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, 1997. 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 over $157 million of actual and potential monetary benefits and resulted in 36 convictions and 127 administrative actions during the semiannual reporting period. OIG coordinated efforts with the Office of Acquisition and Materiel Management, Veterans Health Administration (VHA) and the General Counsel to recover $28 million resulting from contractor overcharges on VA contracts for drugs and medical equipment. While the OIG continues to provide the best possible coverage of VA programs and activities within available resources, the continuing decline in appropriated dollars has made it increasingly difficult to provide an acceptable level of oversight. Staffing levels for the OIG are currently far below the statutory floor of 417. A VA request to Congress to remove the statutory floor was not acted upon. Since the statutory floor remains, our position is that the mandate should be complied with. My belief is that the statutory floor was established as the minimum level needed to provide an acceptable level of oversight over the second largest Department in the Federal government. Continued funding below the statutory floor creates possible oversight vulnerabilities for Congress and the Department.   /s/ WILLIAM T. MERRIMAN Deputy Inspector General

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, 1997. During this reporting period, 81 audit, review, and inspection reports were issued; 2 settlement agreements were completed; and 115 investigations were closed. These initiatives identified actual and potential recoveries of $30.9 million and made operational recommendations which could result in better use of an estimated $126.5 million. In addition, as a deterrent to fraud, waste, and mismanagement, our investigations and other reviews resulted in 62 indictments, 36 convictions, and 127 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.

Contract review efforts during FY 1997 resulted in the recovery of over $32 million from companies selling medical equipment, medical supplies, and drugs to VA and to other Government agencies. This compares favorably to FY 1996 recoveries of approximately $28 million. These recoveries from contractors represent the collective efforts of the Office of Acquisition and Materiel Management, the Office of General Counsel, Veterans Health Administration, and OIG working together, as a team, to produce these results. Some examples of these recoveries follow.

• An FSS contractor for medical imaging equipment paid $22.8 million to the Government (VA received $22,116,000 of the $22.8 million) to settle allegations that they had failed to provide accurate, complete, and current discount and pricing information to the VA contracting officer during contract negotiations for a 5-year, $94 million contract, and had failed to pass on certain price reductions to VA and other FSS users. The company initially had offered a $3.7 million refund associated with their voluntary disclosure involving nondisclosed price reductions and interest. The settlement, the largest in VA's history under the FSS program, was reached through the combined efforts of the OIG, National Acquisition Center personnel and Department of Justice attorneys.
   
• A pharmaceutical company agreed to pay $2.5 million to VA for FSS contract overcharges resulting from violations of the provisions contained in the price reductions and defective pricing clauses. The company had voluntarily disclosed contract overcharges computed to be $1.1 million and attributed all of the overcharges to price reduction violations. We found errors in the computation of price reductions and also identified defective pricing violations that resulted in the significant increase to the amount due.
   
• A medical equipment company agreed to pay $656,316 to VA for FSS contract overcharges resulting from violations of the provisions contained in the contract's defective pricing clause. Initially, the company voluntarily disclosed contract overcharges that were attributed to undisclosed price reductions, but did not compute an amount due. After reviewing the contracts, we determined that there was a strong possibility that the pricing violations were related to defective pricing. The company subsequently used a CPA firm to analyze the data and concluded that the contracts were priced defectively, with a pricing violation of $656,316. We reviewed the workpapers and supporting documentation and concluded the amount of overcharges was represented fairly.
   
• A medical supply company that provides VA with in vitro diagnostics, reagents, test kits and sets voluntarily disclosed that they owed the Government $425,771 because of price reduction violations in administering their FSS contract. Our review concluded that the company owed the Government a total of $497,089 due to price reduction violations, $71,318 more than the company had disclosed. They agreed with our calculation and remitted $497,089 to VA.
   
• VA recovered $908,166 from another FSS contractor that supplies VA with in vitro diagnostics, reagents, test kits and sets, based on a voluntary disclosure attributed to undisclosed price reductions and refund made of $854,513. Our review ruled out any pricing violations due to defective pricing, but identified an additional $53,653 associated with price reductions. The contractor agreed with our calculation and remitted the additional amount to VA.
   
• Two pharmaceutical companies acknowledged errors in calculating Federal Ceiling Prices under Public Law 102-585, and agreed to pay a total of $327,763 to VA for contract overcharges. The companies also agreed to implement policies and procedures that would incorporate the necessary internal controls to correct the errors.
   
• A joint review, conducted by VA OIG Investigations and Contract Review staff and the FBI, resulted in a consent judgment for $3 million against a former FSS vendor of medical supplies and its employee owners. The review uncovered evidence that the FSS vendor had engaged in a systemic pattern of mischarging VA hospitals and other government agencies for medical supplies by submitting invoices for payment to the government that reflected inflated prices and did give not the government its negotiated discount under the contract. The joint review revealed that the government was overbilled $1,083,041 on two FSS contracts during the period 1989 to July 1994, when the second contract was terminated. The $3 million judgment was made pursuant to the treble damages provisions of the False Claims Act, which entitles the government to recover three times its losses.
   
