VA’s pension program is means-tested and provides a minimum level of economic security for veterans with financial need. It is one of two cash benefits programs administered by VA. The other is disability compensation, which pays benefits to veterans who have disabilities related to their military service—often referred to as “service-connected” disabilities. The pension program, on the other hand, which is the subject of this report, pays benefits to low-income veterans who either are elderly or have disabilities unrelated to their military service. Each program also provides benefits to eligible survivors. A veteran who applies for and meets requirements for both disability compensation and pension benefits will receive benefits through whichever program provides higher benefits. In 2006, VA paid over $34 billion in compensation and pension benefits to about 3.5 million veterans and survivors. Of this amount, $30.9 billion was paid in compensation benefits to 3,014,282 veterans and their survivors. The remaining $3.5 billion was paid in means-tested pension benefits to 535,380 veterans and their survivors. The amount of financial assistance provided by the pension program is relatively modest and intended to raise pensioners’ incomes to a level set out in statute. Pensioners are awarded an amount equal to the difference between their countable income, as determined by VA, and the maximum pension amounts as updated annually by statute. The maximum pension amount varies according to the pensioner’s current income and number of dependents. In 2006, veterans with no income and no dependents could receive as much as $10,579 annually, while survivors with no income and no dependents could receive a maximum of $7,094 per year. Pensioners are required to report any changes in income, dependency, or other relevant circumstances to VA so that benefit levels can be adjusted accordingly. Generally, for each dollar of income received from other sources, the VA pension is reduced by the same amount. To determine a veteran’s initial eligibility for the pension program, VA’s regional office staff employ several criteria, including the veteran’s military status, age or disability, and income. (App. II provides a summary of this process.) Eligibility for pension benefits is restricted to veterans who are at least 65 or have total and permanent disabilities unrelated to their military service. Also, VA considers the income of all family members, including spouses and children, but excludes the income of other individuals residing in the household. Various sources of income are considered when determining income eligibility, including employment, interest and dividends, retirement, annuities, workers’ compensation, Social Security retirement and Disability Insurance benefits. Unreimbursed medical expenses that exceed 5 percent of the maximum pension amount may be deducted from income in determining eligibility. Eligibility for the surviving spouses and children of such veterans is based on similar factors. Once pensioners have been awarded benefits, VA makes ongoing eligibility determinations and adjusts benefit levels as needed. Pensioners are required to inform VA of any changes in their circumstances—such as hospitalization or incarceration, as well as changes in income and assets—that could affect their eligibility or benefit levels. To further assess ongoing eligibility and benefit levels, VA also requires pensioners who have any income other than Social Security to file an annual report with VA. Then, VA evaluates the information in this report to determine if pensioners continue to meet eligibility requirements. In 2006, most VA pensioners had nonpension incomes well below the federal poverty level, were beyond retirement age, and had multiple impairments, and the population had been decreasing in number. In addition to low incomes, the majority of VA pensioners had few assets and limited education. Since 1978, the total pension population has been decreasing, although there have been increases in numbers of pensioners from more recent service periods, including the Vietnam era and the Gulf War. Most pensioners have very low annual incomes outside of their pension benefits. According to our analysis of VA data, veteran pensioners’ average annual nonpension income was $4,573 in 2006. This was well below the 2006 federal poverty level of $9,800 for a single adult. Survivors had a lower average annual nonpension income of $3,046. Both veterans and survivors under 65 had lower average annual nonpension incomes than those 65 and older. Social Security benefits and non-Social Security retirement income accounted for much of the difference, as shown in table 1. When VA pension benefits are included, most veterans had annual incomes above the federal poverty level. This is not true of survivors, who receive smaller pension awards than veterans. Pension benefits in 2006 averaged $8,232 per year for veterans and $4,260 per year for survivors, for an average total income, respectively, of $12,805 and $7,306. In a 2002 VA study, pensioners reported having few assets and low levels of education. Less than half of pensioners reported owning their own homes, with ownership rates for spouses being lower than those for veterans. Even fewer pensioners owned vehicles. About one-third of veterans reported owning a car, and only about one-fifth of spouses reported owning a car. Moreover, pensioners generally reported low levels of education, with those over age 65 reporting less education than those under age 65. More than half of veterans and spouses over age 65 reported not having a high school diploma, compared with 22 percent of veterans under age 65 and 44 percent of spouses under age 65. Over a third of pensioners under age 65 reported having a high school diploma, and less than 7 percent reported completion of a bachelor’s or higher degree. The average age of VA pensioners is approximately 70, with approximately 60 percent over age 65 and less than 20 percent age 55 or younger. Significant numbers are over age 75, as shown in figure 1. The average age is highest for surviving spouses of deceased veterans, who constitute approximately one-third of all pensioners. In 2006, their average age was 72, while that of veterans was 69. About three-quarters of all surviving spouses are over age 65, compared to just over half of all veterans. Less than 2 percent of all pensioners are younger than age 45. Most VA pensioners have no spouse or dependent children, according to information the pensioners provided to VA in 2006. As shown in figure 2, about 82 percent of pensioners receive benefits for themselves alone, and most of the remaining 18 percent are veterans living with dependents. Proportionately few pensioners have dependent children eligible for pension benefits: About 22,000 of the half-million pensioners receive VA payments for support of their children, in most cases for one or two children. Most veteran pensioners