Office of Inspector General
Semiannual Report to Congress

FOREWORD

This semiannual report highlights the activities and accomplishments of the Department of Veterans Affairs (VA) Office of Inspector General (OIG) for the 6-month period ended March 31, 1998. During this reporting period, 111 audit, review, and inspection reports were issued and 125 investigations were closed. These initiatives identified actual and potential recoveries of $16.4 million and made operational recommendations which could result in better use of an estimated $318 million. In addition, as a deterrent to fraud, waste, and mismanagement, our investigations and other reviews resulted in 35 indictments, 57 convictions, and 135 administrative actions against third parties, VA employees, and benefit recipients.

Our audits, reviews, inspections, and investigations this period focused on VA's major program areas, as summarized in the following paragraphs.

Reviews of FSS Proposals

We completed 31 preaward reviews of Federal Supply Schedule (FSS) proposals from vendors of healthcare items. We made recommendations to VA contracting officers totaling $216 million. These reviews assist contracting officers in negotiating the best possible prices for FSS users.

Contractor Overcharges

VA will recover over $5.6 million due to our identification of overcharges by FSS companies.

Contract Management

We audited VA’s procurement initiatives for computer hardware and software, and the procurement of automated information resources solutions. We found VA addressed the most significant lessons learned from past contracts, however better management will reduce costs by $58 million, in part by enhancing contracting initiatives to meet expectations of the Clinger-Cohen Act. Also, our audit of the pharmaceutical prime vendor program found internal controls were adequate; however, responsibilities needed clarification.

CHAMPVA

This requested audit concluded that the Civilian Health and Medical Program of VA was generally well-managed and controls over this $98 million program were effective. However, reviewing certain claims paid in prior years and pursuing 3^rd party liability could increase recoveries by $4.5 million.

Data Validity

We found the Pathology and Laboratory Medicine Service’s Workload Reporting System was accurate, but incomplete. A total of 105 million laboratory tests were reported accurately, but 7 million tests were not reported because some VA facilities did not report or reported sporadically. We made recommendations to improve workload reporting.

Program Reviews

We conducted three health care program reviews: (i) Our assessment of Veterans Health Administration’s (VHA’s) quality management (QM) process concluded VHA managers have dramatically revised and in many ways strengthened the process, but need to strengthen, coordinate, and consolidate QM programs; (ii) Our review of VHA’s expansion of Advance Practice Nurse functions supported VHA's initiative, but we cautioned managers to strengthen credentialing and privileging procedures and quality oversight; and, (iii) Our evaluation of the National Customer Feedback Center concluded patient survey questionnaires accurately capture impressions of their treatment process, but feedback is slow.

Quality Program Assistance

Our Quality Program Assistance reviews at five VA medical centers (VAMCs) found that managers are working to ensure that veterans have access to high quality, low cost health care. Employees generally support the changes, but the rapid pace is negatively affecting employee morale.

Patient Care Inspections

The following reviews concluded, even though no patients were harmed, that managers could improve patient care by correcting certain employees' practices and behaviors: (i) A nurse committed a medication error by administering a drug without a written order and a physician prescribed a medication without apparent justification; (ii) Nursing employees did not consistently record medical information, raising the potential for treatment errors to occur; (iii) Clinical employees improperly discharged a nursing home patient without the spouse-guardian’s permission and without providing the family with due process; (iv) Interpersonal conflicts led to employees infringing on patients’ privacy in the examining room; and, (v) Managers did not consider an employees’ physical capabilities before making assignments that he could not accommodate.

Delivery of Benefits and Services

Reviews included: (i) Our summary report on VA claims processing consolidated recommendations to improve the claims processing system made by the VA OIG, Congressional commissions, and several task forces established by VA; (ii) Our evaluation on whether Veterans Benefits Administration (VBA) compensation and pension (C&P) system messages ensured the accuracy of payments found that 44 percent of the messages generated did not serve as an effective control (by better managing the messages, VA could prevent annual payment errors of $33 million); (iii) A follow-up audit to our 1995 report of service-connected disability determinations found that prior audit recommendations were satisfactorily implemented; (iv) Our audit of Social Security Administration/VA death match procedures found that VBA needs to develop and implement a more effective method to identify deceased beneficiaries and timely terminate their C&P benefits, thus reducing expenditures by $4 million; (v) An audit of collection of premium payment and reporting procedures for the Servicemembers’ Group Life Insurance program found that reserve component reporting and validation procedures need improvement to ensure the accuracy of $163 million in life insurance premium payments; and, (vi) Our evaluation of safeguards to detect or prevent irregular disbursements of Matured Endowment awards totaling $136 million from life insurance policies, found that increased oversight of high risk disbursements will reduce the potential for fraud.

Program Fraud

The following examples of investigations disclosed instances of fraud relating to loan origination, compensation, education assistance, and dependency payments: (i) An individual was sentenced to 60 months’ confinement, restitution of $517,384, and to forfeit holdings of over $2 million. The individual purchased low-cost distressed properties, cycled them through front companies to inflate their assessed value, and then sold them to fraudulently qualified applicants. (ii) An individual was sentenced to 46 months’ imprisonment and was ordered to pay restitution of $447,182. The individual posed as a wheelchair-bound veteran who had lost the use of his right arm and right leg, and collected over $500,000 in VA benefits while, in fact, he ran a successful painting business. (iii) The U.S. Attorney’s Office is continuing to obtain civil settlements from student veterans who received VA education benefits but did not attend scheduled college classes. Bribes were paid to faculty staff, including a department chairman, to ensure high grades would be given with no class attendance required. To date, 77 students have agreed to pay $1,261,400 in restitution. Negotiations are continuing with additional students. (iv) An individual pleaded guilty to theft of public funds. Our investigation found that, over a 15-year period, the individual cashed his deceased mother’s Dependency and Indemnity Compensation checks. Loss to VA totaled more than $100,000.

Lease Management

We reviewed VA leased space with annual costs of $171 million to evaluate the effectiveness of lease administration. We found leases were generally properly administered, but in five cases VA is paying General Services Administration $1.6 million more than the current market value.

Capital Asset Acquisition

An evaluation of VA’s capital asset acquisition practices and capital programming process, which involved $1.3 billion in FY 1997, found VA is making good progress towards a capital program. We recommended VA develop a network-level investment policy and that alternative capital funding strategies be explored.

Prior Year Funds

We reviewed VHA management controls over $11.5 million in average annual prior year funds, used to pay for work on nonrecurring maintenance construction projects. We concluded that $3.8 million was used inappropriately and VAMCs needed additional guidance.

Structural Design Problems

The OIG reviewed structural framing problems which became apparent during construction of the new VA regional office (VARO) building at Bay Pines, FL. The review determined the major cause of the structural design problems was due to a private Architect/Engineering (A&E) firm and its engineering subcontractor providing VA with structural plans for the project which contained structural framing design errors. A VA OIG consultant determined the structural framing design, as modified, would safely support VA's standard requirements for a VARO building. The engineering subcontractor to the A&E firm has reimbursed VA $706,000 to date, the cost to correct some of the design errors.

Debt Collection

In FY 1996, we began a multi-phase evaluation of VA’s $4.2 billion debt management program focusing on the identification, prevention, and recovery of overpayments of C&P benefits, and the billing and collection of medical care costs owed by veterans and third party insurers. Overall audit results to date identified monetary benefits totaling over $249 million.

Medical Care Collection Fund

Our review of Medical Care Collection Fund (MCCF) collection and billing practices at one VAMC concluded that collections could be further increased by using collection tools developed by the MCCF program office and obtaining insurance data from veterans.

