October 1996
FOREWORD
It is my pleasure to submit the semiannual report
on the activities of the Office of Inspector General (OIG) for
the period ended September 30, 1996. This semiannual report is
being issued in accordance with the provisions of the Inspector
General Act of 1978, as amended.
OIG audits, investigations, inspections and reviews,
identified $119.9 million of actual and potential monetary benefits
and resulted in 64 convictions and 138 administrative actions
during the semiannual reporting period. OIG coordinated efforts
with the Office of Acquisition and Materiel Management, Veterans
Health Administration, and the General Counsel to recover more
than $28 million in contractor overcharges on VA contracts for
drugs and medical equipment. Of particular note were the results
of a criminal investigation into price fixing that resulted in
a company being fined $10 million and the settlement of numerous
class-action civil lawsuits for an additional $18 million.
Nationwide patient care program reviews concluded
that VA's inpatient care delivery is timely, additional efforts
can be taken to assist homeless veterans, and the patient representative
program functions effectively, but can be strengthened through
consolidation and increased use of program data. We recommended
changes to the benefit award notification process to assist in
eliminating annual overpayments of $24 million, and provided actions
considered necessary to improve accounting operations and to strengthen
security controls over VA's automated systems.
We, at the OIG, will continue our efforts to work
with VA program officials to make VA a laboratory of initiative
and reinvention. We will work to help VA develop a health care
system that is a model that reflects the most cost-effective and
patient-centered reforms for improved health care delivery in
the nation. We will also remain focused on issues involving VA's
procurement, veterans benefits, and financial programs to ensure
sound management and a system that is free from fraud and other
illegal activities. This is the best way to ensure that we provide
our veterans the quality services they deserve.
WILLIAM T. MERRIMAN
Deputy Inspector General
TABLE OF CONTENTS
| EXECUTIVE OVERVIEW | i |
| SUMMARY OF OIG OPERATIONS | v |
| I. SIGNIFICANT OPERATIONAL ACTIVITIES | |
| Procurement Programs | 1-1 |
| Medical Care Programs | 1-5 |
| Benefit Programs | 1-11 |
| Construction Programs | 1-17 |
| Financial Management | 1-19 |
| Information Resources Management | 1-23 |
| Employee Integrity and Other Issues | 1-25 |
| II. OTHER SIGNIFICANT OIG ACTIVITIES | |
| Hotline | 2-1 |
| Forensic Document Laboratory | 2-5 |
| Review of Legislation and Regulations | 2-6 |
| OIG Management Presentations | 2-7 |
| OIG Congressional Testimony | 2-8 |
| Freedom of Information/Privacy Act/Other Disclosure Activities | 2-8 |
| Obtaining Required Information or Assistance | 2-8 |
| III. FOLLOWUP ON OIG AND GAO REPORTS | |
| OIG Role and Responsibility | 3-1 |
| Resolution of OIG Recommendations | 3-1 |
| Summary of Unresolved and Resolved OIG Audits | 3-2 |
| Resolution of GAO Reports | 3-7 |
| IV. VA AND OIG MISSION, ORGANIZATION AND RESOURCES | 4-1 |
APPENDIX A - REVIEWS BY OIG STAFF
APPENDIX B - CONTRACT REVIEWS BY OTHER AGENCIES
APPENDIX C - INTERNAL AUDIT REPORTS FOR WHICH A MANAGEMENT DECISION HAD NOT BEEN MADE FOR OVER 6 MONTHS AS OF SEPTEMBER 30, 1996
APPENDIX D - EXTERNAL CONTRACT AUDIT REPORTS FOR WHICH A CONTRACTING OFFICER DECISION HAD NOT BEEN MADE FOR OVER 6 MONTHS AS OF SEPTEMBER 30, 1996
APPENDIX E - REPORTING REQUIREMENTS OF THE INSPECTOR GENERAL
EXECUTIVE OVERVIEW
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 September 30,
1996. During this reporting period, 74 audit, review, and inspection
reports were issued; 1 settlement agreement was completed; and
116 investigations were closed that identified actual and potential
recoveries of $56.8 million and made operational recommendations
which could result in better use of an estimated $62.7 million.