• Based on a Defense Contract Audit Agency postaward audit and an OIG supplemental postaward review of an FSS contract, a medical equipment company remitted $459,396 to VA in settlement of contract overcharges due to defective pricing and undisclosed price reductions.

Preaward Reviews of Pharmaceutical Offers

VA's FSS pharmaceutical schedule, with FY 1996 sales of $1.3 billion, represents the largest dollar value, by far, of the 13 Federal Supply Schedules awarded and managed by VA's National Acquisition Center (NAC). During the period, our Contract Review Division auditors, in collaboration with NAC Pharmaceutical Service contracting officers, initiated a major project to conduct 46 preaward reviews of FSS offers from pharmaceutical companies. Due to the significant number of reviews and short time frame allowed for their completion (approximately 3 1/2 months), these auditors were assisted by ten auditors from our Office of Audit. Of the 46 preaward reviews planned, 17 were completed during the period ending September 30, 1997, and are listed in Appendix A. The other 29 are in process, with completion planned during the next period. These preaward reviews assist VA contracting officers in negotiating best possible prices by determining if an offeror's (i) commercial pricing and sales data disclosed in the offer are accurate, complete, and current, and (ii) proposed FSS prices/discounts are equal to or better than those offered to its most favored customers.

The reviews also identify customer classes (e.g., group purchasing organizations) that Government agencies can use to track price reductions during the life of an FSS contract. Additionally, these reviews identify and comment on pricing concessions, e.g. rebates that pharmaceutical manufacturers offer their commercial customers. When requested, our auditors provide assistance to contracting officers during negotiations with companies.

2. PROCUREMENT FRAUD

• Following a joint investigation by the VA and Department of Health and Human Services (HHS) OIGs and the Postal Inspection Service, the owner and president of an ambulance company pleaded guilty to four counts of mail fraud, and was subsequently sentenced to 63 months' in prison, over $1 million in restitution, and three years' probation. The guilty plea was the result of a 20-count indictment, which charged that the ambulance service owner contrived a scheme to systemically defraud VA and other Government agencies by submitting false claims for payment utilizing the U.S. mail. He generated false billings by inflating billings for transporting patients by his ambulance company. Loss to the Government exceeded $2 million.
   
• As described in the prior section on postaward reviews of FSS contracts, a $3 million consent judgment was entered against a medical supply corporation and its three employee owners. The individuals acknowledged liability under the False Claims Act for submission of false and fraudulent billings on Government contracts. The corporation and one of the individuals voluntarily agreed to permanent exclusion from Government contracting and programs, including Medicare and Medicaid. Judgment was entered against a second individual in the amount of $40,000; this individual agreed voluntarily to exclusion from Government contracting and programs for a period of 5 years. The third individual agreed voluntarily to exclusion from Government contracting and programs for a period of 3 years.
   
• The former owner/operator of a company that provided hand tools, machine tools and hardware to VAMCs was extradited from a prison in Rome on behalf of VA and the Department of Defense (DoD), and placed in the custody of a state Division of Criminal Justice to face outstanding charges. The individual was subsequently placed in the custody of VA and DoD OIG special agents to appear in court on an outstanding 19-count indictment charging the individual with bribery and conspiracy to defraud the United States. An earlier joint VA and DoD OIG investigation revealed that, over a 4-year period, the individual conspired to pay bribes to VA officials to influence the awarding of 190 Government contracts for supplies and services valued at approximately $132,000.
   
• The owner of a medical equipment business that had a contract with a VAMC pleaded guilty to a one-count criminal information charging him with making false claims to VA. The information stated that the individual billed VA for the purchase and delivery of new medical equipment and beds for disabled and sick veterans when, in fact, the equipment provided was not new nor what the contract specified. Sentencing is pending.
   
• The owner of a distribution company signed a consent judgment for $5,000 to settle charges that the company violated the Buy American Act and Trade Agreements Act of 1979. An investigation disclosed that although the company certified its products were produced in the United States, the latex examination gloves it provided to VA were produced in Malaysia, a non-designated country which was not an authorized source for this procurement.

Mobile Lab is a cart with eight testing instruments which can be moved throughout a hospital to perform the 25 most commonly ordered lab tests. It was developed and implemented at selected VAMCs in FY 1994 at a cost of $20.7 million. We conducted an audit of the Mobile Lab initiative to determine whether Mobile Lab implementation was performed in a cost-effective manner that ensured optimal utilization of funding and equipment.

