001–$99,999 150 7,314,764 

$100,000–$479,443 340 47,798,222 

Total Sample 940 $56,932,248 

VA Office of Inspector General 12 
Audit of Veterans Benefits Administrations Controls To Minimize Compensation Benefit Overpayments

Estimation Methodology 

We verified the reliability of computer-generated data by comparing the data to 

information found in VBA records and information obtained through employee 

interviews at VAROs. We did not verify that the accounts receivable within the 

population tested comprised the total universe of accounts receivable resulting from the 

untimely processing of compensation benefit adjustments. However, nothing came to our 

attention to indicate that receivables were missing from the universe. 

We based the sample of 940 cases on a stratified variable sampling design at a 95 percent 

confidence level. In our sample, we identified 209 accounts receivable with avoidable 

overpayments totaling $5.8 million. Based on the sample results, we projected avoidable 

overpayments of $50.8 million in the population of 181,835 accounts receivable totaling 

$481.4 million. The precision interval was +/- $11.5 million with a lower limit projection 

of $39.3 million and an upper limit projection of $62.3 million. The following table 

illustrates the estimated avoidable overpayments. 

Estimated Avoidable Overpayments 

Stratified Dollar 

Range 

Sample 

Size 

Sample 

Examined 

Value Errors 

Sample 

Value of 

Errors 

Universe 

Point 

Estimate 

$0–$1,000 150 $ 51,365 5 $ 1,259 $ 849,170

$1,001–$5,000 150 362,051 24 29,557 12,653,549

$5,001–$25,000 150 1,405,846 44 200,965 18,411,028

$25,001–$99,999 150 7,314,764 47 899,511 14,182,283

$100,000–$479,443 340 47,798,222 89 4,672,445 4,672,445

Totals 940 $56,932,248 209 $5,803,737 $50,768,475

VA Office of Inspector General 13 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Appendix C 

Monetary Benefits in Accordance with 

IG Act Amendments 

Recommendations Explanation of Benefits Better Use of Funds

1 – 3 Estimated $50.8 million in 

overpayments were avoidable and 

could have reduced beneficiaries’ 

accounts receivable had VBA 

staff processed compensation 

benefit adjustments promptly. 

$50.8 million 

VA Office of Inspector General 14 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Appendix D 

Under Secretary for Benefits Comments 

Department of 

Veterans Affairs Memorandum

Date: September 10, 2007 

From: Under Secretary for Benefits (20) 

Subject: OIG’s Revised Draft Report: Audit of Veterans 

Benefits Administration Controls to Minimize 

Compensation Benefit Overpayments—WebCIMS 

387639 

To: Inspector General (50)

1. This is in response to your request for VBA’s review of OIG’s 

Revised Draft Report: Audit of Veterans Benefits 

Administration Controls to Minimize Compensation Benefit 

Overpayments. VBA’s comments are attached. 

2. Questions may be referred to Nancy Holly at (202) 461-9199, or 

Dee Fielding at (202) 461-9057. 

(original signed by:) 

Daniel L. Cooper 

Attachment 

VA Office of Inspector General 15 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Under Secretary for Benefits Comments 

to Office of Inspector General’s Report 

The following comments are submitted in response to the 

recommendations in the Office of Inspector General’s report: 

1. We recommended that the Under Secretary for Benefits 

establish a 30-day standard for initiating action for 

compensation benefit adjustments and allow 65 additional 

days for a predetermination notification response when 

required. 

Concur 

Target Completion Date: December 31, 2007 

VBA will issue procedural guidance requiring action to be 

initiated within 30 days of receipt on first and third party 

information that will potentially result in a reduction of 

compensation benefits, including dependency and indemnity 

compensation. When a predetermination notice is required, 

the standard 65-day response time will continue following 

issuance of the predetermination notice. A Fast Letter 

addressing these procedures will be provided to the field by 

November 1, 2007, and the manual will be updated by 

December 31, 2007. 

2. We recommended that the Under Secretary for Benefits 

monitor the timeliness of compensation benefit adjustments. 

Concur 

Target Completion Date: December 31, 2007 

VBA establishes end product controls when initiating action 

on information that potentially results in a reduction of 

compensation benefits. The Fast Letter mentioned above will 

clearly outline the controls, which will facilitate monitoring. 

VA Office of Inspector General 16 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

3. We recommended that the Under Secretary for Benefits 

implement corrective actions to improve the timeliness of 

compensation benefit adjustments when monitoring shows 

unacceptable compliance with established standards. 

Concur 

Target Completion Date: Immediately 

VBA will re-emphasize the importance of timely completion 

of compensation benefit adjustments that result in 

overpayment of benefits on the weekly Associate Deputy 

Under Secretary for Field Operations conference call and the 

Veteran Service Center Managers conference call. The Fast 

Letter will also discuss the importance of timely completion 

of adjustments, and this matter will be added as an area of 

review under the Internal Controls Systematic Analyses of 

Operations. The regional office directors are responsible for 

ensuring that programs and policies are implemented, 

assessed through an effective internal controls process, and 

adjusted as necessary to achieve appropriate results. VBA 

will monitor the end product timeliness of corrective actions 

and contact regional office directors whose stations are 

significantly out-of-line in processing the adjustments that 

result in overpayment of compensation benefits. 

VA Office of Inspector General 17 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments 

Appendix E 

OIG Contact and Staff Acknowledgments 

OIG Contact Larry Reinkemeyer (816) 426-7100 

Acknowledgments Timothy V. Halpin 

Patricia A. Hudon 

Candis L. Jackson 

Lance E. Kramer 

C. Russell Lewis 

Henry J. Mendala 

R. Kenneth Myers 

Carla S. Reid 

Jason D. Schuenemann 

VA Office of Inspector General 18 
Audit of Veterans Benefits Administration Controls To Minimize Compensation Benefit Overpayments

Appendix F 

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 19