VA Testimony of Edward A. Powell, Jr. before Congress on March 2, 1999

United States Department of Veterans Affairs

STATEMENT BY
THE HONORABLE EDWARD A. POWELL, JR.
ASSISTANT SECRETARY FOR FINANCIAL MANAGEMENT AND
CHIEF FINANCIAL OFFICER
DEPARTMENT OF VETERANS AFFAIRS

BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS AND INTERNATIONAL RELATIONS
COMMITTEE ON GOVERNMENT REFORM
U.S. HOUSE OF REPRESENTATIVES

March 2, 1999

INTRODUCTION

As the Department of Veterans Affairs’ Chief Financial Officer, I can assure you my office is working closely with VA Administrations and other VA organizations on the necessary steps to address the important management issues identified by GAO and our IG. The Department has a number of accomplishments which have allowed us to address these outstanding issues. In this statement, I will address debt collection, Y2K preparation, consolidated financial statements, and Results Act implementation at the VA. I believe the activity underway throughout the Department in these areas demonstrates a strong management effort to improve service to veterans, as well as a firm commitment to manage the resources entrusted to us.

VA DEBT COLLECTION

VA has long been regarded as a leader in the Federal debt management community. Historically, the management of VA’s major debt programs was divided into two categories - - medical care cost recovery (MCCR) and the recovery of VA benefit debts. The Veterans Benefits Administration (VBA) has operated and maintained an automated collection system since 1975 for debts resulting from participation in VA benefit programs. The VBA Debt Management Center (DMC) in St. Paul, Minnesota, assumed control of debts in 1991. The DMC oversees a centralized automated collection system which utilizes every collection tool available to Federal agencies in an efficient operation that emphasizes both the prevention and collection of debt. Delinquent benefit debts currently subject to collection by the DMC fall into two classes. The first class consists of overpayments of monthly benefits, such as compensation, pension and education allowance. The second class contains deficiencies established after foreclosure on mortgage loans guaranteed or made directly by VA.

Over the past year, we have been moving closer to our goal of consolidating all major VA debt programs into one centralized, automated collection system. We have made significant progress toward automating the billing and payment processing of first-party medical receivables and have laid the groundwork for consolidating the management of debts under the DMC.

VA has also been successful in automating the generation and collection of medical bills at centralized sites. First-party medical care debts more than 90 days delinquent have also been referred to the DMC for collection management activity. This referral implemented a recommendation by the National Performance Review and is consistent with the Department’s strategy of achieving maximum consolidations of debt. Through consolidations, VA should increase the collection rate, while significantly lowering the cost of collection.

VA medical care debt is like no other federal debt and bears little resemblance to the loan default and overpayment debt typical of most federal agencies. These debts resemble "revolving" credit accounts, which result in additional non-delinquent charges, that must be accorded due process, being continuously added to the delinquent debt balances. We have initiated plans to have the DMC fully manage the collection of our first party medical debt. We successfully implemented the process whereby the DMC offsets medical debts from current VA benefit payments. This offset process resulted in about $11 million being collected during FY 1998. The DMC has, and will continue to, refer medical debt to Treasury for administrative offset, including tax refund offset.

As of January 1, 1999, $1.1 billion of VA debt was 180 days or more delinquent. Of this amount, about $653 million was eligible for cross-servicing and the DMC managed over 90 percent. VA staff continues to employ all available tools for managing and reducing VA debt, including automated and special collection letters, automated payment processing, benefit and salary offset, Federal salary offset, IRS tax refund offset, referrals of debt to the Treasury Offset Program, credit bureau reporting, referrals to private collection agencies, development of compromise payment settlements, referrals to the Department of Justice for litigation, and write-offs.

We are continuing to focus on this issue as a priority and expect continued success with VA debt collection efforts during FY 1999.

YEAR 2000

In addition to completing the renovation of VA’s financial systems, VA has completed the Year 2000 renovation of its entire mission-critical computer software applications, including all payment-related applications and applications supporting health care. Ninety-seven percent of these applications have been implemented into production and are successfully processing Year 2000 dates. VA has implemented applications support for health care, compensation and pension, insurance, vocational rehabilitation, education, loan guaranty, financial management, personnel and national cemeteries and corporate administrative functions. VHA, VBA and every other VA office, including the Austin Financial Services Center will complete all testing and implementations later this month.

