VA’s mission is to promote the health, welfare, and dignity of all veterans in recognition of their service to the nation by ensuring that they receive medical care, benefits, social support, and lasting memorials. It is the second largest federal department and, in addition to its central office located in Washington, D.C., has field offices throughout the United States, as well as the U.S. territories and the Philippines. The department has three major components that are primarily responsible for carrying out its mission: the Veterans Benefits Administration (VBA), which provides a variety of benefits to veterans and their families, including disability compensation, educational opportunities, assistance with home ownership, and life insurance; the Veterans Health Administration (VHA), which provides health care services, including primary care and specialized care, and performs research and development to serve veterans’ needs; and the National Cemetery Administration (NCA), which provides burial and memorial benefits to veterans and their families. Collectively, the three components rely on approximately 340,000 employees to provide services and benefits. These employees work in 167 VA medical centers, approximately 800 community-based outpatient clinics, 300 veterans centers, 56 regional offices, and 131 national and 90 state or tribal cemeteries. For fiscal year 2016, VA reported about $176 billion in net outlays, an increase of about $16 billion from the prior fiscal year. VBA and VHA account for about $102 billion (about 58 percent) and $72 billion (about 41 percent) of VA’s reported net outlays, respectively. The remaining net outlays were for NCA and VA’s administrative costs. The fiscal year 2017 appropriations act that covered VA provided approximately $177 billion to the agency, about a $14 billion increase from the prior fiscal year. As we recently reported, improper payments remain a significant and pervasive government-wide issue. Since fiscal year 2003—when certain agencies began reporting improper payments as required by IPIA— cumulative reported improper payment estimates have totaled over $1.2 trillion, as shown in figure 1. For fiscal year 2016, agencies reported improper payment estimates totaling $144.3 billion, an increase of over $7 billion from the prior year’s estimate of $136.7 billion. The reported estimated government-wide improper payment error rate was 5.1 percent of related program outlays. As shown in figures 2 and 3, the government-wide reported improper payment estimates—both dollar estimates and error rates—have increased over the past 3 years, largely because of increases in Medicaid’s reported improper payment estimates. For fiscal year 2016, overpayments accounted for approximately 93 percent of the government-wide reported improper payment estimate, according to www.paymentaccuracy.gov, with underpayments accounting for the remaining 7 percent. Although primarily concentrated in three areas (Medicare, Medicaid, and the Earned Income Tax Credit), the government-wide reported improper payment estimates for fiscal year 2016 were attributable to 112 programs spread among 22 agencies. (See fig. 4.) We found that not all agencies had developed improper payment estimates for all of the programs they identified as susceptible to significant improper payments. Eight agencies did not report improper payment estimates for 18 risk-susceptible programs. (See table 1.) As we have previously reported, the federal government faces multiple challenges that hinder its efforts to determine the full extent of and reduce improper payments. These challenges include potentially inaccurate risk assessments, agencies that do not report improper payment estimates for risk-susceptible programs or report unreliable or understated estimates, and noncompliance issues. For fiscal year 2016, VA’s reported improper payment estimate totaled $5.5 billion, an increase of about $500 million from the prior year. The reported VA improper payment error rate was 4.5 percent of related program outlays for fiscal year 2016, a slight increase from the 4.4 percent reported error rate for fiscal year 2015. As shown in table 2, VA’s Community Care and Purchased Long-Term Services and Support programs accounted for the majority of VA’s estimated improper payments. Specifically, for fiscal year 2016, VA’s reported improper payment estimate for VA’s Community Care was approximately $3.6 billion (about 65 percent of VA’s total reported improper payments estimate) and for VA’s Purchased Long-Term Services and Support was approximately $1.2 billion (about 22 percent of VA’s total reported improper payments estimate). As shown in figures 5 and 6, VA’s reported improper payment estimates have increased over the past 3 years, and the reported improper payment error rates have increased over the past 2 years. The significant increase in VA’s reported improper payment estimates and error rates primarily occurred, according to the VA OIG, because VA changed its sample evaluation procedures in fiscal year 2015, which resulted in more improper payments being identified. In response to a finding by the VA OIG, VA began classifying every payment as improper when it made a payment that did not follow all applicable Federal Acquisition Regulation (FAR) and Veterans Affairs Acquisition Regulation (VAAR) provisions. The OIG reported that when those purchases do not follow applicable legal requirements, such as having FAR-compliant contracts in place, the resulting payments are improper because they “should not have been made or were made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements, according to the definition of improper payments set forth in OMB Circular A-123, Appendix C.” As a result of the change in its sample evaluation procedures, VA reported significant increases in estimated improper payments for both its Community Care and Purchased Long- Term Services and Support programs. As shown in table 3, VA’s Community Care and Purchased Long-Term Services and Support programs’ reported improper payment error rates are the two highest reported error rates government-wide for fiscal year 2016. Specifically, VA’s Community Care and Purchased Long-Term Services and Support programs had reported improper payment error rates of about 75.9 percent and 69.2 percent, respectively. The reported improper payment error rates for these two programs were each over 45 percentage points higher than the reported improper payment error rate for the next highest federal program—the Department of the Treasury’s Earned Income Tax Credit program. In its fiscal year 2016 agency financial report, VA did not report improper payment estimates for four programs it identified as susceptible to significant improper payments. These four programs were Communications, Utilities, and Other Rent; Medical Care Contracts and Agreements; VA Community Care Choice payments made from the Veterans Choice Fund. Because VA did not report improper payment estimates for these risk- susceptible programs, VA’s improper payment estimate is understated and the agency is hindered in its efforts to reduce improper payments in these programs. In its fiscal year 2016 agency financial report, VA stated that it will report improper payment estimates for these programs in its fiscal year 2017 agency financial report. According to OMB guidance, to reduce improper payments, VA can use root cause analysis to identify why improper payments are occurring and develop effective corrective actions to address those causes. In addition, our two prior reports identified problems with how VA processed its claims to reasonably assure the accuracy of or eligibility for the disability benefits, increasing the risk of improper payments. VA can implement our recommendations from these two reports to better ensure the accuracy of or eligibility for disability benefits. Root cause analysis is key to understanding why improper payments occur and to developing and implementing corrective actions to prevent them. In 2014, OMB established new guidance to assist agencies in better identifying the root causes of improper payments and assessing their relevant internal controls. Agencies across the federal government began reporting improper payments using these more detailed root cause categories for the first time in their fiscal year 2015 financial reports. Figure 7 shows the root causes of VA’s estimated improper payments for fiscal year 2016, as reported by VA. According to VA’s fiscal year 2016 agency financial report, the root cause for over three-fourths of VA’s reported fiscal year 2016 improper payment estimates was program design or structural issues. As noted above, most of the improper payments occurred in VA’s Community Care and Purchased Long-Term Services and Support programs. In the fiscal year 2016 agency financial report, VA provided details on how it plans to correct some program design issues by making its procurement practices compliant with relevant laws and regulations. The agency stated that it has made certain changes, such as issuing of new policies that can reduce the amount of improper payments in this area. For example, in VA’s fiscal year 2016 agency financial report, VA stated that it issued guidance in May 2015 to appropriately purchase care, such as hospital care or medical services, in the community through the use of VAAR- compliant contracts. VA stated that the implementation of this guidance is ongoing with full impact and compliance anticipated during fiscal year 2017. According to VA’s fiscal year 2016 agency financial report, the second largest root cause for VA’s reported improper payments was administrative or process errors made by the federal agency. VA reported that most of these errors occurred in its Compensation program. These errors, such as failure to reduce benefits appropriately, affected the payment amounts that veterans and beneficiaries received. To address this root cause, VA stated in its fiscal year 2016 agency financial report that it is updating procedural guidance to reflect such things as changes in legislation and policy. In addition, VA stated that it will train employees on specific subjects related to errors found during improper payment testing and quality reviews. Accurate claim decisions help ensure that VA is paying disability benefits only to those eligible for such benefits and in the correct amounts. Thus, it is critical that VA follows its claims processes accurately and consistently. However, we previously reported problems with how VA processed its claims to reasonably assure the accuracy of or eligibility for the disability benefits, increasing the risk of improper payments.