have multiple disabling conditions, with approximately 95 percent reporting at least one impairment and nearly 75 percent reporting two or more impairments. As shown in figure 3, excluding those impairments classified as “other,” musculoskeletal conditions were the most common type of impairment among veteran pensioners. For veterans under age 65, the next most common type of impairment was mental, while for veterans age 65 and older it was cardiovascular. Many pensioners require aid and attendance in their activities of daily living, such as dressing and feeding themselves. According to VA, slightly less than one-third of pensioners are housebound or in need of aid and attendance, and most of these pensioners are age 65 and older. While more than 40 percent of pensioners age 65 and over require aid and attendance, less than 15 percent of younger pensioners do. Only a small number of pensioners reside in a nursing home—less than one-half of 1 percent of pensioners under age 65 and 3 percent of pensioners age 65 and over. In a 2002 VA study, about 95 percent of veterans and 87 percent of surviving spouses reported having some form of health insurance. Medicare was a source of coverage for 50 percent of veterans and 69 percent of surviving spouses. Over half of veterans also reported health care coverage through VA or military hospitals. Less than 15 percent of veterans relied on Medicaid for their health insurance and less than 15 percent of veterans had private health insurance. By contrast, 47 percent of surviving spouses relied on Medicaid, making it the second most common source of coverage after Medicare, while 18 percent reported having private insurance. As shown in table 2, the total number of pensioners has been decreasing in recent years, although the number of pensioners from more recent service periods has been increasing. In 2006, the three pension programs served about 535,000 veterans and survivors, a 75 percent decrease from 1978, when participation peaked at almost 2 million. VA attributes the overall reduction in numbers largely to the death of World War II era pensioners and the greater availability of Social Security retirement benefits, which often raise veterans’ incomes above the VA pension program’s eligibility levels. While total program enrollment has declined, the Vietnam era and Gulf War cohorts of pensioners have increased in number in recent years, as shown in table 3. VA expects the Vietnam era cohort to continue to increase in number as more Vietnam era veterans meet the 65-year age requirement for pension eligibility. An estimated 5.2 million of these veterans will be age 65 or older in the year 2015. However, VA has no estimate of how many also will have qualifying wartime service, meet income requirements, and submit pension claims. Further, the number of Gulf War veterans receiving pensions increased by nearly 300 percent between 2000 and 2006, although they are still less than 5,400 in number. Even with increases in these two cohorts, VA estimates that the total pensioner population will continue to decline in size through at least 2017. The main reason for caseload termination is death, followed by increased income, as shown in figure 4. In January 2007, about 70 percent of veteran pension cases and 50 percent of surviving spouse cases were terminated as a result of the death of the pensioner. Increased income was the reason for termination in about a fifth of veteran cases and in about two-fifths of surviving spouse cases. For surviving children, however, about two-thirds of the cases were terminated due to the child’s age, and one in five was because of a death. VA policies and procedures are not sufficient to ensure sound decisions on new pension claims. Unlike other federal agencies with similar income- based programs, VA largely does not independently verify the accuracy of financial information provided by claimants to support initial pension program eligibility, a fact that makes the pension program vulnerable to improper payments. In addition, the guidance used by staff to make pension eligibility decisions, which is under revision and dispersed across several sources, is not always current or clear. Further, VA’s quality assurance review process for initial claims does not select a sufficient number of pension cases to examine to ensure the accuracy of pension decisions. Finally, VA does not adequately evaluate pension training. For example, VA does not systematically collect feedback from participants at the end of a training course. VA does not require new pension applicants to submit documents that would support their declarations of income and assets. While the agency does corroborate their reported Social Security income with SSA records, it does not require claimants to submit evidence for other financial resources, such as by asking for copies of bank statements or tax returns. Furthermore, until recently, there was no legislative authority for VA to arrange for the cross-checking of claimants’ statements of non-Social Security income against the Department of Health and Human Service’s (HHS) National Directory of New Hires (NDNH). The NDNH includes quarterly wage data for up to eight quarters, which can be compiled into annual data for matching purposes. HHS conducts matches using the NDNH for other agencies—such as SSA, IRS, and the Department of Housing and Urban Development to assist them in improving their enforcement efforts. The Dr. James Allen Veteran Vision Equity Act of 2007, which became effective December 26, 2007, requires VA to provide applicant information to HHS and requires HHS to match it against the NDNH and disclose to VA information for verifying applicant employment and income. Furthermore, while VA allows income deductions for certain unreimbursed medical expenses, the agency does not always require documentation for these expenses. For example, VA requires documentation for the costs of nursing home care, but not for the cost of prescription drugs. In contrast, VA does require applicants to verify some nonfinancial information, such as by submitting an official notice of military separation or marriage and divorce records. We found that staff in the regional offices we visited used guidance that was not compiled in a single source; not always current; and, according to those we spoke with, unclear. This may be, in part, because VA has been in the process, since 2001, of revising various sections of its compensation and pension manual to help clarify complex regulations. However, staff told us that while the revisions are taking place, they must check a variety of sources for updates, including e-mails and posted memos, to be certain they have the most current version for a specific procedure. Staff also said the piecemeal and dispersed nature of the guidance can lead to different interpretations for pension eligibility decisions. VA expects to have most of the revisions implemented by 2009. Finally, staff also