Employee Misconduct

The following examples of investigations disclosed drug and other property theft, workers’ compensation fraud, and other employee misconduct: (i) Based on our undercover investigation, two registered pharmacists pleaded guilty to numerous offenses. Both individuals admitted reselling more than $200,000 worth of stolen VA pharmaceuticals. (ii) A VAMC pharmacy supervisor was terminated from his employment based on an investigation that revealed he ordered drugs to be sent by mail in the names of inactive VA patients, but had them sent to his home address. (iii) One former and two current VA employees pleaded guilty to the theft of Government property based on a 1-year VA OIG undercover operation. The three employees sold stolen computers, printers, and furniture to VA OIG undercover agents. (iv) A VAMC chief of environmental services and her accomplice each pleaded guilty to one felony count of filing false claims. The service chief approved VA payments in excess of $73,760 for services that were not rendered. (v) An individual who served as an uncompensated VAMC employee pleaded guilty to numerous counts of theft and false statements. The offenses were committed in connection with drug research. As part of the plea agreement, the individual will serve 5 years in prison, pay approximately $175,000 in fines and expenses, and $1.1 million in restitution and forfeitures. (vi) A former VAMC psychologist was indicted concerning a scheme to defraud the Government in connection with the receipt of workers’ compensation benefits. We determined that, for more than 13 years, the individual received workers’ compensation benefits in excess of $300,000 for a back injury alleged to have occurred while working at the VAMC. During this time, however, he was employed. (vii) A former VAMC nurse was found guilty of one count of making a telephone bomb threat. As a result of several bomb threats, patients were evacuated from the building which housed the intensive care unit. (viii) An individual pleaded guilty to a charge of false statements stemming from the misrepresentation he made concerning the nature of a prior conviction when he applied for a position as a VAMC medical doctor. As a result of a plea agreement, he was sentenced to 42 months’ imprisonment and waived his right to appeal.

Unresolved Reports

As of March 31, 1998, the OIG did not have any unresolved internal audit reports. A total of 39 external contract reports had been unresolved for over 6 months, with funds costs totaling $104 million. Resolution of external contract reports is pending contracting officers’ decisions, with the contracting officer the sole decider in these cases.

We completed 31 preaward reviews of FSS proposals from pharmaceutical, dental and X-ray supplies, and equipment' manufacturers. We made recommendations to VA contracting officers amounting to $216 million in better use of funds compared to the contracts' estimated sales value of $3.3 billion. Better use of funds represent the difference between FSS offered prices compared to prices offered to most favored customers with terms, conditions, and volume similar to the FSS. To assess the reasonableness and validity of our recommended better use of funds, we review the contracting officer's price negotiation memorandum to identify how much cost avoidance the contracting officer achieved by negotiating the best possible contract prices. The success of the preaward review efforts is the result of VA working as a team with auditors and contracting officers training together and sharing goals and objectives, and with auditors, Office of Acquisition and Materiel Management (OA&MM) acquisition resources team, and Office of General Counsel attorneys working together to assist contracting officers in negotiating the best possible prices for FSS users.

As a result of VA team efforts during the period, VA will recover over $5.6 million in contract overcharges on several FSS contracts.

• A pharmaceutical company acknowledged errors in calculating Federal Ceiling Prices (FCPs) under Public Law 102-585. The company made a voluntary disclosure to VA and offered a refund of $2,030,825. We reviewed the refund offer and determined that the overcharges amounted to $2,533,924, which the company agreed to remit to VA in settlement of the contract overcharges. As a result of the voluntary disclosure and our follow-up review, the company has developed and implemented policies and procedures that would incorporate the necessary internal controls to correct the errors they had discovered. The company had detected the errors in their FCPs as a result of a "Dear Manufacturer" letter sent by VA’s Office of General Counsel to all manufacturers of covered drugs. The "Dear Manufacturer" letter was based on several common errors we noted in the FCP calculations at companies being reviewed by us. The significance of the trend we observed led to our collaboration with the Office of General Counsel and the issuance of the "Dear Manufacturer" letter. This letter has resulted in several other voluntary disclosures and remittances.
   
• As a result of our postaward review, a pharmaceutical company agreed to pay $1,700,000 to VA for FSS contract overcharges resulting from not disclosing accurate, complete, and current pricing information at the time of negotiations and from violations of the provisions contained in the price reductions clause.
   
• An FSS contractor that provides VA with medical supplies voluntarily disclosed they owed the Government $944,500 because of price reduction violations in administering their FSS contract. Our review concluded the company actually owed the Government a total of $993,270 which they subsequently remitted to VA.
   
• A pharmaceutical company remitted $223,478 to VA for contract overcharges resulting from not disclosing accurate, complete, and current pricing and discount information to the contracting officer during negotiations. Our review found that while the company generally maintained a no-discount policy, the lower prices resulted from granting price protection for an extended period of time to certain commercial customers.
   
• Three pharmaceutical companies concurred with our conclusion that they had been underreporting sales subject to the Industrial Funding Fee (IFF). Their internal reviews revealed they owed VA an additional $133,220 in IFF because they had understated sales. The companies have remitted the adjustment to VA. We identified the underreported sales by matching sales totals obtained from VA’s Pharmaceutical Prime Vendors and VA internal records of direct sales against sales totals that contractors reported to VA. We are continuing our review of other major pharmaceutical manufacturers whose reported sales differ significantly from sales reported to VA.
   
• A pharmaceutical company acknowledged errors totaling $6,195 in calculating FCPs under Public Law 102-585. Our review also disclosed other billing errors totaling $34,649. The contractor agreed to pay the $40,844 due and to implement policies and procedures incorporating necessary internal controls to correct the errors.

We conducted a review of VA acquisition initiatives for the PCHS and the PAIRS contracts. The PCHS contract is valued at $1.5 billion over 5 years and PAIRS is valued at $875 million. We found that acquisition risks associated with the PCHS initiative were effectively addressed by VA’s procurement planning actions. During the award of the PCHS contract, officials addressed most lessons learned from past VA information technology (IT) contracts and took actions that compared favorably with the best practices in the industry. We identified opportunities for VA to enhance its IT contracting initiatives and to help address and meet IT performance expectations included in the Clinger-Cohen Act.

Key issue areas requiring VA's attention include: (i) reassessing the need and benefits of using national IT contracts, given the availability of other procurement mechanisms, (ii) requiring VHA’s decentralized Clinical Workstation Replacement initiative be subject to the new capital IT investment review process, (iii) addressing performance expectations included in Section 5132 of the Clinger-Cohen Act which would reduce IT costs by $22 million yearly and $101 million over 5 years, (iv) ensuring replacement computer terminals do not upgrade original project requirements to unnecessary higher performance systems costing an additional $36 million, (v) establishing a realistic estimate of cost, schedule, and performance goals for the PAIRS initiative that excludes the VHA Infrastructure Upgrade project requirements that have already been completed, and (vi) assuring that the Contracting Officer Technical Representative (COTR) be provided with formal training in COTR duties and COTR designations are in writing. The Acting Assistant Secretary for Management and the Under Secretary for Health concurred with the report recommendations and provided appropriate implementation actions. The PAIRS contract was terminated on January 29, 1998. (Audit of VA PCHS/PAIRS and Selected Information Technology Investments)

We conducted an audit of the PPV Program as part of our continuing coverage of OA&MM and National Acquisition Center (NAC) procurement activities. The purpose of the audit was to determine if internal controls were adequate to ensure that VAMC buying activities paid correct prices, as contracted by NAC staff, for drug items purchased through prime vendors.

Audit test results showed that internal controls governing the solicitation and award of prime vendor contracts were effective and controls to ensure correct PPV pricing were generally effective. Tests of the largest prime vendor (accounting for 74 percent of PPV sales in FY 1995) identified few exceptions. However, price-monitoring efforts could be more efficient and price monitoring responsibilities needed clarification in VA policy.

We recommended that NAC and OA&MM officials develop an electronic PPV price monitoring system and that policy be established defining the respective responsibilities of NAC, VHA’s Pharmacy Benefits Management Strategic Healthcare Group, and VAMC purchasing staff for monitoring prime vendor contract performance. The Under Secretary for Health and the Deputy Assistant Secretary for Acquisition and Materiel Management concurred in the report’s recommendations and provided acceptable implementation plans. (Audit of VA’s Pharmaceutical Prime Vendor Program)

Contract Fraud

• A Federal search warrant was executed by VA OIG special agents at the offices of a plumbing subcontractor who was awarded a Government contract to renovate part of a VA Extended Care Center. The total value of this contract is $7.8 million. A joint investigation with the Department of Labor (DOL) OIG, revealed the subcontractor was billing VA for union wages, but paying its workers at well below the union wage. Potential loss to the Government may exceed $50,000.
   