In addition, as a deterrent to fraud, waste, and mismanagement,
our investigations and other reviews resulted in 84 indictments,
64 convictions, and 138 administrative actions against third parties,
VA employees, and benefit recipients.
Our audits, inspections, and investigations this period focused
on VA's major areas, as summarized in the following paragraphs.
PROCUREMENT PROGRAMS
Price Fixing
A company found guilty of price fixing settled class-action civil
lawsuits for $18 million. The company was also sentenced to pay
a fine of $10 million.
Contractor Overcharges
VA will recover over $6 million and reduce contract costs by over
$4 million due to identification of contractor overcharges. In
one case, a Federal Supply Schedule (FSS) pharmaceutical company
remitted $5.2 million to VA in settlement of contract overcharges.
In another case, the National Acquisition Center contracting officer
negotiated lower prices than we had recommended, with contract
costs expected to be reduced by $4 million over the term of the
contract.
Procurement Fraud
Contractors will pay the Government over $13 million for submitting
false invoices, or knowingly overcharging on products sold to
VA and other Federal agencies.
Management of Contracts
Our audit of the National Acquisition Center's (NAC) administration
of centralized contracting activities concluded that the NAC was
in compliance with Federal and VA procurement regulations and
policies.
MEDICAL CARE PROGRAMS
Resource Utilization
A review of VA Medical Center (VAMC) administrative staffing levels
concluded that there were significant variances in administrative
resource utilization among similar VAMCs. The review results support
the Veterans Health Administration's (VHA) plans to consolidate
and streamline administrative functions.
Management Controls Over Claims Processing
Our review of the Civilian Health and Medical Program of the VA
showed that although informal management controls were generally
effective, a formal management evaluation program with continuous
monitors could assist staff in identifying duplicate claims, ineligible
beneficiaries, and fraudulent practices.
Nationwide Program Reviews
Three nationwide patient care program reviews were completed on
VA's timeliness of inpatient care, assistance to homeless veterans,
and effectiveness in responding to patient/family complaints.
We found inpatient health care delivery was timely and adequately
monitored; additional actions, including collection of comprehensive
data and establishment of minimum program expectations, could
improve assistance to homeless veterans; and increased emphasis
on, and use of, customer feedback data could improve the consumer
complaint process.
Control of Drugs
Investigations disclosed theft of VA prescription pads from a
medical center, distribution of a controlled substance, possession
with intent to distribute, and distribution of prescription drugs
without a license. One individual was sentenced to 5 years' incarceration
and fined $5,000 and another to 9 years' incarceration.
Health Care Fraud
Individuals were sentenced for submitting fraudulent claims or
making false statements in order to receive VA funding or medical
treatment. One individual was sentenced to 30 months in prison
and a $50,000 fine, and another to 8 months in prison.
BENEFIT PROGRAMS
Delivery of Benefits and Services
We evaluated the impact of VA's award notification procedures
on compensation and pension award processing, especially those
awards reducing or terminating payments to beneficiaries. The
review found that the process could be more effective for beneficiaries
and more efficient for VA by using prospective award adjustments
coupled with enhanced beneficiary dial-in telephone inquiry services.
These changes would help eliminate delays in adjusting benefits
which annually result in beneficiary overpayments totalling $24
million.
Income Verification
We reviewed VA's Income Verification Match (IVM) program, and
found that the Veterans Benefits Administration (VBA) and VHA
achieved positive cost benefit ratios, but needed to take actions
to further reduce program costs, including increasing the minimum
income discrepancy for case referrals and verifying multiple years
of veterans' income information.
Loan Guaranty Program Fraud
Our investigations disclosed cases of loan origination fraud,
equity skimming, and property management fraud. In one case, an
individual was sentenced to 27 months imprisonment and ordered
to pay restitution of over $45,000 for submitting false documents
in order to qualify eight otherwise ineligible borrowers for VA
financing on several VA portfolio properties. A property management
broker was sentenced to 27 months imprisonment and ordered to
pay over $200,000 for fraudulently acquiring over 100 VA-guaranteed
or HUD-insured homes and for equity skimming, with a loss to the
Government of over $1.6 million.