expressed a concern over the clarity of some pension guidance, which they said both leaves too much room for interpretation and can result in inconsistent decisions on eligibility. For example, some said they must interpret ambiguous guidance when determining how to treat claimants in assisted living centers versus nursing homes, and that it is possible for staff to reach different conclusions about a claimant’s eligibility or proper benefit. They told us that when faced with unclear guidance, staff are expected to use their own discretion in interpreting the guidance, along with the advice of supervisory staff, which they believe can vary. The internal controls VA employs to evaluate the quality of initial pension decisions are insufficient because VA reviews only a very small random sample of initial claims that are selected from compensation and pension cases. Since pension claims constitute only about 11 percent of the combined compensation and pension caseload, few are likely to be included in the quality assurance review sample. Although VA reported about a 12 percent error rate for compensation and pension claims combined, a recent VA Inspector General (IG) study found a higher incidence of errors in some cases that subsequently required pension payment adjustments. Specifically, the IG reported that VA procedures did not ensure that the benefits of veterans hospitalized for more than 90 days were appropriately adjusted. VA’s training program does not include a comprehensive evaluation to ensure its effectiveness. Although we have found that evaluation is essential to performance, VA does not systematically collect feedback from participants at the end of a training course. For example, new staff receiving training at VA’s training center in Baltimore are required to submit their evaluation of the training. By comparison, staff receiving training in the use of an electronic Web tool are not required to evaluate the training. When we discussed VA’s limited evaluation of training with headquarters officials, they noted that the agency has made assessments of new training materials before they are put into place. However, VA has not consistently evaluated all training courses offered at the regional offices. Many staffers told us that some of their training is repetitive or does not include updates and revisions in procedures. VA procedures for assessing whether pensioners continue to receive the proper benefits have significant limitations because VA does not require pensioners to submit financial documentation, conducts untimely and inefficient verification of pensioners’ incomes and assets, and lacks a system for identifying and reducing improper pension benefits. Although the agency requires all pensioners to submit documentation for nonfinancial changes, such as for marriages or deaths, it does not require documentation such as bank or asset statements when pensioners report financial changes. Also, while the agency does verify certain pensioner information by comparing it with data from other federal agencies, we found that a key procedure using SSA and IRS data is not conducted in a timely or efficient manner. Finally, despite millions of dollars in improper payments made each year, VA does not collect sufficient data on causes of improper payments that could be used to help it better manage the pension program. Although VA requires all pensioners to report changes that might affect their payments or eligibility, it does not require them to submit documentation to corroborate changes in financial circumstances. Whereas VA does require pensioners to submit documents for such changes in circumstances as marriage or spousal deaths, it does not do so for reported changes in income or assets. This leaves the agency heavily dependent on the pensioner for self-reporting financial updates. The exception is Social Security income, which VA staff verify using a direct computer link to SSA benefit data. Pensioner reports of other financial changes, however, need not be accompanied by such documents as pay stubs, bank statements, or tax returns. This is in contrast to other income- based federal programs that typically ask for verification of key financial information. For example, SSA requires Supplemental Security Insurance (SSI) recipients to document their earnings on a regular basis. Similarly, VA does not ask pensioners for financial documentation when completing the annual Eligibility Verification Report (EVR), the requested update that the agency sends out annually to those who have previously reported having income and assets other than their pensions and Social Security benefits. VA uses information collected from the EVR responses to adjust or, if necessary, terminate VA pension benefits. (See table 4 for an overview of the EVR steps.) VA has indicated that the pension program is prone to overpayments caused by pensioners failing to report income changes as they occur. One agency official responsible for the management of the EVR process told us that the EVR process provides the agency an opportunity to adjust the pension benefits as pensioner status changes, thus preventing higher overpayments. In addition to VA not asking respondents to submit financial documentation, we found a number of other deficiencies in the EVR process that may likely limit VA’s ability to make timely and accurate adjustments to benefits. First, the EVR process only queries pensioners who have previously reported income to VA, so the agency fails to reach pensioners who may acquire new sources of income, such as earnings from new employment. Second, during the annual review of EVRs, VA does not attempt to corroborate via independent third-party sources any information that pensioners report on the EVR beyond SSA benefits. Third, the EVR asks pensioners to estimate their income for the year, and the agency adjusts their pensions based on these estimates. Yet pensioner estimates could prove to be incorrect. For example, income estimates for the coming year could change due to the death of a spouse. Fourth, the narrow seasonal window within which pension maintenance center (PMC) staff attempt to review and process the EVRs—the first 3 months of the year—postpones other pension-related activities, including data comparisons with other federal agencies that could provide third-party verification. This limited approach to verification of pensioner-provided updates puts the program at risk of issuing improper payments based on pensioners’ reports. In addition to deficiencies in the EVR process, VA’s ability to detect improper payments is hindered by untimely processing of a key data match. Through formal agreements, VA compares its electronic data on pensioners’ reported income, and other eligibility information, to similar information from a number of federal agencies, as shown in table 5. VA identifies discrepancies and, after due process, uses this information to adjust or terminate pension benefits. VA projects