• An investigation into fraudulent activities in a VA vocational rehabilitation program was launched in response to evidence that vendors fraudulently billed VA for goods and services that were not provided. In response to information that time and attendance files were being altered in anticipation of a subpoena being served, a search was conducted jointly by VA OIG, Federal Bureau of Investigation (FBI), and state police, during which altered documents were seized. State police joined the investigation on behalf of a state Bureau of Vocational Rehabilitation after the initial phase of the inquiry disclosed that the Bureau was being subjected to some of the same fraudulent practices.

Procurement Fraud

• A hearing was held in U.S. District Court addressing two motions: one brought by the Government to enforce a VA OIG subpoena issued to a company doing business with VA and one brought by the company to suppress evidence from a search warrant executed at the company’s offices. With regard to the Government’s motion, the company was ordered to comply with the demands of the subpoena within 60 days. With regard to the company’s motion, the court denied it. The company is the subject of a joint VA OIG, Food and Drug Administration, and U.S. Customs Service investigation into allegations that it sold non-conforming and unauthorized surgical instruments to VA and to other agencies.

Product Substitution

• A computer hardware distributor pleaded guilty in U.S. District Court to one count of mail fraud. A joint investigation by VA OIG and the Postal Inspection Service revealed the individual altered approximately 300 central processing unit (CPU) chips so they appeared to be a higher speed chip and sold them to VA at inflated prices. The distributor altered 50 MHz chips by "pushing" the speed on the altered chips and marking them as 66 MHz chips when installed. The scheme resulted in higher profits for the distributor, but would result in ultimate failure of the computers. Loss to VA exceeds $34,000.
   
• The owner of a medical equipment supply company pleaded guilty and was sentenced in U.S. District Court to 6 months’ home detention, 5 years’ probation, and 100 hours of community service, fined $1,000 and ordered to make restitution of $11,701 to VA. The individual had contracted with a VAMC to provide new medical equipment to homebound veterans, but a VA OIG investigation revealed the individual instead delivered used equipment and billed VA for new.

In FY 1997, VA spent about $17 billion to deliver health care to America’s veterans. The scope of the audit included reviewing historical VHA workload and expenditures from FY 1992 through FY 1995 and projected workload for FY 1998, 2000, and 2005. The audit confirmed that inequities in resource distribution existed among the 22 Veterans Integrated Service Networks (VISNs) that provide medical care to eligible veterans. Some VISNs received resources in greater proportion to their workload than others. These inequities resulted because VHA resource distribution systems did not adequately respond to changing veteran demographics.

During the course of the audit, VHA established VISNs, and implemented the Veterans Equitable Resource Allocation System (VERA) in response to Public Law 104-204. Legislation was also passed that delineated new veteran eligibility requirements. VHA is appropriately responding to resource allocation inequities by decentralizing resource distribution authority to Network Directors, initiating use of a new resource allocation system, and developing automated management information systems which should help control costs. Our analysis of VHA’s data supports the actions taken by VHA. (Audit Of VHA Medical Care Usage Patterns and Availability of Resources)

This audit was requested by the House Veterans Affairs Committee to evaluate the management effectiveness of the program. CHAMPVA provides healthcare benefits for the dependents of: (i) veterans rated as permanently and totally disabled, (ii) veterans who died as a result of service-connected conditions, or (iii) veterans who died on duty with less than 30 days of active service. The Health Administration Center (HAC) in Denver is responsible for processing claims for reimbursement and otherwise administering the program. As of September 30, 1997, there were 81,000 beneficiaries enrolled in CHAMPVA. During FY 1997, the HAC processed 913,000 claims pertaining to medical services for 49,000 of the enrolled beneficiaries. FY 1997 program costs totaled $98 million of which $91 million were direct costs for medical care claims and $7 million were indirect costs for program administration.

Our audit found that CHAMPVA was generally well-managed and program controls were effective. The HAC had corrected prior internal control problems. The HAC had also established procedures to ensure claim payments were accurate, rates paid were reasonable, and high cost medical claims were monitored to ensure that care was necessary and appropriate.

The audit identified two opportunities to further improve program operations by increasing the recovery of medical care costs. First, the HAC could use commercial medical procedure and diagnostic code auditing software to review prior year outpatient claims for inappropriate payments. Based on the HAC’s success in using this software for reviewing current claims, we estimated a review of certain prior year claims could identify about $4.2 million in inappropriate payments that may be recoverable. Second, the HAC identified, but did not always aggressively pursue, potentially liable third parties. We reviewed 37 cases that the HAC had not fully developed and found 3 cases where a third party could possibly be held liable for the cost of care. CHAMPVA paid $293,000 in claims for care of these 3 beneficiaries. The HAC Director concurred with our recommendations and provided responsive planned actions. (Audit of CHAMPVA)

This audit is the third in a series of Pathology and Laboratory Medicine Service audits intended to provide an overall assessment of program performance. This audit was conducted to determine whether the data in the workload reporting system, the Laboratory Management Index Program (LMIP), was accurate and complete. LMIP was implemented on October 1, 1995 to accumulate national laboratory workload data from all VAMCs. During a recent 12-month period, LMIP reports showed that 105 million tests were performed nationwide.

Workload data reported to LMIP was generally accurate, but was not complete because some VAMCs reported sporadically, or did not report at all. We estimate that Pathology and Laboratory Medicine Service may be underreporting workload by almost 7 million tests annually representing program costs of over $5 million per year. We also found that one of the system controls used to test the accuracy of data, the National List of Tests, was allowing inappropriate items to be reported as tests. We recommended steps the Under Secretary for Health could take to further improve data management and ensure LMIP is complete and accurate. The Under Secretary for Health provided an acceptable action plan in response to our findings and recommendations. (Audit of Pathology and Laboratory Medicine Service’s LMIP)

Quality Management Programs are essential to VHA’s ability to ensure high quality, safe patient care. Since late 1995, VHA top managers have dramatically revised and in many ways strengthened the quality management process. At the request of the Senate Committee on Veterans Affairs, we conducted a program evaluation of VHA’s quality management activities at VACO, VISN, and VAMC levels in order to determine the extent of changes that have occurred since the advent of new quality management leadership in late 1995. We concluded that quality management programs have not been materially reduced in scope or activity during this 2-year period. VHA managers abolished the QUality Improvement Checklist (QUIC), but the clinical indicators that QUIC measured are still available in a nationally distributed, automated database. Thus, there was no net loss of Quality Management information during this transition. Similarly, we found that the manpower commitment to quality management has not materially changed insofar as numbers of employees who evaluate health care are concerned, but the configuration or distribution of these employees has changed. Particularly, VISNs did not have consistent oversight of their subordinate VAMCs’ quality management activities. The Under Secretary for Health strengthened Quality Management Programs by developing the 12 Dimensions of VHA’s Healthcare Quality Framework, and by articulating Core Values of trust, respect, commitment, compassion, and excellence as VHA policy.

The overall leadership of the Quality Management activities needed to be strengthened, and quality management activities needed to be consolidated at the Headquarters level in order to further strengthen the program. We made nine recommendations to strengthen, coordinate, and consolidate quality management programs. The Under Secretary for Health concurred with the recommendations and implemented or planned appropriate actions that will lead to a stronger quality management process. (Quality Management in the Department of Veterans Affairs VHA)

The VHA operates the most extensive health care delivery system in the country, and is the largest single employer of APNs in the nation, with about 1,850 APNs on its rolls. In his "Vision for Change," the Under Secretary for Health launched some dramatic changes in traditional health care delivery, including an objective of increasing by 200 percent, the use of non-physician providers to supplant and supplement physicians’ services in primary care settings.

We conducted an oversight inspection of VHA’s efforts to identify the APN population and the functions that they perform, particularly in reducing physicians’ direct care responsibilities in VAMCs throughout the nation. We found there are several opportunities for VHA to strengthen its use of APNs, but that at least three remedial barriers prevented this from occurring: lack of, or limited prescriptive authority; lack of nurses’ and physicians’ understanding of the APN roll; and lack of administrative support. VHA’s survey showed that, disregarding the barriers, agency APNs are highly satisfied with their jobs, but only about 23 percent of them planned to remain in the VHA for their entire careers. VHA promulgated policies in 1995 and 1997, that facilitate APNs’ ability to function more independently in patient care settings. We cautioned VHA managers about the need to recognize an increasing opposition to expanding the use and clinical prerogatives of APNs, and of the inherent risks in awarding expanded privileges to non-physician practitioners. We advised VHA to encourage local facilities to carefully manage the APN credentialing and privileging process, and to ensure strong quality assurance oversight of the treatment provided. We did not make any formal recommendations since we did not identify any apparent deficiencies. (Oversight Review of the VHA’s Use of APNs in Primary Care)

VHA managers have been obtaining feedback from patients as to their perceptions of the quality of services that they have received in VAMCs for nearly 20 years, but questionnaires have not been designed to elicit information that pertained to the actual treatment process itself. In 1994, VHA managers began to revise the patient feedback questionnaire instrument in order to obtain pertinent, meaningful information that is associated with, and would help in measuring medical centers’ standing in complying with the Secretary’s Customer Service Standards.