Our review found that the Mobile Lab was not widely used because the instrument configuration on the cart was selected without consideration of the specific needs of individual laboratory operations and VAMCs had difficulty determining the best use for Mobile Lab. As a result, over $5 million was spent on equipment that was never used, and another $5 million provided for the Mobile Lab initiative was spent for other uses. We recommended that VHA reassign the unused equipment to facilities or activities that can utilize it. The Under Secretary concurred with the findings and established a task force to review all viable options to reassign the unused equipment. (Pathology and Laboratory Medicine Service (PLMS) Mobile Laboratory Initiative)

A rapidly evolving health care environment in which it is essential to provide high quality health care to more patients, with fewer resources, led the VA to reduce large numbers of beds (2,409 in FY 1995, and 2,255 during the first two quarters of FY 1996) and to increase its emphasis on the use of ambulatory care to treat many disorders, including substance abuse treatment. All VHA Networks drastically reduced the numbers of inpatient beds devoted to treating SAT patients, and substantially increased the capacity to treat these patients on an ambulatory care basis. This transition required VA clinicians to ensure that SAT patients have available the social and clinical support services they need to be successful in rehabilitation.

We conducted a program evaluation to assess the impact that decreasing the number of inpatient SATPS has had on access for homeless veterans and other frequent users and to determine whether VHA providers had identified and established adequate housing and social support resources before the downsizing began. We found that VHA managers and clinicians worked successfully to identify alternative living situations for SAT patients to ensure that they would have secure shelter during their treatment process, and that clinicians had continued to work with community resources to provide the necessary assistance to these patients. The evaluation also concluded that the following additional VHA actions would strengthen and improve the quality of, and access to, VHA's SATPs: (i) require each VISN to have a core of inpatient beds to accommodate mentally and physically impaired patients and those who experience acute relapses; (ii) require discussion and documentation of transportation needs to ensure that patients who do not have adequate resources have transportation to the treatment site; and (iii) develop accurate methods for reporting the number of patients who access SATP care in order to ensure the commitment of adequate resources to the treatment process at any given time.

The Under Secretary for Health concurred in our recommendations and implemented or planned appropriate actions to strengthen the ambulatory care SAT process. (The Impact of Downsizing Inpatient Substance Abuse Rehabilitation Programs on Homeless Veterans and Other Frequent Users)

2. VA'S FEE-BASIS PROGRAM

Fee-basis treatment is inpatient care, outpatient care, or home health care received from non-VA health care providers at VA expense. During the period April 1, 1994 through March 31, 1995, VHA paid $237 million for fee-basis treatments provided to eligible beneficiaries, including $112 million for outpatient care, $94 million for inpatient care, and $31 million for home health care.

We conducted an audit to determine if VHA had established effective internal controls to ensure that payments for fee-basis treatment were appropriate. Overall, VHA internal controls provided reasonable assurance that payments for fee-basis services were appropriate. However, management controls could be improved by implementing procedures to avoid duplicate payments; notifying veterans when VA pays for fee-basis medical care; and improving procedures to prevent payments for services for decreased veterans. In addition, VHA could reduce fee-basis home health care expenditures by at least $1.8 million annually by establishing formal contracts with fee providers and benchmarks for determining reasonable rates. The Under Secretary for Health concurred with our findings and recommendations and provided acceptable implementations plans. (Internal Controls over the Fee-Basis Program)

3. QUALITY OF HEALTH CARE PROGRAM EVALUATIONS

In July 1995, the Under Secretary for Health issued a VHA directive requiring VA health care facilities to achieve substantial compliance with the Mammography Quality Standards Act of 1992, which established standards for mammography equipment, personnel, and practices, including quality assurance assessment. The objective of this directive was to ensure that women veterans have access to an equal quality of diagnostic services for detecting breast cancer as that which is available for women in the private sector.

We conducted a program evaluation to assess VHA facilities' compliance with the VHA directive. We concluded that VHA health care facilities are prepared to offer high quality mammography services to women patients, either with in-house facilities, or by means of contracting with private or academic health care facilities. Clinicians, however, do not always ask female patients if they wish to have a mammography, and do not always record in the medical record that they discussed this issue with the patient. Some medical centers that own mammography equipment have not as yet achieved the level of workload necessary to maintain employee expertise in its use (300 mammograms) and managers need to explore ways to increase the workload. Although clinicians recognized the importance of maintaining quality oversight of their mammography products, not all medical centers had developed quality assurance measures to systematically record outcome reviews, including the disposition of positive mammograms and surgical tissue correlation with radiological interpretations.

We made recommendations to address these three areas. The Under Secretary for Health concurred with the recommendations and implemented or planned appropriate actions to strengthen mammography procedures. (Assessment of the Veterans Health Administration's Status in Providing Mammography Examinations)

In FY 1992, VHA replaced its 6-year-old Medical District Initiated Peer Review Organization with a private sector contract to obtain expert evaluation of the quality of health care provided in its 173 hospitals. VHA managers intended to use EPRP review results to assess the quality of veterans' care, and to pursue system-wide opportunities for improvement in the quality of care using retrospective medical record review.