that its data-matching activities save the pension program millions of dollars annually. Nevertheless, VA’s key data match, the Income Verification Match program (IVM), which uses SSA and IRS data to detect pensioners who have failed to report earned or unearned income, is running far behind schedule. This match is scheduled to occur on an annual basis. However, since 2006, VA has attempted to become current by conducting 2 years’ worth of IVM data matches simultaneously. Yet combining data match records for multiple years has added to the complexity and the length of case evaluations, according to officials we interviewed. VA estimates that the IVM data match has the potential of saving the program over $10 million each year, which suggests that a delay of 2 years could delay saving as much as $25 million dollars in payment errors. Such errors include both underpayments, which require VA staff to make retroactive payments or benefit adjustments, and overpayments, which can be burdensome for VA to recover from such a low-income population of pensioners and which threaten the financial stability of pensioners. While VA officials told us they plan to have all IVM data match cases entered into their system by the end of 2007, they could not provide assurance that these cases will be completed in the same year. The effectiveness of the IVM is also undermined by the fact that the data used are not current. VA uses income data that are about 2 years old, despite the fact that the SSA data are available earlier and that more recent earned income data are available from another federal database, the NDNH. Moreover, while VA could make use of SSA earned income data as early as September following the end of the tax year, it postpones the match of pension benefits and waits for unearned income from IRS so that it can simultaneously evaluate eligibility for pension and Individual Unemployability (IU) benefits. We determined that the combination of old earned income data, along with the delays noted above, means that individuals with unreported earned income could continue to receive benefits for at least 2 years before VA can determine that their pension benefits should be adjusted or terminated. We also found that VA’s handling of the IVM data match results is inefficient because the dollar threshold used to select pensioners for review of ongoing pension eligibility has not kept pace over nearly two decades with wages necessary for a person to sustain a living. Specifically, the IVM data match threshold in use until December 2006—which VA told us was meant to represent wages for marginal employment—was set in 1988 (when VA’s maximum annual pension rate for a veteran with no dependents was $6,463). Yet between 1988 and 2006, the U.S. Census Bureau’s poverty threshold had increased over 70 percent. As a result of VA’s continued reliance upon the 1988 threshold, PMC staff told us that they manually reviewed many more cases than necessary in order to find and delete those cases that did not warrant a review. In fact, staff typically eliminated about one-third of the initial matches because their combined countable income and pension did not exceed their maximum allowable pension benefit. VA increased the $6,000 threshold to $9,383 in December 2006, but has not decided whether it would make such changes to update the threshold on a regular basis in the future. The timeliness of the IVM process is also hampered by the fact that VA’s match records are paper based and lack the organizing and transmission efficiencies of an electronic database. Therefore, VA’s follow-up work is slowed by the need to ship boxes of uncollated paper records— worksheets, correspondence with pensioners and employers, and related documents—from the Hines center to the PMCs for manual assembly and analysis. Although software exists to transfer the confidential information electronically, VA officials said the need to comply with IRS’s specific security measures for income-related data has precluded VA’s use of it. However, we have noted in prior work that electronic software exists to transfer confidential information securely. Many millions of dollars in improper payments accrue each year before they are discovered and corrected, but VA has not taken steps to identify the causes of these improper payments. According to VA estimates, about 8.4 to 11 percent of pension program payments were made in error each year between 2003 and 2006, with most of these being overpayments, as shown in table 6. Specifically, VA estimated a total of almost $1.2 billion in overpayments and about $44 million in underpayments during this period. Such payment errors, particularly underpayments, can have a negative impact on pensioners living on very low incomes. By contrast, the agency has estimated that only about 1 percent of disability compensation program payments were made in error, with about $730 million in overpayments and $375 million in underpayments for the same period. Furthermore, according to VA officials, less than 30 percent of the overpayments for compensation and pension are recovered. We found that VA has not been successful in collecting overpayments. In fact, a significant portion of overpayments are written off because of pensioners’ death or bankruptcy, or because the overpayment is considered uncollectible. For example, in cases where VA’s Committee on Waivers concludes that repayment of the overpayment debt would cause undue financial hardship for the pensioner, the debt may be waived. Most of the remaining overpayments remain on VA’s financial account for up to 10 years, at which time VA discontinues its collection efforts. Despite VA’s estimates of relatively high amounts in improper payments for the pension program, the agency lacks a process for determining the nature and actual extent of payment errors. For example, VA currently does not have the ability to identify the dollar amount of overpayments generated because of a failure to report income, gambling winnings, or death of a spouse. Likewise, VA cannot identify the amount of improper payments caused by administrative factors, such as those associated with VA delays in conducting the IVM data matches. Although the agency has identified several causes for improper payments, such as inaccurate reporting of Social Security benefits, remarriage of surviving spouse, or change in dependents, it has not developed a system to assess the degree to which they occur, and therefore cannot develop strategies to target problems and take steps to correct them. VA’s pension eligibility operations currently provide a limited return on investment when it comes to making appropriate payments. The agency’s financial verification processes are heavily weighted toward detection of payment errors late in the process rather than up-front prevention of errors. By not requiring supporting financial documentation from individuals at the time of application, and relying much later in the process