We conducted a program evaluation of VHA’s National Customer Feedback Center (NCFC) in order to evaluate the revised patient survey process, and how resulting information analyses are used to affect patient care. We found the newly revised survey process is founded on time-tested methodologies and the surveys elicit valid information that can be used to measure a facility’s standing in complying with the Secretary’s 10 Customer Service Standards. The NCFC uses two survey instruments to obtain patients’ impressions of their acute inpatient and outpatient experiences. Current analytic methods are slow and inhibit center employees’ ability to transmit analyzed results to VAMCs in a sufficiently timely fashion for it to be useful in making meaningful operational changes quickly enough in a rapidly changing health care environment. VAMC managers are conducting their own patient satisfaction surveys to compensate for the late arriving NCFC results, but the information gathered from these two types of surveys is not correlated, and we could not find any indication that anyone determines if the independently done survey questions are properly designed to capture valid information. We made two consultative recommendations intended to strengthen NCFC operations. The Under Secretary for Health provided responsive comments. (Review of VHA’s NCFC)

We conducted QPA reviews at five VAMCs. The QPA process is intended to add value to other external review activities that oversee VHA facilities. Review instruments assess the extent to which a VAMC meets VHA’s four performance goals of cost-efficient care, high quality care, improved patient access to care, and improved patient satisfaction.

We found that VAMCs’ top managers were individually and collectively involved in several actions that were focused on ensuring that eligible veterans have access to high quality, low cost health care. Mid-level managers and operating employees expressed concern over the fast pace with which changes in the health care process and facility reorganizations have been made, but they were aware of, and generally supported management’s treatment goals. Patients at all of the VAMCs that we visited, indicated they were generally pleased with the care they received. OHI did not identify any incidents that relate to poor employee morale at any of the facilities that we visited. Nevertheless, the consistently identified concerns about the potential for adverse morale among employees, associated with the rapid changes in VA health care, comprise an issue that VHA managers need to consider and address in order to ensure continuing high quality patient care, and patient satisfaction. (QPA Reviews, VAMCs Iowa City, IA; Dublin, GA; Loma Linda, CA; Tucson, AZ; and Lexington, KY)

We inspected allegations that VAMC clinicians did not properly include a patient’s spouse in plans to outplace the patient to a remotely located nursing home. Clinicians placed the patient in a nursing home that was located more than 300 miles from the family home, and the patient died a few days after his arrival. We found VAMC clinicians did not properly manage arrangements to discharge the patient and transfer him to a private nursing home. The patient’s spouse was his legal guardian and did not consent to the transfer; clinicians did not provide the patient’s spouse, or any other family member with information about the right to due process to contest the placement; and two senior clinicians could not agree on the patient’s mental status that would be influential in the placement decision. We made three recommendations to reduce the possibility that similar incidents will occur in the future. The Medical Center Director concurred with the recommendations and provided acceptable implementation plans. (Inspection of Alleged Mismanagement of a Nursing Home Patient’s Discharge, VAMC Biloxi, MI)

We inspected allegations that a female physician had improperly touched several male patients at a satellite outpatient clinic. We concluded the physician had not improperly touched, fondled, or otherwise assaulted any patients. Instead, several male patients complained that as they were seated, essentially disrobed, in examining rooms, various clinic employees would enter the room, unannounced, and without any apparent purpose. The experience was embarrassing and demeaning to some of the patients, and they blamed the physician since they considered that she was responsible for their well-being while they were under her care.

We found that selected Outpatient Clinic employees were engaged in hostile interpersonal relationships, or openly disagreed with selected clinic operations, and apparently acted out their disputes by embarrassing patients in the described manner. We interviewed a random sample of 42 patients who had been treated by the clinic physician during the previous year. All of the patients whom we interviewed praised the physician’s professional demeanor and caring attitude, and all of them rated the care that she provided to them as very good or excellent. Several of these patients attested to their knowledge of the interpersonal tensions among clinic employees, and cited examples of incidents that they had witnessed or heard of that confirmed our findings. The Director of the parent medical center had become aware of these unwarranted behaviors and had initiated a team-building effort in order to reduce the tensions and direct employees’ energies into providing high quality patient care.

Since the Director had already initiated corrective actions to improve clinic conditions, we did not make any recommendations. Nevertheless, we cautioned the Director to maintain surveillance over clinic employees’ actions to avoid recurrence of such behavior, and he agreed to do so. (Inspection of Alleged Patient Sexual Molestation by a Physician at a VA Medical Clinic)

We inspected allegations that a patient died several days after surgeons amputated his leg because nurses did not provide basic nursing care. We inspected the issues in the case and determined that the nurses provided the patient with adequate nursing care, and that other aspects of his treatment were within accepted standards of practice. Family members had expressed concerns about the patient’s care early on in the treatment process, and the head nurse, as well as ward nursing employees took great care to maintain a high level of communication with them. During our inspection, several senior-level clinicians approached an inspector and expressed concerns that nurses were not properly recording important medical information, such as fluid intake and output values, and patients’ vital signs, in the medical records. Medical records reviews confirmed these charting deficiencies. We recommended actions to correct the deficiency, and the VAMC Director provided responsive implementation plans. (Inspection of Alleged Patient Neglect and Inadequate Care, VAMC Syracuse, NY)

We reviewed allegations that a patient may have been subjected to improper treatment because physicians had diagnosed him as having congestive heart failure, and chronic obstructive lung disease, and the patient’s spouse insisted that he had never suffered from these maladies. We concluded that the patient received adequate and timely treatment for his illness throughout his hospitalization. The patient had clear signs of congestive heart failure, and his physician provided appropriate treatment for this condition. The medical record contained conflicting information as to whether the patient had chronic lung disease, even though he had smoked more than one pack of cigarettes a day for more than 40 years. The lung condition was not mentioned in at least seven previous chest x-rays, but he had pneumonia at the time of admission. Our review found the patient’s physician had prescribed thyroid medication before he had obtained objective evidence of the need for this medication. The medication was probably unnecessary, but did not harm the patient. Nursing employees also committed a medication error in that a nurse gave the patient a medication based on a reported telephone order, but the physician never wrote such an order. The patient’s record shows he had signs and symptoms that would suggest the need for the medication, and we speculated that the nurse probably obtained the order by telephone, but the physician neglected to write the order after the fact. Physicians had previously prescribed the medication for similar symptoms. We made recommendations to address the discrepancies, and the VAMC Director took appropriate corrective actions. (Inspection of Alleged Inappropriate Patient Care and Misdiagnosis of a Patient’s Illness, VAMC Northampton, MA)

We reviewed allegations that VAMC nursing employees routinely wrapped patients’ lower leg and foot wounds in red plastic biohazard bags, and that this procedure led to increased rates of wound gangrene and limb amputations. We visited the VAMC without providing prior notice, and twice visually inspected several wards, including all three Nursing Home Care Units (NHCUs), without prior notice. We concluded nursing employees had, at one time, wrapped patients’ lower leg and foot wounds in red plastic biohazard bags, but nursing managers had directed this practice cease between 18 and 24 months before we initiated our inspection. Nursing employees used these wraps if the patients had open, weeping wounds or stasis ulcers that had the potential to become infected. Similarly, nurses would apply such wraps if patients had colonized communicable infections in these areas which could be transmitted to other patients, employees, or visitors, if left unprotected. The use of the red plastic bags was a matter of convenience in that these bags are available on any isolation cart, several of which were strategically stationed outside of isolated patients’ rooms on the NHCU. The purpose of using impervious wrappings for these patients’ wounds was to facilitate their ability to leave their rooms and be as free to ambulate to other areas of the medical center as possible. Nursing employees continue to use clear plastic bags to wrap patients lower limbs when they shower, but they wrap the wounds in alternate impervious material when the patients have to leave the ward for any purpose. Nursing employees readily articulated the rationale and methodology for wrapping the patient’s lower legs and feet, and asserted they always removed the impervious dressing immediately upon the patients’ return to the ward.