Beneficiary Fraud
OIG investigations disclosed cases of compensation, pension, fiduciary
and education benefits fraud. A former state Veterans Service
Officer was sentenced to 63 months' imprisonment, 36 months' probation
and ordered to pay restitution of $250,000 after pleading guilty
to conspiracy, embezzlement, and money laundering in connection
with a scheme to defraud VA. An attorney was sentenced to 24 months'
imprisonment, 3 years' supervised release, and ordered to pay
$2.8 million in restitution. Our investigation revealed the attorney
aided and abetted his former law partner in the misappropriation
of $240,935 belonging to veterans. The law firm also defrauded
244 other individuals for over $12.4 million. Another investigation
revealed that over 100 individuals were involved in a scheme to
defraud VA through falsifying college attendance records, with
a loss to VA of over $5 million.
CONSTRUCTION PROGRAMS
Management of VA's Asbestos Program
Our review concluded that asbestos was usually removed at VA facilities
during renovation and construction projects or when it was potentially
hazardous. Improvements were needed in the management of the program,
including finalizing a policy to clearly define the costs allowed
to be expensed from the asbestos abatement fund and ensuring Federally
mandated asbestos inspections remain operational and effective
under the new VHA reorganization.
Construction Fraud
Individuals and companies were debarred from doing business with
the Federal Government for fraudulent acts disclosed by investigations.
Illegal activities ranged from bribing VA officials for contract
awards to falsifying documents related to construction projects
and rigging competing bids.
FINANCIAL MANAGEMENT
Consolidated Financial Statements
Our audit of VA's consolidated financial statements for Fiscal
Years (FY) 1995 and 1994, reaffirmed the prior year report recommendations
to ensure accurate reporting of real property, plant, equipment,
related depreciation account balances, net receivables, and related
revenue account balances; and to correct overall weaknesses in
VA's Life Insurance Programs, increase the effectiveness of reviews
of open unliquidated obligations, and complete efforts underway
to improve the performance measurement process.
Other Financial Control Issues
We reviewed the progress that each of VA's administrations had
made toward establishing cost accounting systems. VHA is making
the most progress as it implements its Decision Support System
at VAMCs; VBA had initiated action to develop its system; and
National Cemetery System (NCS) had not started due to resource
and technical constraints. We also reviewed unliquidated obligations
valued at approximately $1 billion and concluded that over $36
million could have been deobligated and the funds made available
for other VA needs.
INFORMATION RESOURCES MANAGEMENT
Security Controls
Two reviews of security controls were completed - one of the Austin
Automation Center and the other of VHA's Decentralized Hospital
Computer Program (DHCP). The review at Austin found actions were
needed to correct physical control weaknesses and improve electronic
access controls. The DHCP review concluded that improvements to
the automated information security program were needed, including
restricting the number of employees with system level access and
periodically reviewing the need for assigned levels of access.
EMPLOYEE INTEGRITY
Theft and/or Diversion of VA Pharmaceuticals
OIG and the Specialized Investigations Regional Task Force (SIRTF)
continue to disclose instances of employee theft and diversion
of VA pharmaceuticals. Employees stole pharmaceuticals and blank
prescription pads for personal use as well as resale.
Employee, Beneficiary, and Third-Party Integrity
OIG and the SIRTF continue to disclose instances of employee theft
and diversion of VA pharmaceuticals, employee theft of VA property,
illegal receipt of Office of Workers' Compensation Program (OWCP)
benefits, misappropriation of patients' funds, loansharking, and
making false claims to the Government. In one case, two current
employees and one former employee admitted to trafficking in linen
they stole from a VAMC- based laundry operation. Another VAMC
employee accepted cash from a firm that supplied tools and supplies
to the medical center for arranging purchases in excess of $17,000
from the firm. In another case, a VA employee and her husband,
a former VA employee, were indicted for conspiracy to commit Federal
employees workers' compensation fraud. Our investigation revealed
they made false statements that would have resulted in VA paying
out $540,000 in workers' compensation benefits. Finally, a special
inquiry found that eight VAMC employees inappropriately received
over $46,000 in salary supplements from a nonprofit organization
while performing the duties of their VA jobs.
FOLLOWUP ON OIG AND GAO REPORTS
Unresolved Reports
As of September 30, 1996, the OIG did not have any significant
audit reports unresolved for over 6 months.