on untimely data matching for this information, VA increases the likelihood of making improper payments. Additionally, VA concentrates staff resources in the first 3 months of each year on a process for updating eligibility that is time-consuming and still lacks for financial documentation or independent verifications. Meanwhile, the data- matching operations that do offer third-party verifications on financial status are delayed until after the EVR process is completed. A key data match procedure, the IVM, has been delayed in the past, and the agency continues to be at risk of making improper payments as it tries to rectify the situation. Even when the IVM data match becomes current, VA’s ability to use it in a timely way will be limited if processing of the information remains grounded in a manual handling of paper documents. Moreover, if VA does not regularly update its IVM data match threshold in its incoming financial information system, the agency will continue to have an inefficient procedure for selecting cases for IVM review. In view of the fact that the program incurs a proportionately high level of improper payments—about 8.4 to 11 percent of annual program benefits— VA’s investment in the prevention of errors seems too modest. VA could readily justify increasing its investment in the error prevention process. The agency does not have a quality assurance process robust enough to ensure with a high degree of confidence the accuracy of decisions made in initial pension cases, it has not developed a consistently rigorous approach to the evaluation of training, and it does little to identify and analyze the causes of improper payments. Taken together, VA forfeits the opportunity to address administrative weaknesses and prevent payment errors. Unless these weaknesses are addressed, VA pension benefit payments will remain vulnerable to a relatively high rate of errors. Reconciling improper payments draws resources from the agency that could be better utilized elsewhere, and to the extent overpayments are never collected, they undermine the agency’s financial stewardship over public funds. Moreover, underpayments can lead to hardships among this low-income segment of the veteran population. Certainly, the program is not too small to ensure that appropriate levels of assistance are provided to a vulnerable and deserving population. This can and should be done with a level of efficiency that minimally burdens all concerned. In order to enhance VA’s management of the pension eligibility process, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Benefits take the following actions. 1. Take steps to make more accurate and timely decisions about initial and ongoing pension eligibility and payment levels. Such actions might include requiring pensioners to submit supporting documentation of their income and assets, conducting a more robust independent verification with third parties, or maximizing process automation. 2. Take steps to improve its quality assurance review of initial claims, which could include reviewing a larger sample of pension claims. 3. Incorporate evaluative feedback more consistently into the planning, design, and implementation of its training efforts. 4. Evaluate options for improving the effectiveness of its annual eligibility verification review. This effort could involve reformulating the EVR process by (a) surveying every pensioner rather than a selected subset; (b) performing reviews on a rolling basis, such as on an individual’s anniversary date, rather than diverting staff for this activity for a 3-month period; (c) reviewing pensioners’ eligibility once every few years rather than every year; or (d) focusing on verifying pensioners’ income and assets. 5. Update the IVM data match threshold level to be in line with the U.S. Census Bureau poverty threshold or a comparable measure. 6. Evaluate the causes of improper payments and use the results to develop and implement an action plan to prevent them from occurring. We provided a draft of this report to the Secretary of Veterans Affairs for review and comment. In its written comments on a draft of this report (see app. III), VA agreed in part or fully with our recommendations. Although VA raised concern with some of the options we present to help implement several of the recommendations, the agency’s comments indicate it will take steps to implement these recommendations. Regarding our recommendation that VA should take steps to make more accurate and timely pension eligibility and payment decisions, the agency agreed in part but took exception with several of the actions we suggested. VA noted that requiring pensioners to provide documentation of income and net worth could be onerous to individuals and possibly diminish the timeliness of initial pension eligibility decisions. However, VA also stated elsewhere in its comments that pensioners use the end-of-year tax statements (Form 1099) to accurately report income from all sources. This indicates that it may not be an added burden to pensioners to include a Form 1099 in their initial claim. But to the extent that burden is added to preparing the initial application, the possible gains in accuracy and avoidance of corrective actions later taken to address improper payments need to be considered. Additionally, VA cited its data-matching process with SSA as an existing mechanism to independently verify income. However, as we point out in this report, other federal agencies with similar income-based programs independently verify self-reported information to support initial eligibility decisions. By verifying claims up front, rather than years after the claim is established, the agency can effectively save the program millions of dollars that it might never recover otherwise. Moreover, VA does not always require documentation of unreimbursed medical expenses, which can be deducted from income for pension eligibility. It is important for VA to gather supporting documentation in this area as well. The agency may consider piloting the feasibility of requiring additional documentation of key financial information. Regarding our recommendation that VA take steps to improve its quality assurance review of initial claims, which could include reviewing a larger sample of pension claims, the agency agreed with this recommendation and indicated it will double the entire rating sample size in 2008. While we commend VA’s effort to increase the overall number of claims reviewed in its quality assurance review of rating-related decisions, we remain concerned that this approach will not ensure that enough initial pension claims are reviewed for quality assurance. As we point out in this report, VA samples 10 claims from most regional offices’ caseload of compensation and initial pension claims. Given that initial pension claims constitute about 11 percent of the caseload, a regional office, on average, would likely have only 1 pension claim selected for review. Doubling the sample