We did not make any recommendations because nursing managers had already discontinued the use of the bags for wound wrapping. Nursing managers were revising local infection control policies to clarify the meaning of impervious wrap, and to clarify the methodology to be used in protecting patients from infection and protecting other individuals from incurring a patient’s unprotected communicable infection. (Inspection of Alleged Improper Leg Ulcer Treatment, Jerry L. Pettis Memorial Veterans Hospital Loma Linda, CA)

We reviewed allegations that NHCU employees had told a patient that he was being discharged because he was too ill to be cared for in the NHCU. We concluded that NHCU employees had told the patient that he was being considered for alternative outplacement because he no longer met the criteria to occupy a NHCU bed. The patient and his son vehemently resisted this outplacement attempt, and VAMC employees did not follow-up on the issue.

The head nurse and a social worker both approached the patient and asked him to comply with NHCU rules that require him to bathe and change underclothing periodically, and to not confront other patients or employees in a hostile manner. However, they denied that they threatened to expel him from the unit if he did not behave as expected. The VAMC adopted a policy that patients would only be accommodated in the nursing home for relatively short periods of time, with a view that they would be relocated to appropriate facilities to continue rehabilitation or recuperation. Clinicians thoroughly explained this policy to the patient and his son, but they continued to resist alternative placement, and the patient continued to resist complying with established policies. The patient’s physician, a certified geriatrician, concluded the patient may be depressed, and his resistance to complying with the rules may be secondary to this condition. He prescribed a mood-altering drug to alleviate the depression, but did not record his rationale for initiating this therapy in the medical record.

We made a recommendation to correct the lack of medical record documentation insofar as the patient’s mood-altering medication is concerned. The VAMC Director concurred with the recommendation and initiated corrective action. (Inspection of Alleged Inappropriate Proposed Extended Care Discharge, VAMC Cheyenne, WY)

We reviewed allegations, from three physicians, that VAMC managers had treated them improperly or unfairly, in separate incidents. We did not substantiate two of the physicians’ allegations. We concluded that managers had treated two of the physicians fairly in administering disciplinary action to one of them, and in reassigning the other to accommodate shifting patient loads and to meet the medical center’s reorganization imperatives. The third physician had a severe physical impairment that interfered with his ability to provide aggressive patient care such as may be needed in the event of cardiopulmonary resuscitation. The physician and his personal physician had notified VAMC managers that he was physically unable to perform all aspects of Medical Office of the Day duties, but managers had continued to assign him to these duties. We did not find any instance that the physician’s physical impairment resulted in patient harm. We recommended actions to prevent such events from occurring in the future, and the VAMC Director provided responsive implementation plans. (Inspection of Selected Clinical and Administrative Issues, VAMC Lake City, FL)

We reviewed previously agreed upon recommendations from an inspection into alleged clinical and administrative irregularities on a VAMC’s Anesthesiology Service. We concluded VAMC managers had addressed and initiated appropriate actions to correct most of the deficiencies that we had identified in an earlier inspection. However, we concluded that, even though managers had made some progress, they had not fully implemented two of the previous recommendations.

Two of the major deficiencies, cited in the earlier report, pertained to the need for stronger Anesthesiology Service management, and a need to provide stronger supervision of anesthesiology residents. We found VAMC managers had initiated a program to provide leadership mentoring and development for the service chief, but documentation of this oversight suggested a lack of management resolve to improve the chief’s skills. Managers had not apparently provided the service chief with a performance evaluation, and after our inspection visit, gave him a post-dated evaluation. The previous inspection also identified a need for stronger supervision of anesthesiology residents. We found even though managers had initiated steps to strengthen supervision, the VAMC’s records show that senior anesthesiologists who are required to supervise residents continued to inadequately record the quality or quantity of their supervision in the medical records. We recommended the VAMC Director emphasize completion of actions taken to implement these two remaining recommendations. (Follow-up Inspection of Selected Clinical and Administrative Issues on Anesthesiology Service, Hunter Holmes McGuire VAMC Richmond, VA)

A Federal grand jury returned a one count indictment in U. S. District Court against a VAMC physician charging him with first degree murder. The indictment alleges that in 1994, the physician, while working at the VAMC, unlawfully killed a patient by injecting the patient with potassium chloride in violation of Title 18, United States Code (U.S.C.), Sections 7 (3) and 1111.

An individual employed as a VAMC registered nurse was arrested and charged with making a false statement, a violation of Title 18, U.S.C. 1001. In an earlier interview by special agents of the VA OIG and in a signed sworn statement, she stated that she never slept during her duty hours. Investigation, however, uncovered a pattern of the individual sleeping during her regular tour of duty, midnight to 8:00 AM, and that she was not attentive to patient needs.

A former VAMC registered nurse was sentenced to 6 months’ home confinement and 3 years’ probation. She previously had pleaded guilty to acquiring morphine by fraudulent means. An investigation revealed that, on approximately 60 occasions, the individual diverted for her own use pain medications prescribed for VA patients under her care. She further admitted administering non-prescribed substances, such as Benadryl, to patients in an effort to conceal her activity.

8. HEALTH CARE FRAUD

• A former VAMC licensed practical nurse, who became a home health care provider for veterans, inappropriately billed for certain aspects of home health care which she reportedly was providing to a quadriplegic veteran. She did not provide the services for which she billed and illegally sub-contracted other services to non-licensed individuals who, in turn, cared for the veteran. A grand jury returned a 23-count indictment, charging her with grand larceny, engaging in a scheme to defraud, and offering a false instrument for filing claims. She allegedly filed more than 800 false documents with various entities, including VA. If found guilty, she could be sentenced to up to 15 years in prison. The fraud against the entities involved is estimated to exceed $350,000.
   
• Pursuant to the False Claims Act, a civil judgment of $11,500 was entered in U.S. District Court against a registered nurse under contract with VA. A VA OIG investigation revealed the nurse, who contracted to provide home nursing services to eligible disabled veterans, submitted fraudulent invoices for nursing care she did not provide. She billed VA for the services at times when, in fact, veterans were hospitalized and improperly billed for services she was not authorized to provide.
   
• An individual was indicted by a grand jury on six counts of submitting false statements to the Government. The indictment was the result of a joint VA OIG and FBI investigation which determined the individual was submitting false statements to obtain VA medical treatment to which he was not entitled. The individual, who was not a veteran, assumed the identity of an eligible veteran in order to receive medical treatment at VA facilities. Loss to VA exceeds $15,000.

Since the early 1990’s, members of Congress, Veterans Service Organizations, and VA managers have expressed concern about the timeliness and quality of C&P claims adjudication. VBA C&P system involves adjudication and overall administration of benefits totaling $20 billion annually to 3.3 million veterans, widows, children, and parents. Claims for C&P are backlogged due to outdated processing methods which are unable to cope with increasingly complicated adjudication and appellate rules. This report summarizes and consolidates recommendations to improve the claims processing system made by the VA OIG, Congressional commissions, and several task forces established by VA.

From our perspective, the highest priority issues facing VBA are: (i) development of a "corporate" level database which will provide the basis for making informed decisions on the nature of any proposed program changes, (ii) development and coordination of a VBA staffing and re-organization plan in conjunction with VBA’s ongoing efforts to reengineer its claims processing methods, and (iii) reform and simplification of the statutes and regulations governing the pension program. In addition to these long-term priority issues, we also recommended specific near-term actions including: (i) improving the timeliness of medical examinations for veterans applying for C&P benefits, (ii) consolidating authority and responsibility for the timely and complete adjudication of C&P claims, (iii) expanding the opportunity for local appeals hearings, and (iv) keeping veterans informed of the status of their claims. The Acting Under Secretary for Benefits generally agreed with the recommendations and provided positive comments and VBA’s actions/intentions concerning each recommendation area. (Summary Report on VA Claims Processing Issues)

We conducted this evaluation to determine whether C&P system messages served as an effective control to ensure the accuracy of C&P benefit payments and quality of service to beneficiaries. We reviewed C&P system messages generated during the 2^nd quarter of FY 1997. We found that 44 percent of 159,062 C&P system messages generated did not serve as an effective control to ensure the quality of customer service or the accuracy of benefit payments. These messages were either not timely and properly processed, or were not useful and caused unnecessary work. By better managing C&P system messages, we estimate that VBA can enhance customer service and prevent annual benefit payment errors of $33 million - $19 million in overpayments and $14 million in underpayments.