SUMMARY OF OIG OPERATIONS
(Dollars in Millions)
| Current 6 Months | FY 1996 | |
| 4/1/96 - 9/30/96 | 10/1/95 - 9/30/96 | |
| OIG Reviews Completed and Resolution Action | ||
| Reports Issued | 74 | 149 |
| Settlement Agreements | 1 | 2 |
| Value of Reports/Agreements | ||
| Questioned Costs | $ 10.4 | $ 33.6 |
| Unsupported Costs | .2 | 3.6 |
| Recommended Better Use of Funds | 62.6 | 99.6 |
| Total | $73.2 | $136.8 |
| Reports Resolved (issued this and prior periods) | 81 | 171 |
| Value of Resolved Reports/Agreements | ||
| Disallowed Costs | $ 6.5 | $ 28.4 |
| Funds to Be Put to Better Use | 62.4 | 375.7 |
| Total | $68.9 | $404.1 |
| Unresolved Reports | ||
| Over 6 Months as of 9/30/96: | ||
| Internal Audit | 1 | N/A |
| External Contract | 26 | |
| Less than 6 Months as of 9/30/96: | ||
| Internal Audit | 0 | |
| External Contract | 14 | |
| Total | 41 | |
| Value of Unresolved Reports: | ||
| Questioned Costs | $ 8.9 | N/A |
| Unsupported Costs | 2.1 | |
| Recommended Better Use of Funds | 31.5 | |
| Total | $ 42.5 | |
| Investigation Activities | ||
| Investigative Cases | ||
| Opened | 125 | 283 |
| Closed | 116 | 261 |
| Pending | 351 | N/A |
| Impact of Investigations | ||
| Indictments | 84 | 155 |
| Convictions | 64 | 138 |
| Probation (in years) | 197 | 343 |
| Prison Sentences (in years) | 63 | 96 |
| Fines, Penalties, Restitutions, and Civil Judgments | $44.2 | *$64.4 |
| Investigative Recoveries and Savings | $ 2.5 | $3.9 |
| Administrative Sanctions | 105 | 193 |
*Includes $17.5 million associated with two settlement agreements resulting from a joint OIG contract review and investigation.
| Current 6 Months | FY 1996 | |
| 4/1/96 - 9/30/96 | 10/1/95 - 9/30/96 | |
| Audit Activities | ||
| Reports Issued | ||
| Internal Audit | 13 | 18 |
| Other Review | 10 | 16 |
| Total | 23 | 34 |
| Audit Workload | ||
| Carry-Over Projects | 16 | 23 |
| Planned Projects Initiated | 6 | 16 |
| New Projects Received | 17 | 23 |
| Total | 39 | 62 |
| Contract Review Activities | ||
| Reports Issued/Settlement Agreements | ||
| Contract Reviews by OIG Staff | ||
| FSS Contracts | 6 | 11 |
| PL 102-585 Reviews | 1 | 6 |
| Other | 2 | 4 |
| Contract Reviews by Other Agencies | 25 | 60 |
| Total | 34 | 81 |
| Hotline and Special Inquiry Activities | ||
| Hotline Cases | ||
| Opened | 305 | 549 |
| Closed | 281 | 531 |
| Percent of Founded Allegations | 26% | 26% |
| Impact of Hotline Activities | ||
| Administrative Sanctions | 33 | 56 |
| Special Inquiries Completed | ||
| Reports Issued | 10 | 19 |
| Administrative Closures | 11 | 16 |
| Total | 21 | 35 |
| Special Inquiries Workload | ||
| Carry-Over Projects | 24 | 44 |
| New Projects Received | 11 | 27 |
| Total | 35 | 71 |
| Healthcare Inspection Activities | ||
| Projects Completed | ||
| Inspection Reports Issued | 8 | 17 |
| QA/Patient Care Reviews | 22 | 34 |
| Clinical Consultations/Technical Support | 47 | 66 |
| Total | 77 | 117 |
| Projects Pending | ||
| QA/Patient Care Reviews | 48 | N/A |
| MI Case Evaluations | 0 | |
| Clinical Consultations/Technical Support | 21 | |
| Total | 69 |