We conducted a program evaluation to determine the process used to implement the EPRP and to assess EPRP information utilization at the VAMC level. We found that medical center managers generally communicated EPRP findings to the responsible practitioners and used EPRP findings to develop better treatment methods. We recommended actions to strengthen the program: contractor reporting of the magnitude of cases that do not fully comport with review criteria, contractor trending of EPRP review results by VAMC, and incorporation of EPRP review results into the respective VAMC quality management programs.

The Under Secretary for Health concurred with the recommendations and implemented necessary actions to strengthen the utility of the EPRP for using facilities. [Note: Subsequent to issuance of our report, VHA reported that the EPRP has been restructured, with a shift in focus from case-by-case assessment to a broad systems approach that emphasizes objective assessment of national VHA performance measures.] (Oversight Review of the Veterans Health Administration's External Peer Review Program)

We conducted a QPA review at VAMC Manchester, NH as part of our QPA development process. 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: cost-efficient care, high-quality care, improved patient access to care, and improved patient satisfaction.

We concluded that the VAMC's 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 reorganization were being made, but they were aware of and supported management's treatment goals. Patients indicated that they were generally pleased with the care they received. (Quality Program Assistance Review, Department of Veterans Affairs Medical Center Manchester, NH)

4. INSPECTIONS OF INDIVIDUAL CASES OF PATIENT CARE

We reviewed allegations that medical center clinicians did not provide attentive care for a Nursing Home Care Unit (NHCU) patient's respiratory distress, causing him to have unnecessary difficulty breathing, and that physicians did not properly respond to a psychiatry patient's lethargic condition, resulting in his ultimate death.

We concluded that clinicians had reacted properly and adequately treated the NHCU patient's respiratory condition. A clinician peer review had been conducted to determine whether the psychiatry patient's care had been appropriate. The review concluded that medical and psychiatric care providers should have ordered neurological and laboratory tests and been more aggressive in monitoring the patient's condition. We agreed with these conclusions and found that medical center managers had initiated appropriate corrective actions to ensure similar instances would not reoccur. They had not, however, discussed the facts of the psychiatry patient's care with their Regional Counsel office to determine the propriety of advising the patient's family of their prerogative to pursue VA benefits or file a tort claim, and we recommended that they do so. The Director agreed to obtain Regional Counsel advice. (Inspection of Alleged Inadequate Care and Nursing Incompetence on the NHCU, Department of Veterans Affairs Medical Center Bronx, NY)

We reviewed allegations that clinicians did not provide proper care for a patient who had a terminal heart condition and failed to comply with both the patient's and spouse's wishes that all necessary measures be pursued to keep the patient alive.

We found that clinicians had energetically and conscientiously sought to treat the patient's terminal heart condition even though they were fully aware that treatment could not improve the patient's condition or extend his life. Clinicians took great pains to keep both the patient and his spouse informed of his treatment progress and his ultimately poor prognosis, but both individuals wanted clinicians to exert heroic efforts when the patient needed resuscitation. Unfortunately, the patient's condition rapidly deteriorated during a tour of duty when the physician on duty was not familiar with his case or the family's desires for heroic measures. Using his clinical judgment, and based on the patient's clinical presentation, the physician on duty did not carry through with extensive resuscitative measures and the patient died.

We recommended that the VAMC Director take action to review the resuscitation and advance directives policies with medical center physicians and nursing employees in order to clarify the need to honor patients' requests, and adhere to established policies. We also recommended that local clinicians refer similar cases to the medical center's Ethics Committee for clarification and discussion of the most appropriate way to manage similar end-of-life wishes of future patients.

The Medical Center Director concurred with our recommendations and provided action plans that should improve the treatment process. Medical center managers also offered numerous referrals within the community to assist the patient's spouse in working through her grieving process. (Inspection of Alleged Poor Quality of Care and Disregard of Patient's Advance Directive for Life-Saving Measures at the Department of Veterans Affairs Puget Sound Health Care System, Seattle, WA)

In response to a VHA request, we conducted an independent inspection to further evaluate earlier VHA reviews that were conducted to review allegations of alleged patient abuse, instances of improper relationships between SCI patients and SCIU clinicians, and unprofessional activities among some clinical employees. We conducted the inspection in collaboration with VHA's Office of Medical Inspector, and convened a panel of nationally recognized SCI treatment experts in order to fully evaluate all aspects of this highly specialized treatment program. The panel developed independent findings and recommendations which we agreed with and which supported our findings.

We were unable to substantiate any of the allegations, but concluded that actions were needed to improve the quality of care for SCI patients. We found that medical center managers had initiated several measures to improve the SCI treatment process before our inspection began. Managers had reassigned ten employees to other areas of the medical center and began recruiting for qualified replacements, developed an effective cross-training program for all SCIU employees so that each employee was capable of managing more than one function, and established round-the-clock security. Managers and clinicians had also begun to deliberate on ways to bolster the interdiscisciplinary treatment team process, and to streamline the quality improvement team concept.