We recommended the Under Secretary for Benefits improve management of C&P system messages by: (i) requiring VARO management to monitor the timeliness and accuracy of actions taken on C&P messages, (ii) eliminating messages that do not impact payment accuracy and customer service, (iii) encouraging VAROs to identify messages that result in unnecessary work and initiate action to eliminate them, and (iv) gathering and disseminating best practices for managing C&P system messages. The Deputy Under Secretary for Management concurred with the findings and recommendations and provided acceptable implementation plans. (Evaluation of the Effectiveness of VBA’s Controls to Detect and Prevent C&P Benefit Payment Errors)

We conducted a follow-up audit to our 1995 report that concluded that 97 percent of the VBA determinations of service connection we reviewed were appropriate. While our 1995 audit showed that the percentage of questionable determinations was low (3 percent), each determination has significant impact for the claimant. Therefore, we recommended that VBA inform appropriate personnel of the types of deficiencies identified and take corrective action, if warranted.

Our follow-up audit found that the prior recommendations were implemented, and we provided information on the changes observed in disability ratings for use by the Department. Results showed that 33 of 100 veterans reviewed had a total of 61 individual conditions in which disability ratings were either new or had changed since our prior assessment. These changes increased benefit payments by $138,000 annually. Rating changes resulted primarily from: (i) changes in the severity of the veterans’ conditions, (ii) new conditions identified, (iii) new evidence related to old conditions, (iv) differing interpretations of old evidence in which the benefit of the doubt was given to the veteran and, in a few cases, (v) errors in the original rating. No recommendations were made. (Follow-up Audit of the Assessment of SC Disability Determinations)

We conducted an audit to evaluate the effectiveness of VBA’s efforts to timely terminate C&P benefits. Based on information about veterans’ deaths received from SSA, audit results showed that, only 156 of a sample of 281 veterans reported by SSA as deceased were, in fact, deceased. C&P benefit awards for 42 of 156 deceased claimants were still running; had incorrect termination dates, or had incorrect suspense dates. Overpayments in these 42 cases totaled $340,000. We estimated approximately $4 million in erroneous payments were made throughout VBA. Based on our findings, we recommended that VBA: (i) implement a more effective system for follow-up on claimant death notifications; (ii) correct beneficiary data base problems and link electronic beneficiary data bases where necessary; and (iii) coordinate with SSA officials to improve the accuracy of SSA death reporting. VBA concurred with all recommendations, and provided acceptable implementation plans. (Audit of VBA SSA/VA Death Match Procedures)

We conducted an evaluation of SGLI premium collections for reservists. In FY 1997, 95 percent of 867,000 reservists participated in the SGLI program. In FY 1996, premium collections for reservists totaled $163 million, 34 percent of the $475 million collected for SGLI.

We concluded that reporting systems for seven of eight reserve components were inadequate to verify the accuracy of insurance premiums because they did not separately report premiums for pay and non-pay status reservists. As a result, we could not confirm the accuracy of about $130 million of the $163 million of life insurance premiums (80 percent). Our review found the Air Force Reserve insurance premium reporting system was adequate to assess the accuracy of premium payments. However, at one of two sites visited, we found premiums paid to VA exceeded the amount due by about 30 percent or about $22,000. These overpayments were made for individuals in non-pay status who had left the reserve component.

We recommended that Insurance Service management work with uniformed service organization representatives to improve their reporting systems to ensure premiums paid to VA for all insured reservists can be verified. We also recommended Insurance Service management share our observations regarding premium overpayments with Air Force Reserve management, to assist them in improving the accuracy of SGLI premium payments. The Under Secretary for Benefits concurred with our recommendations and provided acceptable implementation plans. (Evaluation of Premium Payment and Reporting Procedures for the SGLI Program)

We conducted this evaluation to determine whether adequate safeguards existed to detect or prevent irregular disbursements of Matured Endowment (ME) awards. The provisions of an endowment life insurance policy direct payment of the face amount to the insured after a certain term (e.g. 20 years) or age (e.g. age 65), or to the beneficiary upon the death of the insured. We reviewed 15,600 ME awards representing disbursements of $136 million and found there was a need for increased internal controls to monitor disbursement of computer generated ME awards.

The evaluation showed that 90 percent of ME awards were disbursed without sufficient oversight to detect or prevent irregularities. Although we did not identify any irregular disbursements, we noted 53 awards, valued at $571,000, that should be categorized as high risk and subjected to management oversight because of their potential vulnerability to fraud. We recommended installing computer software to identify high risk disbursements for review. The Under Secretary for Benefits concurred with our recommendation and provided an acceptable implementation plan. (Evaluation of Controls Over Disbursements of ME Life Insurance Awards)

Loan Origination Fraud

• In U.S. District Court, an accountant was convicted on charges of conspiracy, aiding and abetting, and defrauding the Government. The conviction was the result of a joint investigation by VA OIG, FBI, and the SSA-OIG, which disclosed that over a 3-year period, the individual and four co-conspirators engaged in a scheme to secure mortgages for individuals unable to qualify for loans through the normal mortgage process. The scheme involved submitting false documents and statements concerning the purchase of 26 VA owned properties. The individual, in his capacity as the accountant, falsified his clients’ employment and credit histories on mortgage qualification documents. One of the co-conspirators has already executed a pre-trial diversion agreement requiring a payment of $12,000 in restitution. Efforts in locating the last two co-conspirators are ongoing. Loss to VA is in excess of $150,000.
   
• An individual who previously had pleaded guilty in U.S. District Court to charges of providing false information in the process of procuring a VA loan also has pleaded guilty in state court to two felony violations for possession with intent to distribute dangerous drugs and cultivation of controlled substances. This prosecution is the result of evidence seized during execution of Federal search warrants by VA OIG special agents. Included with evidence seized in connection with VA’s loan fraud case were multiple kilograms of harvested marijuana and marijuana under cultivation.
   
• An individual acting in various capacities as president, owner or co-owner of realty, investment and service companies was sentenced in U.S. District Court to 60 months’ confinement, 3 years’ supervised probation, and to make restitution in the amount of $517,384 to VA, the Department of Housing and Urban Development (HUD) and a bank. In addition, the individual forfeited his personal holdings totaling more than $2 million. The sentencing followed a guilty plea in response to evidence developed during a joint VA, HUD, and FBI investigation, that disclosed the individual purchased low-cost distressed properties, cycled them through front companies to inflate their assessed value, and then sold them to fraudulently qualified applicants.
   
• An individual was sentenced to 10 months’ imprisonment, 3 years’ probation, and ordered to pay $31,794 in restitution to VA following an indictment in U. S. District Court on charges of making false statements and false representations. A joint VA OIG and U.S. Secret Service investigation revealed the individual had made false statements to VA regarding his employment, income, and social security number in order to qualify to purchase a VA foreclosed home.
   
• An individual pleaded guilty in U.S. District Court to a one-count information charging him with making a false statement to the Government. A VA OIG investigation revealed the individual, in order to qualify for a VA guaranteed home mortgage through debt reduction, divested himself of, and then immediately re-acquired, personal property and provided VA only the documentation reflecting the divestiture. In addition, he had the new finance company delay the normal credit bureau reporting until after the home mortgage closing date. The mortgage is scheduled for foreclosure, with a potential loss to VA of $30,000. Sentencing is pending.
   
• A real estate sales broker who co-owned a realty company pleaded guilty in U.S. District Court to conspiracy to defraud the U.S., making false statements to VA, and using social security account numbers fraudulently. An investigation revealed the individual and co-conspirators attempted to obtain VA properties and financing under the Department's Vendee Loan Program by using the names and social security numbers of deceased persons and fictitious individuals as nominees and by submitting false and fraudulent financial documents designed to create the appearance that the nominee buyers were credit worthy. The real estate sales broker faces a maximum sentence of 5 years’ imprisonment; sentence is pending.
   