size would increase the expected number of claims to 2, which we believe is too few. Alternatively, VA might consider increasing the number of pension claims in the overall sample, such as weighing the sample size to include more pension claims or conducting stand-alone reviews of pension claims. The agency agreed with our recommendation to incorporate evaluative feedback more consistently into the planning, design, and implementation of its training efforts. The agency agreed with our recommendation that VA evaluate options for improving the effectiveness of its annual eligibility verification review. The agency stated there are inconsistencies between the possibilities we present, though it did not elaborate. Our intent in presenting these options is to stimulate actions that VA may take to improve the effectiveness of the EVR process. The agency discussed issues—such as veterans’ ease in providing corroborating information—that need to be considered as it moves forward. The agency agreed with our recommendation that it update the IVM data match threshold level to be in line with the U. S. Census Bureau poverty threshold or a comparable measure. The agency agreed with our recommendation that it evaluate the causes of improper payments and use the results to develop and implement an action plan to prevent them from occurring. In the version of the draft report sent to VA for review, we recommended that VA seek legislative authority to use the NDNH in its enforcement efforts. However, we have withdrawn this draft recommendation because VA has been mandated to use this database effective December 2007. In its comments on this draft recommendation, VA indicated that it has initiated the process necessary to gain access to the NDNH earnings database. Given this development, we encourage VA to act swiftly to position itself to fully utilize the NDNH in a timely manner. We will send copies of this report to the Secretary of Veterans Affairs, appropriate congressional committees, and other interested parties. The report will also be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or bertonid@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other contacts and staff acknowledgments are listed in appendix IV. The Senate Veterans’ Affairs Committee asked GAO to (1) determine the characteristics and trends in size of the pensioner population, (2) assess the policies and procedures the Department of Veterans Affairs (VA) has in place to ensure that initial pension eligibility decisions are well managed, and (3) assess the procedures VA has in place to ensure that pensioners continue to receive the proper benefit payments. To determine the characteristics and size of the pensioner population, we analyzed data from VA’s Benefit Delivery Network (BDN), VA budget reports, and other reports through fiscal year 2006. To address our remaining objectives, we reviewed relevant laws, guidance, procedures, and internal controls that VA uses to ensure the soundness of pension benefit decisions. We also analyzed VA’s internal control policies and performance reports. We visited 4 of VA’s 57 regional offices, located in Boston, Milwaukee, Providence, and St. Paul. We selected these sites based on variations in size and geographic locations. We also visited VA’s three pension maintenance centers (PMC), located in Philadelphia, Milwaukee, and St. Paul, and the Debt Management Center in St. Paul. We interviewed VA officials and staff at these sites as well as officials at VA Central Office in Washington, D.C. We also conducted case file reviews in three locations—Milwaukee, Providence, and St. Paul—to verify the adequacy of documentation in support of initial pension decisions. We conducted our review from November 2006 to February 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. To analyze the characteristics of pensioners, we extracted data on basic characteristics and enrollment trends from VA’s Benefit Delivery Network and routine annual VA budget submissions. We supplemented our analysis with additional data from a study contracted by VA and conducted by ORC Macro. VA maintains data on pensioners in its Benefits Delivery Network at the Hines Information Technology Center in Illinois. Hines issues routine reports to various units in VA, including budget and policy, for use in program management. Most of these reports provide characteristics for two or three factors, for example, for veterans by age grouping and by state of residence. We based our analysis on year-end reports through fiscal year 2006. To obtain data not available from published VA reports, we analyzed additional BDN data as of September 2006. VA regularly provides GAO with two sources of BDN data. The first provides data on a few characteristics of the entire universe of pensioners. The other provides data on a broader range of characteristics for a random sample of 5 percent of all pensioners. We used data from the entire universe of cases when they were available and supplemented our analysis with additional data from the random sample. When reporting data from the 5 percent sample, we report confidence intervals around point estimates. We also analyzed data extracted from tables in the fiscal year 2002 through 2008 budget submissions. In 2002, VA contracted with ORC Macro to survey a sample of pensioners that included veterans and surviving spouses. For more detailed data not available from VA’s BDN, we used data reported in the ORC Macro report. However, data are not generalizable to current pensioners because of the time frame when the survey was conducted. The ORC Macro study was a telephone-administered survey. The survey sample generally mirrored the pensioner population at the time. However, for the sample of veterans, nursing home residents were underrepresented. In addition, the spouse sample and spouse recently enrolling sample underrepresented spouses receiving aid or attendance services. In all three cases, ORC Macro conducted a sensitivity analysis to find out whether these underrepresented groups would have changed key question response frequencies if they were correctly represented. In each of the three cases, ORC found they would not significantly change response frequencies. GAO’s applied research and methods group evaluated the BDN and ORC Macro survey data and found the information to be sufficiently reliable for our purposes. To verify the adequacy of documentation in support of initial pension decisions, we reviewed case files on a random sample of Improved Pension claims and Death Pension claims that had been completed by three VA regional offices, in Milwaukee, St. Paul, and Providence. We chose Milwaukee and St. Paul because they were associated with a PMC. Because the Milwaukee site processes new claims in both the regional office and the PMC, we included files that originated at both locations in our review. Additionally, because the St. Paul office completed pension cases that had been transferred from