We made the following recommendations:

• assess the appropriateness of the SCIU's current mission in order to focus staff energies on acute care/rehabilitation,
   
• in concert with the mission reassessment, re-evaluate staffing needs to reflect the treatment needs of the ultimate patient population,
   
• strengthen medical record documentation of the treatment process,
   
• more actively involve employees in the SCIU performance improvement program,
   
• strengthen the interdisciplinary treatment team approach and patient care planning by requiring more active involvement by all team members, and
   
• comprehensively assess SCIU employee training needs in order to strengthen all SCIU patient care programs.

The Medical Center Director concurred with the recommendations and provided implementation plans and actions that properly responded to the issues. (Inspection of Selected Clinical Aspects of the Spinal Cord Injury Unit at the Department of Veterans Affairs Medical Center Hampton, VA)

We reviewed allegations that medical center clinical managers had improperly awarded plastic surgery privileges and a plastic surgery fellowship position to a surgeon who did not have the requisite training or experience to qualify him to perform the functions of that position. The complainants also asserted that unnamed patients had been harmed in some way because the surgeon did not know what he was doing.

We found that the surgeon had sought a position as a plastic surgery fellow, and had requested surgical privileges to perform a wide range of plastic surgery procedures. He provided medical center clinical managers with a resume of the experience and training that he believed qualified him for the position. He asserted that much of the applied surgical experience had been received in a foreign country and could not be readily validated. Clinical managers accepted his credentials at face value and did not personally validate any of the information as required by VA policy. When nursing employees began to question the surgeon's skills, clinical managers reassessed the surgeon's qualifications and rescinded his privileges. He was subsequently terminated from his fellowship position. Multiple clinical reviews of his patients' medical records failed to elicit any evidence that the surgeon had in any way harmed any patients.

We recommended that the medical center strengthen its credentialing and privileging procedures by ensuring that the Chief of Staff or designee personally verify and validate reported experience and training. The Director concurred with our recommendation and initiated appropriate corrective actions. (Inspection of Alleged Misrepresentation of Medical Credentials at a Department of Veterans Affairs Medical Center)

We conducted an inspection to review allegations that a medical center surgeon scheduled a woman patient for a needed operation on two occasions and acted improperly by cancelling the operation both times.

We found that the patient had followed medical advice prior to admission to the medical center for the scheduled operation, and that the surgeon's supervisors and operating room employees all believed that the surgeon's explanations for canceling and rescheduling the operation may not have been legitimate. We concluded that the patient took proper control of her treatment process and scheduled her treatment at a private health care facility.

Prior to our inspection, the surgeon involved resigned and the VAMC Director convened a Board of Investigation to address the allegations. The Board recommended development of a policy on case cancellations, actions to improve operating room scheduling and equipment availability, and payment of the veteran's medical bills. We concurred with the recommendations which were immediately acted on by the Director, including providing an apology to the woman veteran. (Inspection of Alleged Refusal to Operate on a Woman Veteran, Department of Veterans Affairs Medical Center Philadelphia, PA)

5. CONTROL OF DRUGS

During the period, seven former VAMC employees were indicted or sentenced for theft or diversion of drugs. In one case, a licensed practical nurse (LPN) had, diverted Demerol, used to mitigate pain, and replaced it with saline solution. Another LPN had stolen Demerol and a pharmacy technician had stolen numerous types of medication. These individuals received sentences of two to five years' probation and fines ranging from $500 to $2,000. A more detailed summation of the seven cases is included in the section on Employee Integrity and Other Issues.

6. FEE-BASIS FRAUD

• An individual, formerly employed as a fee basis nurse for VA, pleaded guilty to one count of mail fraud. An investigation disclosed that, in a 4-year period, the individual billed VA for home nursing visits not made, submitted duplicate billings, and submitted bills for home visits to veterans who were either deceased or hospitalized at the time of the alleged visit. The individual was sentenced to 6 months' home detention, including electronic monitoring, 3 years' probation, and 200 hours' community service.
   
• A civil complaint was filed in U.S. District Court against an individual who worked as a fee basis nurse for VA. An investigation revealed that, over a 4-year period, the individual submitted false invoices to VA for home nursing care visits.