• An individual pleaded guilty in U.S. District Court to one count of making a false statement and three counts of wire fraud. A VA OIG investigation revealed the individual owned a firm through which he fraudulently obtained titles to real property. A co-conspirator pleaded guilty to one count of tampering with a witness, a misdemeanor. The individual and the associate await sentencing.

Equity Skimming

• An individual was sentenced in U.S. District Court to 12 months' incarceration, 36 months' probation, ordered to pay a fine of $2,500 and to make restitution in the amount of $24,220 to VA. A joint investigation by VA OIG and HUD OIG revealed the individual assumed the home loans of VA guaranteed properties and HUD insured properties, and then collected rent money from tenants placed in the homes, while failing to make payments to the lenders. He filed 81 bankruptcies on these properties, using fictitious names, which stalled foreclosure and enabled him to continue collecting rent. Losses to VA and HUD totaled $171,000.

Surety Bond Fraud

• An attorney pleaded guilty in U.S. District Court to 1 count of making a false statement and 3 counts of wire fraud, in response to a 24-count indictment that charged him and two of his associates with violations of Federal statutes. A joint VA OIG and Department of Justice investigation disclosed the individual was part of a real estate development and investment syndicate that used fraudulently acquired titles to real property as collateral on personal surety bonds they issued to contractors doing work for the Government. Loss to the Government amounted to approximately $100,000 when contractors, who had obtained surety bonds from the individuals, defaulted on their contracts. Prosecution is pending on the attorney’s two associates. Sentencing is pending.

Compensation Benefits Fraud

• An individual was sentenced in U.S. District Court to 46 months’ imprisonment, 3 years’ supervised probation, and ordered to pay restitution of $447,182 following his conviction on 40 counts of mail and wire fraud, and false statements. A joint VA OIG and FBI investigation revealed that, over a period of more than 10 years, the individual posed as a wheelchair-bound veteran who had lost the use of his right arm and right leg, collecting over $500,000 in compensation and other benefits from VA. Testimony provided by a number of witnesses during his trial established that he was not disabled and, in fact, ran a successful business painting homes and office buildings.
   
• An individual pleaded guilty in U.S. District Court to one count of making false statements and was sentenced to 6 months’ home confinement, 5 years’ probation, and ordered to make restitution to VA in the amount of $30,162. The individual was receiving VA service-connected benefits when he re-enlisted in the Army in 1994 and failed to notify VA of his re-enlistment. His failure to notify VA resulted in the fraudulent receipt of benefits to which he was not entitled.

Dependency and Indemnity Compensation (DIC) Benefits Fraud

• An individual was sentenced in U.S. District Court to 90 days’ home confinement, 1-year probation and was ordered to pay $175,118 in restitution to VA. A VA OIG investigation revealed that the individual illegally diverted VA DIC funds directed to her deceased mother.
   
• A husband and wife were each sentenced in U.S. District Court to 60 months' supervised release and to pay $104,000 in restitution following their guilty pleas. A joint investigation conducted by the VA OIG, Air Force Office of Special Investigations, and United States Secret Service revealed that the individuals conspired to defraud the Government of $207,287 in VA DIC benefits and Air Force pension benefits paid to one individual’s deceased mother.
   
• An individual was sentenced in U.S. District Court to 5 years’ probation, 3 months’ home confinement, and was ordered to make restitution to VA in the amount of $50,043. The individual previously was convicted on one count of theft of Government property. A VA OIG investigation determined that over a 5-year period, the individual fraudulently endorsed U.S. Treasury Checks representing DIC benefits payable to his deceased mother.
   
• An individual was sentenced in U. S. District Court to 8 months’ incarceration, 36 months’ supervised probation, and restitution of $14,035 following a guilty plea to one charge of credit card fraud. Evidence of the credit card fraud was disclosed during the execution of a Federal search warrant by VA OIG agents in connection with the investigation of a VA benefits fraud case involving the individual’s spouse. A joint investigation by VA OIG, a state Employment Development Department, and the Postal Inspection Service resulted in charges being filed. The spouse previously was sentenced to 8 months’ imprisonment, 3 years’ probation, and ordered to pay restitution to VA in the amount of $47,225. In addition, the individual is subject to deportation proceedings because he is now classified as a felon for violating a fraud statute.
   
• An individual pleaded guilty in U.S. District Court to a four-count indictment charging her with wire fraud in connection with the theft of $83,680 in electronically deposited DIC benefits funds paid to her mother, the spouse of a deceased veteran. A VA OIG investigation revealed the individual, who had power of attorney over her mother’s bank account, failed to notify VA or the bank of her mother’s death in 1988, thereby causing VA to continue to deposit benefits payments into the account. The individual used the deposited funds for her own use. A sentencing date is pending.
   
• An individual pleaded guilty in U.S. District Court to a one-count information charging him with theft of public funds. A VA OIG investigation revealed that, over a 15-year period, the individual cashed his deceased mother’s DIC checks. Loss to VA totaled more than $100,000.
   
• A former VAMC housekeeping aide was indicted by a Federal grand jury. The individual did not report his mother’s death to VA; instead, he intercepted and cashed $86,511 in VA benefits checks that were intended for his mother. Prosecution is pending.
   
• An individual pleaded guilty in U.S. District Court to theft of Government property. The individual previously had been indicted on charges of receiving VA widow’s benefits totaling $39,162 to which she was not entitled. The individual failed to notify VA of her remarriage, which would have terminated her entitlement to benefits. Sentencing is pending.
   
• An individual was indicted in U.S. District Court, charged with one count of theft and one count of submitting a false statement to the Government. The charges resulted from a VA OIG investigation which disclosed the individual submitted multiple eligibility verification reports to VA falsely stating she had not remarried since the death of her veteran husband. As a result, she received more than $21,000 in benefits to which she was not entitled.

Pension Benefits Fraud

• An individual pleaded guilty in U.S. District Court to a one-count criminal information charging him with theft of Government property. During a 4-year period, the individual, who was receiving benefit payments from VA under its Improved Pension Program, submitted fraudulent documents relating to his income and marital status. Subsequently, he failed to notify VA of changes to his financial situation, which rendered him ineligible to continue to receive benefits. Loss to VA is in excess of $30,000. Sentencing is pending.
   
• A former VA rating specialist at a VAMC and Regional Office pleaded guilty in U.S. District Court to one count of mail fraud. The individual had previously served as the Veteran Services Officer and was responsible for the operations of the entire Veterans Services Division. The individual had been indicted in U.S. District Court on one count of mail fraud. The indictment charged that the individual devised a scheme for obtaining VA benefits to which he was not entitled by making false representations to the Government.

Fiduciary Fraud

• An individual who previously pleaded guilty to misappropriation by a fiduciary was sentenced in U.S. District Court to 4 months’ imprisonment, 4 months’ home confinement with electronic monitoring, 3 years’ supervised release, and ordered to pay restitution to the veteran involved in the amount of $14,682. The individual converted, for her own personal use, funds belonging to a disabled and incompetent veteran for whom she was responsible and who was entrusted to her care.
   
• An individual pleaded guilty in U.S. District Court to embezzling VA benefits being paid to his grandmother, a widow of a disabled veteran. The individual was appointed as her fiduciary in 1990 and embezzled approximately $6,800 from his grandmother’s account.

Educational Benefits Fraud

• The Civil Division of the U.S. Attorney's Office is continuing to obtain civil settlements from student veterans who received VA education benefits but did not attend regularly scheduled classes at a community college. Bribes were paid to faculty staff, including the Chairman of a department at the college, to ensure that high grades would be given with no class attendance required. Most recently, the Civil Division obtained additional settlement agreements in the amount of $249,363 from 14 students, for a total to date of 77 students who have agreed to pay a total of $1,261,400 in restitution. Negotiations are continuing with additional students.

We conducted an audit of VA Real Property Leased Space to determine whether leases were established economically and to evaluate the effectiveness of the lease administration process. We also reviewed VBA’s leased space to determine if it was reduced commensurate with recent staffing reductions. VA had 654 leases with annual costs of $171 million as of March 1996.