In addition to the automated systems work, Administrations and offices are also ensuring the readiness of their physical plants and work place equipment and other software for operation on January 1, 2000. In VA headquarters, Information Technology Systems staff and individual offices are working together to ensure all PCs and other support equipment, phone, power, telecommunications, and related systems will continue operating successfully as the millennium begins. The VA-wide telecommunications infrastructure system is also being readied for Year 2000. VA offices are collaborating on further testing to confirm and validate the effectiveness of the individual efforts to prepare for Y2K. VA offices are also collaborating with each other and with external entities such as Treasury and the U.S. Postal Service in preparing and implementing Business Continuing and Contingency Plans (BCCP). The BCCPs will focus on critical processes such as payments to veterans and beneficiaries, employees, and vendors to ensure uninterrupted operations after December 31, 1999.

I was extremely happy to hear Congressman Horn awarded VA an "A-" grade this week relative to VA’s Year 2000 efforts. By our stated deadline of March 1999, we will be fully ready to receive an "A."

VA CONSOLIDATED FINANCIAL STATEMENTS

Obtaining an unqualified (clean) audit opinion on VA’s financial statements is my top priority as the Chief Financial Officer. Through the diligent efforts of the Administrations and offices within VA, we are on schedule for completing milestones shown in the Department’s Action Plan for removing remaining qualifications on VA’s statements.

VA had five qualifications from the audit of our FY 1991 financial statements. The FY 1998 financial audit just released, the VA is down to only one audit qualification associated with the Housing Credit Assistance program. We expect to fully meet the President’s goal for a clean opinion on the FY 1999 financial statements audit.

THE GOVERNMENT PERFORMANCE AND RESULTS ACT IMPLEMENTATION

VA has made significant progress in developing and implementing a results-oriented framework for managing and evaluating our programs. The major advancements are highlighted in our FY 2000 Performance Plan delivered to Congress on February 1 – (a) greater emphasis on outcomes; (b) focus on highest priority goals and measures; (c) in-depth discussion of data validation and verification; and (d) identification of total budgetary resources for each program.

Although much work remains to be done, we have made a great deal of progress, both in identifying outcome goals and performance measures for our programs, as well as in collecting and evaluating results-oriented information. VA’s outcome goals and performance measures are particularly noteworthy with regard to our medical care program. The results of the Government Performance Project just concluded by Syracuse University identified the VA’s Veterans Health Administration as the only organization, among the 15 Federal entities they evaluated, to receive a grade of "A" in managing for results. A major reason for VHA’s success in this area is the Under Secretary for Health’s performance agreements with the directors of each of the 22 Veterans Integrated Service Networks. These performance agreements contain specific performance goals the directors are held accountable for achieving. For the first time, VA has begun to identify outcome goals and performance measures for our benefits programs. This includes compensation and pension, two programs for which the development of outcomes is a very difficult task. Initial reaction within OMB to the FY 2000 performance plan gives the VA credit for addressing outcome goals and measures.

Previous Strategic and Performance Plans submitted by the Department failed to identify a clear sense of priorities. With the FY 2000 Performance Plan, we have focused on a small number of goals and performance measures VA leaders identified as critical to the success of the Department. The measures cover both the results of our programs as well as the management and administration of these programs. To enhance accountability for results, the Secretary has initiated quarterly reviews focusing on the progress we are making toward achieving our critical performance goals.

During the last year, the issue of data validation and verification has been a major focal point for the Department. Our FY 2000 Performance Plan includes a very forthright discussion of VA’s problems with data quality, but also identifies the actions we are taking to resolve those problems. Organizational elements throughout the Department are working very closely with our Office of Inspector General on a series of detailed performance audits. These audits focus on our critical performance information. This initiative sends a strong message throughout VA that we are serious about identifying problems with the quality of our data and taking the appropriate steps to resolve these problems. At GAO’s request, we met with them on February 10 to discuss our data validation and verification activities. GAO is preparing a best practices report on this topic and they have identified VA as one of the agencies they intend to highlight in their report.

Finally, we have made notable progress in identifying the total budgetary resources, both in terms of staffing and funding, associated with each of our programs. This initiative reflects our increased understanding of the costs of operating our programs. We expect to make additional progress in this area as activity-based costing methodologies are implemented throughout the Department.

This completes my statement; I will be happy to respond to any questions the Subcommittee may have.