1. DELIVERY OF BENEFITS AND SERVICES

We conducted a review to determine whether VBA procedures ensure that disability compensation benefits paid to active military reservists are offset from training and drill pay as required by law. We determined VBA had not offset VA disability compensation to 90 percent of the sampled active military reservists receiving military reserve pay. We estimated that dual compensation payments of $21 million were made between fiscal years (FYs) 1993 and 1995 and, if the condition is not corrected, annual dual compensation payments estimated at $8 million will continue to be made. Dual payments occurred because procedures established between VA and the Department of Defense (DOD) were not effective or were not fully implemented. We recommended followup on FY 1993-1996 cases to offset either disability compensation or reservists' pay and actions to improve procedures and communication among VBA, DOD, and beneficiaries. The Acting Under Secretary for Benefits concurred with our findings and recommendation and provided acceptable implementation plans. (Review of Veterans Benefits Administration's Procedures to Prevent Dual Compensation)

We conducted a review to followup on the effectiveness of actions taken on our 1994 report on the timeliness of C&P medical examination services and to determine whether additional opportunities exist to further enhance the quality and timeliness of medical examination services. Our prior review found that, in FY 1993, 405,000 examination requests were processed, with 23.5 percent incomplete. In December 1994, VBA and VHA executed a Memorandum of Understanding to jointly improve processing procedures. Our current review found that, in FY 1996, the number of incomplete examinations had not changed significantly, with 21.9 percent of 361,000 requests incomplete. We recommended that VBA and VHA establish performance measures to reduce the rate of incomplete examinations and monitor progress, and that VBA and VHA facility directors be required to work together to reduce the percentage of incomplete examinations. The Under Secretary for Health and the Acting Under Secretary for Benefits concurred in principle with the recommendations and provided acceptable implementation plans. (Review of Compensation and Pension Medical Examination Services)

2. OTHER BENEFICIARY ISSUES

As a follow-up to a 1989 OIG report, we audited VBA controls over appointment and supervision of fiduciaries appointed to protect the incomes and estates of incompetent beneficiaries. As of September 30, 1996, VBA supervised fiduciaries of more than 110,000 incompetent beneficiaries with assets valued at over $1.4 billion.

Audit results showed that VBA appointed appropriate fiduciaries to manage the funds of incompetent beneficiaries, but more effective supervision of certain fiduciaries was needed to reduce the risk of theft or misuse of beneficiaries' funds. VBA needed to strengthen monitoring of fiduciaries who were required to submit periodic reports of income, expenses, and assets by following up on questionable or inconsistent data, independently verifying beneficiaries' assets, and requiring documentation supporting selected expenses reported by fiduciaries. We also concluded that the resources to perform supervisions of higher risk fiduciaries could be obtained by providing less supervision of estates of certain beneficiaries whose situations are stable and who are considered less vulnerable to fiduciary fraud. The Acting Under Secretary for Benefits agreed with or provided acceptable alternatives to our recommendations, and provided acceptable implementation plans. (Audit of Appointment and Supervision of Fiduciaries)

The primary mission of VA's fiduciary program is to ensure that incompetent beneficiaries are well cared for, and their estates protected from fraud, waste, and abuse. We audited VBA's Fiduciary Beneficiary System (FBS) to determine if system data was complete. We concluded that some beneficiaries did not have records because VBA personnel overlooked, or were unaware of, applicable policies and procedures, and because of clerical errors. Establishing appropriate FBS records would help fiduciary program personnel monitor the financial affairs of incompetent beneficiaries, and reduce the risk of theft or misuse of the beneficiaries' funds.

We recommended that VBA establish the appropriate FBS records and periodically compare C&P data to the FBS to identify incompetent beneficiaries with no FBS records and establish FBS records when appropriate. The Acting Under Secretary for Benefits agreed with our recommendations and provided acceptable implementation plans. (Completeness of Data in the Veteran's Benefits Administration's Fiduciary Beneficiary System)

3. LOAN GUARANTY PROGRAM FRAUD

Loan Origination Fraud

• The owner of several real estate and investment companies pleaded guilty to charges of wire fraud and conspiracy. A joint investigation by VA OIG and the Department of Housing & Urban Development (HUD) revealed that the individual conspired to defraud VA, HUD, and two mortgage companies through the acquisition, financing, and sale of real property by deceptive means. The individual purchased 34 distressed residential properties of low value which were then cycled through various companies he owned in order to artificially inflate the market value of the properties. These properties were then sold to individuals, many of whom were active duty military members, who were recruited and fraudulently qualified for the loans needed to consummate the sales. As part of the plea, the individual agreed to property forfeitures totaling $2,746,564. Sentencing is pending.
   
• The owner of a real estate brokerage firm was sentenced to 30 months' imprisonment, 36 months' supervised probation, fined $6,000, and ordered to make restitution of $45,171 to the Government. He previously pleaded guilty to conspiracy to defraud VA, making false statements to VA, and fraudulent use of Social Security numbers. A VA OIG investigation disclosed that the broker and co-conspirators submitted false information to make applicants for VA guaranteed mortgage loans appear creditworthy when, in fact, they were not qualified for these loans. In addition to the broker, six real estate agents affiliated with his firm also have been charged with defrauding VA. Five have pleaded guilty and one was convicted following a 4-day trial in U.S. District Court.
   
• An individual was arrested following an indictment by a Federal grand jury, which charged him with three counts of making false statements and one count of using a false Social Security number. The individual made false statements to VA regarding his employment, income, and Social Security number in order to qualify for the purchase of a VA portfolio home. A trial date is pending.