Our review found that VHA and VBA generally established leases economically, administered leased space effectively, and reduced leased space when appropriate. VBA negotiated reduced rental rates when General Services Administration (GSA) billed for more space than VA actually occupied and when commercial rental rates declined. VBA also reduced space when the number of employees declined and established a goal of reducing annual rent expense by $8 million by FY 1999.

VHA is considering increasing the threshold for contracting officer approval of leases from $300,000 to $1 million. However, not all facilities have contracting officers with the proper lease training and experience. The audit also found that VA is paying GSA significantly more than the market rate for some leased space. In five cases, VA is paying $1.6 million more yearly than the current market value. We also found that many contract files did not contain adequate documentation to confirm that competition was solicited.

We recommended that management: (i) develop procedures to ensure that GSA rental rates are consistent with current fair market values and to appeal rates found to be significantly higher, (ii) curtail plans to increase contracting officer lease approval authorities, (iii) improve training for VAMC contracting officers, and (iv) improve documentation of the lease process in the lease files. The Under Secretary for Health agreed with our recommendations and provided acceptable implementation plans. (Audit of Department of Veterans Affairs Leased Space)

The evaluation assessed VA’s capital asset acquisition practices and efforts to implement a capital programming process. In FY 1997, VA’s capital investment totaled about $1.3 billion. Capital programming is defined as a comprehensive process for planning, budgeting, procuring, and managing capital assets that include land, structures, equipment, intellectual property, and information technology hardware and software. Historically, VA has not had a comprehensive process. VA did not always consider alternatives to proposed acquisitions and did not use benefit-cost analysis to support decisions.

Recent VA initiatives, such as the establishment of the Capital Investment Board, were steps in the right direction. These efforts have focused on high cost, high risk investments that require VACO approval. To continue progress toward a comprehensive capital program, VA needed to address two issues. First, most capital investment decisions are now made at the VISN level, and existing policy does not specify to what extent capital programming principles and techniques should be applied to VISN-controlled investments. Second, VA’s programming efforts have been hindered by a funding process that provides two major sources of funds for capital assets, the medical care appropriation and the construction appropriation. This process has resulted in the selection of more costly capital alternatives simply because funds were available in one appropriation and not in the other.

We recommended the Acting Assistant Secretary for Management and the Under Secretary for Health work together to: (a) develop policy on VISN-controlled capital investments, (b) provide VISN staff with technical guidance in performing benefit-cost analysis and other programming principles and methods, and (c) explore the feasibility of using alternative strategies for funding capital investments. Management concurred with the recommendations and provided acceptable implementation plans. (Evaluation of VA Capital Programming Practices and Initiatives)

We conducted this audit to evaluate the effectiveness of management controls over the use of PY funds to pay for work on NRM construction projects. PY NRM funds are the residual unobligated funds remaining in an appropriation account at the end of a fiscal year, and are to be used only to pay for work within the scope of NRM project contracts. During the 4-year period FY 1993-1996, $45.9 million in PY funds were approved for use in NRM projects, an average of $11.5 million yearly. Review of 12 NRM projects at 4 VAMCs found that: (i) VAMCs were able to access and use PY funds without obtaining Office of Financial Policy (OFP) approval as required by VA policy; (ii) PY funds were used to pay for additional work that was outside the scope of the contracts in 11 of the 12 projects reviewed; and (iii) VAMCs incurred additional costs by using PY funds to address problems that could have been avoided or mitigated if the VAMCs had followed existing NRM project management guidance. We concluded that improving controls over the use of PY funds could reduce PY funds usage by over $3.8 million a year.

We recommended the Under Secretary for Health and the Acting Assistant Secretary for Management: (i) transfer responsibility for monitoring the use of PY funds from OFP to VHA, (ii) establish controls to ensure that VAMCs obtain approval to use PY funds and use PY funds only for work within the scope of contracts, (iii) provide detailed policy guidance on the use of PY funds to VAMCs, and (iv) provide training on the use of PY funds to VAMC staff. Management concurred with the recommendations and provided planned actions responsive to the recommendations. (Audit of VAMC Use of PY Funds on NRM Construction Projects)

In response to requests from former Secretary of Veterans Affairs, Jesse Brown, and from Congressman Bill Young, the OIG reviewed structural framing problems which became apparent during construction of the new VARO, Bay Pines, FL. The purpose of our review was to determine why these problems occurred, whether the design changes would result in a building that safely met VA requirements, and what it will cost to fix the structural framing problems.

The review determined the major cause of the structural design problems was due to a private Architect/Engineering (A&E) firm and its engineering subcontractor providing VA with structural plans for the project which contained structural framing design errors. Although VA communicated serious concerns about the quality of the structural designs during its oversight reviews, VA and the A&E firm did not adequately follow up on these concerns to ensure they were resolved before approving the plans for construction bidding. OIG hired a structural engineering consultant to assess the sufficiency of the structural framing design corrections. The consultant determined the structural framing design, as modified, would safely support VA’s standard requirements for VARO buildings in all areas of the building except the mechanical rooms. However, the consultant determined the mechanical rooms’ designs were more than adequate for their intended purpose because the equipment in them requires substantially less floor loading capacity than VA specifications require. In regard to the cost issues, the total direct and indirect costs associated with the structural design problems have not been determined. The engineering subcontractor to the A&E firm has reimbursed VA $706,000 to date.

We made recommendations to the Chief Facilities Management Officer, as appropriate, to address issues identified during our review. The Chief Facilities Management Officer concurred with all recommendations and provided implementation plans that meet the intent of all recommendations.

The completion of the audit of VA’s FY 1997 CFS has been delayed due to several factors which expanded the workload associated with this year’s audit. These factors include the following:

• The audit of the Governmentwide CFS has expanded the scope, depth, and staff hours necessary for auditing VA’s statements.
   
• Weaknesses in VA’s automated data processing controls detected during the audit has resulted in the OIG increasing our efforts to audit compensating controls identified by the Department.
   
• The new Federal Financial Accounting Standard, Accounting for Liabilities of the Federal Government (SFFAS No. 5), expanded the need for actuarial estimates of out-year veterans’ compensation payments.

To complete the additional work required, the Office of Audit cancelled 6 audits to make staff available for the financial statement audit. These staff assignments will continue well into FY 1998.

In FY 1996, the Office of Audit initiated a multi-phase evaluation of VA’s Debt Management Program. The purpose of the evaluation is to help VA management optimize their goals to prevent debts, improve debt collection results, and enhance operational efficiencies. At the beginning of FY 1997, debts owed to VA totaled about $4.2 billion. These debts represent potential revenues to the VA and/or the Treasury Department and include: defaults on VA loan guarantees ($1.4 billion), portfolio/direct loans for housing ($1.1 billion), unpaid medical care debts owed by veterans and third party insurers ($750 million), overpayment of veterans benefits ($600 million), and debts owed by other federal agencies ($400 million).

Through March 1998, audit of VA’s debt management program focused on identification, prevention and recovery of overpayments of C&P benefits, and billing and collection of medical care owed by veterans and third party insurers. To date we have made recommendations to:

• Establish debts totaling approximately $53.2 million,
• Prevent new debts caused by benefit overpayments totaling $86.9 million annually,
• Enhance debt collection by about $103 million, and
• Streamline operations and achieve annual cost efficiencies totaling about $6.7 million.

Overall audit results to date identified monetary benefits totaling over $249 million. In addition to realizing significant monetary benefits, these audits identified opportunities to help enhance service to veterans by identifying benefit underpayments of about $14 million, and preventing the inappropriate billing or income verification of 14,000 veterans.

We conducted this review as part of our nation-wide audit of the MCCF Program, the purpose of which is to assess MCCF billing practices and collection results and to identify the best practices to enhance revenues. The MCCF program at VAMC Brockton/West Roxbury is considered a successful MCCF operation, with FY 1996 collections totaling over $7.9 million, 187 percent of their minimum goal. We evaluated a statistical sample of FY 1996 discharges at the VAMC and concluded that collections could be increased through use of collection tools developed by the MCCF Program Office, and by improved collection of insurance data from veterans, insuring all inpatient care is appropriately billed, and by following up timely on delinquent bills. Management officials took corrective action on the cases we identified. (Evaluation of the Medical Care Cost Recovery, VAMC Brockton/West Roxbury, MA)