another regional office, we included those cases in our review. We chose the Providence regional office because it was not associated with a PMC and because of its geographic location. At the three sites we reviewed a total of 72 case files for completed initial pension claims. In order to select case files to review, VA provided a list of all initial (or original) claims for Improved Pension (for veterans) and Death Pension (for survivors) considered and determined between February 1, 2007, and February 28, 2007. To select from this list, which included both approved and denied cases, we used random number assignment procedures to help ensure a broad range of these types of cases were included in our sample. Specifically, at St. Paul, we used a randomized ordering process to select and review 32 case files. On subsequent site visits, we randomized all EP 180 and EP 190 claims and reviewed the first available 14 EP 180 and 6 EP 190 case files. In some instances, case files we selected were unavailable because they were being reviewed at the regional office or were categorized as pension claims but over the course of VA developing the claim no longer met our selection criteria of initial pension claims. We attempted to review a 2-to-1 ratio of EP 180 to EP 190 cases, which is approximately the ratio that exists in the pension claims population. The number of case files we reviewed at each site is given in table 7. To ensure consistency, we used a standardized checklist to examine case files at each location, and the same individuals conducted the reviews at all three sites. The checklist, which was developed by examining the procedural guidance and case files at a regional office, included information about each of the major eligibility criteria: military service, disability, net worth, and income. In addition, we reviewed demographic information about the claimants. We also looked for evidence that VA had followed guidance on procedures, for example, whether letters were sent to the claimant appropriately. At each of the sites we communicated with VA office management when questions about the files we were reviewing arose. In some cases these conversations helped us better understand why a case had been handled in a particular way, while in other cases management acknowledged that errors had been made. The results of visits to the sample of regional offices are not generalizable to all 57 regional offices; similarly, results of case file reviews are not generalizable to all pension files. The testimonial evidence, such as that gathered during interviews with staff, also is not generalizable. VA’s Compensation and Pensions (C&P) Service administers the pension program and oversees the operation of 57 regional offices and three pension maintenance centers (PMC). The C&P central office has responsibility for managing policy and procedures, guidance, quality assurance, and general operations. The regional offices process initial pension applications and determine eligibility. The offices have jurisdiction in the geographic area where a veteran or survivor lives. At least one regional office is located in every state except Wyoming, as well as the District of Columbia, Puerto Rico, and the Philippines. The PMCs are responsible for conducting annual reviews of eligibility and adjusting benefit levels when a pensioner’s circumstances change. As part of the annual review, staff at the PMCs examine annual reports from pensioners, which contain information on, for example, income and medical expenses. Staff also examine the results of a variety of computerized data matches with other government agencies to determine whether adjustments are warranted. Additionally, VA’s Hines Information Technology Center handles all computer transactions that affect benefit payment levels, and VA’s Debt Management Center is responsible for collecting overpayments that occur. To determine a veteran’s initial eligibility for the pension program, VA’s regional office staff review several eligibility criteria, including the veteran’s military status, age or disability, and income. For the surviving spouses and children of such veterans, VA uses similar factors to determine eligibility, as shown in figure 5. All survivors are subject to income and asset limits, but only surviving children must meet disability or age requirements. To qualify for the pension program, veterans must meet one of four military service criteria set out in statute, but in practice they have been collapsed into a single requirement. The VA characterizes these criteria as generally requiring that veterans have served on active duty in the military, naval, or air forces for 90 days or more, with at least one of those days being during a period of war, and been discharged under conditions other than dishonorable. In addition, veterans who enlisted after September 7, 1980, generally must have served at least 24 months or the full period for which called or ordered to active duty to qualify. Eligibility for pension benefits is restricted to veterans who are either totally and permanently disabled due to circumstances unrelated to their military service or to willful misconduct, or who are at least age 65. Veterans under age 65 must be considered totally and permanently disabled, which means that the veteran is unable to pursue substantially gainful employment due to a disabling condition and that the condition is reasonably certain to continue throughout the veteran’s life. Veterans who receive Social Security disability benefits or long-term care in nursing homes are presumed to be totally and permanently disabled. In determining eligibility, VA considers the income of all family members, including spouses and children, but excludes other individuals residing in the household. Pensioners meet income eligibility requirements if their family incomes are less than the maximum annual pension amounts established annually by Congress. Various sources of income are considered when determining eligibility, including employment, interest and dividends, retirement, annuities, workers’ compensation, and Social Security Disability Insurance benefits. Income from other federal or state means-tested programs—such as Temporary Assistance to Needy Families, food stamps, housing assistance, or Supplemental Security Income—is not counted toward family income. Pensioners may deduct unreimbursed medical expenses that exceed 5 percent of the maximum annual pension amount from their income for the purposes of determining eligibility. VA does not apply specific limits on the net worth of assets when determining eligibility for pensions. However, veterans will not be awarded a pension if VA determines that they have sufficient assets to live on for a reasonable period of time. To make this determination, VA guidance calls for net worth in excess of $80,000 to be reviewed during the initial eligibility determination process, taking into consideration such factors as the veteran’s