Equity Skimming

• Five subjects were arrested after a joint VA OIG, FBI, and IRS/CID investigation revealed that the individuals were engaged in equity skimming schemes and related criminal activities. The investigation revealed that the five individuals identified mortgage borrowers who were in default on their loans, including VA guaranteed loans. The individuals then contacted the property owners and led them to believe that, by deeding the property to one of the individuals and agreeing to pay rent while continuing to reside at the premises, the rent payment would go toward payment of debt and the mortgage would be saved. The investigation disclosed that none of the rent money was paid on the mortgages but was retained by the individuals accused. In all, there were 15 mortgages and properties involved in this scheme. One of the individuals also was indicted on 31 counts of defrauding financial institutions, businesses, and Government agencies.

4. BENEFICIARY FRAUD

Dependency and Indemnity Compensation Benefits

• An individual was sentenced to 60 months' supervised probation after pleading guilty to theft of Government funds. An investigation disclosed that the individual negotiated Dependency and Indemnity Compensation (DIC) checks issued to his mother following her death. Loss to VA was in excess of $46,000.
   
• An individual pleaded guilty to one count of theft of Government funds. An investigation revealed that the individual had been collecting and negotiating monthly benefit checks that were issued to a relative who died over 25 years ago. The individual claimed to be using the funds as compensation for having cared for the relative. Loss to VA was over $175,000. Sentencing is pending.
   
• An individual pleaded guilty to one count of theft of Government property. A VA OIG investigation revealed that, over a 5-year period, the individual endorsed U.S. Treasury checks representing DIC benefits payable to his deceased mother. The individual's actions resulted in a loss to the Government in excess of $50,000. Sentencing is pending.
   
• Two individuals pleaded guilty to one count each of conspiracy to defraud the United States. A joint investigation conducted by VA OIG, the Air Force Office of Special Investigations, and the U.S. Secret Service revealed that the individuals conspired to misappropriate VA DIC benefits and U.S. Air Force pension payments. The loss to the Government was $207,287. The individuals each face up to 5 years' incarceration and up to $250,000 in fines.

Pension Fraud

• An individual pleaded guilty to theft of Government funds, false statements, and fraudulent acceptance of payments. An investigation revealed that the individual fraudulently received VA benefits while failing to report income received for work. Loss to VA was over $26,000.

Fiduciary Fraud

• An individual employed as a county veterans service officer was sentenced to 46 months' imprisonment, 3 years' probation, and fined $10,000. The sentence also included an additional 12 months in prison for obstruction of justice during the sentencing process, for providing false testimony and evidence to the court. The individual previously was convicted of making false statements to VA, involvement in schemes to defraud over 17 disabled veterans for whom he acted as fiduciary, and for filing false personal income tax returns. The individual's co-conspirator, a former counselor at a VAMC, pleaded guilty to a conspiracy charge involving a kickback scheme and testified against the individual at trial.
   
• An individual was sentenced to 21 months' imprisonment, 2 years' probation and ordered to pay over $4,000 in restitution to a disabled veteran for whom the individual was appointed as fiduciary. An investigation revealed that the individual, acting as court-appointed fiduciary for two disabled veterans, misappropriated money from the veterans' accounts and made false statements to both VA and a state agency to conceal the missing funds.
   
• An individual acting as fiduciary for the widow of a deceased veteran pleaded guilty to a charge of theft of Government funds. A VA OIG investigation revealed that the fiduciary failed to report the widow's death in July 1994, subsequently converting for her own use 21 VA benefit checks totaling $20,836 in a 2-year period. Sentencing is pending.

Insurance Benefits Fraud

• Three individuals, one a former VA insurance claims examiner, were sentenced after pleading guilty in U.S. District Court, for their roles in the theft of VA insurance benefits. The former insurance claims examiner was sentenced to 4 months in a community halfway center, 5 years' probation, a $2,000 fine, and was ordered to pay $19,904 in restitution to VA. The second individual, not a VA employee, was sentenced to 3 years' probation, 50 hours' community service and fined $1,000. The third individual was sentenced to 6 months' home detention, 5 years' supervised probation, a $2,000 fine and ordered to make restitution in the amount of $19,905 after pleading guilty to 4 counts of theft of public monies. A joint VA OIG/U.S. Secret Service investigation revealed that the conspirators diverted approximately $40,000 in proceeds from unclaimed VA insurance policies that had matured or were payable due to the death of insured veterans but for which the beneficiaries could not be located. In addition, two checks totaling approximately $18,000 were seized when the defendants attempted to cash them and were arrested by local police.