life expectancy and the convertibility of the assets into cash. Net worth includes all personal property and real estate owned by veterans and their families, excluding the value of their home and the land on which their homes are located. When a veteran with qualifying wartime service dies, his survivors may be entitled to a pension. The veteran does not have to be receiving a pension at the time of his death in order for his survivors to be eligible for benefits. Survivors are not required to have a disability in order to qualify, but they must meet income and asset requirements. For spouses, there is no age requirement, but they lose eligibility if they remarry. Generally children under age 18 are eligible, as are those under 23 who are in school. Older unmarried children may also be eligible, but only if they are incapable of self-support and if this incapacity occurred prior to their reaching age 18. Once pensioners have been awarded benefits, VA makes ongoing eligibility determinations and adjusts benefit levels as needed. Pensioners are required to inform VA of any changes in entitlement factors that could affect their eligibility or benefit levels as soon as they occur. Hospitalization or incarceration, as well as changes in income, assets, or marital status, can affect the continued eligibility of pensioners or result in adjustments to the amount of payments that they receive. Any changes in circumstances must be reported to VA in writing as soon as they occur, and VA is required to make any necessary adjustments. To further assess ongoing eligibility and benefit levels, VA also requires pensioners who have any income other than Social Security to file an annual report with VA. Then, VA evaluates the information in this report to determine if pensioners continue to meet income eligibility requirements. The following individuals made important contributions to the report: Brett Fallavollita, Assistant Director; Anna Kelley; Scott Purdy; Shannon Diamant; as well as Susan Bernstein; Pat Elston; Lara Laufer; Wayne Turowski; Walter Vance; Joan Vogel; and Craig Winslow. Veterans Affairs: Continued Focus on Critical Success Factors Is Essential to Achieving Information Technology Realignment. GAO-07-844. Washington, D.C.: June 15, 2007. Veterans Benefits Administration: Progress Made in Long-Term Effort to Replace Benefits Payment System, but Challenges Persist. GAO-07-614. Washington, D.C.: April 27, 2007. Veterans’ Disability Benefits: Processing of Claims Continues to Present Challenges. GAO-07-562T. Washington, D.C.: March 13, 2007. Veterans’ Disability Benefits: VA Can Improve Its Procedures for Obtaining Military Service Records. GAO-07-98. Washington, D.C.: December 12, 2006. Veterans’ Disability Benefits: VA Should Improve Its Management of Individual Unemployability Benefits by Strengthening Criteria, Guidance, and Procedures. GAO-06-309. Washington, D.C.: May 30, 2006. Veterans’ Benefits: Further Changes in VBA’s Field Office Structure Could Help Improve Disability Claims Processing. GAO-06-149. Washington, D.C.: December 9, 2005. Veterans’ Benefits: VA Needs Plan for Assessing Consistency of Decisions. GAO-05-99. Washington, D.C.: November 19, 2004. Veterans’ Benefits: More Transparency Needed to Improve Oversight of VBA’s Compensation and Pension Staffing Levels. GAO-05-47. Washington, D.C.: November 15, 2004. Veterans’ Benefits: Improvements Needed in the Reporting and Use of Data on the Accuracy of Disability Claims Decisions. GAO-03-1045. Washington, D.C.: September 30, 2003. Veterans Benefits Administration: Process for Preventing Improper Payments to Deceased Veterans Can Be Improved. GAO-03-906. Washington, D.C.: July 24, 2003. Major Management Challenges and Program Risks: Department of Veterans Affairs. GAO-03-110. Washington, D.C.: January 1, 2003. Veterans’ Benefits: Claims Processing Timeliness Performance Measures Could Be Improved. GAO-03-282. Washington, D.C.: December 19, 2002. Veterans’ Benefits: Quality Assurance for Disability Claims and Appeals Processing Can Be Further Improved. GAO-02-806. Washington, D.C.: August 16, 2002. Veterans’ Benefits: Despite Recent Improvements, Meeting Claims Processing Goals Will Be Challenging. GAO-02-645T. Washington, D.C.: April 26, 2002.

Summary: In 2006, the Department of Veterans Affairs (VA) paid about $3.5 billion in means-tested pension benefits to over 500,000 veterans and survivors. GAO was asked to review the management of VA pension program. This report assesses (1) the characteristics and trends in size of the current pensioner population, (2) the policies and procedures VA has in place to ensure that initial pension eligibility decisions are well managed, and (3) the procedures VA has in place to ensure that pensioners continue to receive the proper benefit payments on an ongoing basis. Our study included reviews of agency policies, procedures, and internal controls; site visits to 4 of VA's 57 regional offices and all three of its pension maintenance centers; and a selected file review of new claims at three locations. In 2006, most of the over 500,000 VA pensioners had nonpension incomes well below the federal poverty level, were beyond retirement age, and had multiple impairments, and the population has been decreasing in number. The average annual reported income of these pensioners, excluding their VA pensions, was less than $5,000. The average age of VA pensioners was 70. More than 80 percent had no spouse or dependent children. Three-fourths of veteran pensioners had multiple impairments. After reaching a peak of almost 2 million in 1978, the overall size of the pensioner population has gradually decreased, although the number of pensioners from more recent service periods has been increasing. VA policies and procedures are not sufficient to ensure sound decisions on new pension claims. Unlike other federal agencies with similar income-based programs, VA largely does not independently verify the accuracy of financial information provided by claimants to support initial pension program eligibility. In addition, the guidance used by staff to make pension eligibility decisions is not always current or clear. Further, VA's quality assurance review process for initial claims does not select a sufficient number of pension cases to ensure the accuracy of pension claims decisions. Finally, VA does not adequately evaluate training for pension staff. VA procedures for assessing whether pensioners continue to receive the proper benefits have significant limitations. Although the agency requires pensioners to report changes that might affect their pensions, VA does not require documentation such as bank or asset statements when pensioners report financial changes. Also, a key data match operation with the Internal Revenue Service is not conducted in a timely or efficient manner. Finally, despite millions of dollars in improper pension payments made each year, VA lacks a system to monitor and analyze their causes.