Education Benefits Fraud

• Three college instructors and two student instructional aides were indicted for their roles in the fraudulent payment of VA educational assistance benefits to veterans enrolled at a community college. A 3-year joint investigation by VA OIG and the Postal Inspection Service disclosed a "special program" that existed from 1988 to 1995 through which over 300 student veterans obtained over $3.8 million, without attending regular classes, by paying kickbacks up to $200 per student each semester. As a result of the investigation, VBA announced administrative sanctions against the college and a program of frequent, on-site compliance inspections. In a collateral action, the U.S. Attorney's Office has recovered $370,000 in restitution and additional efforts are continuing.

Compensation Fraud

• An individual was convicted on 40 counts of mail and wire fraud, and for making false statements. A joint VA OIG/FBI investigation revealed that the individual, by posing for more than 20 years as a wheelchair bound veteran who had lost use of his right arm and leg, collected disability benefits from VA amounting to more than $500,000. Testimony from business people, contractors, and medical workers established that the individual was not disabled, and co-owned and operated a successful commercial painting business.
   
• An individual was sentenced to 120 months' imprisonment and his spouse to 12 months' imprisonment in connection with a telemarketing scheme that defrauded consumers of over $31 million. A joint VA OIG, FBI, and IRS investigation revealed that, while operating a business that defrauded consumers in the sales of vending and game machines, he was collecting disability benefits from VA based on, at first, a 30 percent disability rating, and later, a 100 percent disability rating. In addition, the couple evaded paying income taxes by disguising payments received from the vending machine sales. Over an 11-year period, the individual collected benefit payments from VA in excess of $200,000.
   
• An individual who had pleaded guilty to charges of false claims and theft of Government property was sentenced to 5 years' probation, 90 days to be served in a community center, and 80 hours of community service. A VA OIG investigation revealed that the individual falsely completed annual employment questionnaires certifying that he was unemployed in order to receive service-connected disability at the 100 percent rate when, in fact, he was employed as a teacher. Additionally, the individual admitted that family members wrongfully received VA educational benefits based on the false unemployment claims. The loss to VA was over $150,000; restitution is being made by reducing the individual's future VA entitlements until the debt has been satisfied.

Other

• A civil complaint was filed charging a husband and wife with one count each of false claims and conspiracy to defraud the United States. The complaint charges that both individuals presented claims for $1,000,000 and $200,000, respectively, to VA under the Federal Tort Claims Act, claiming VA had been negligent in providing medical treatment to the husband, resulting in the subsequent loss of consortium. On both claim forms, the individuals stated their status as married when, in fact, they were not married at the time the alleged negligent treatment occurred.

1. VA'S FINANCIAL STATEMENTS

For FY 1996, VA reported assets totaling $43.4 billion and expenses totaling $43.9 billion. As part of our ongoing work on the Audit of VA's Consolidated Financial Statements (CFS), we issued nine reports -- eight management letter reports resulting from OIG reviews of financial information and one report resulting from a contractor review of two Financial Management System (FMS) subsystems. The reports are intended to provide Department managers observations and advice for improving accounting operations and controls in day-to day operations. A summation of these reports follows.

The first management letter concluded that financial information processed at the Austin Finance Center was generally reliable for operations and transactions tested. However, operations could be enhanced by ensuring that (i) compensating controls were in place where prescribed separation of duty controls were impractical, (ii) user identifications in VA's FMS reflected each employees' current employment status, (iii) manual payroll accruals were reversed, (iv) reconciliation of the Minor Construction Appropriation with U.S. Treasury records was completed timely, and (v) staff emphasize accuracy when coding FMS disbursement transactions that could affect the reliability of management reports. (Management Letter - FY 1996 Selected Accounting Operations and Systems at Austin Finance Center)

The second management letter concluded that staff established required internal controls for monitoring financial information, and generally complied with VA policies and procedures based on audit tests made and had made improvements during the past year. However, there remained three areas in which further improvements would be beneficial. These concerned (i) improving data used to calculate the future liability for Compensation and Pension (C&P) benefits, (ii) improving the financial statement preparation process, and (iii) strengthening policies and procedures for contract counseling accounting. (Management Letter - Tests of Selected Veterans Benefits Programs Accounting Functions Performed at VA Central Office)

Three management letters concluded that much progress had been made in improving Property, Plant, and Equipment (PP&E) reporting, but that continuing efforts were needed to further refine the accuracy of PP&E accounting information. The first management letter provided information and observations from our overall analysis of PP&E data in the general ledger and fixed asset subsystem, and encouraged VHA and the Chief Financial Officer (CFO) to improve internal controls by continuing efforts to oversee PP&E accounting activities, provide additional guidance and training, and to analyze PP&E accounts and provide operating facilities the results when adjustments are needed. The other two management letters described actions needed at the facility level to help ensure the accuracy of PP&E information in the general ledger. Actions needed included efforts to ensure: (i) reconciliations of property accounts are completed and appropriate adjustments are made, (ii) physical inventories are completed as required, and (iii) costs in the construction work-in-process are capitalized when the resulting building or improvement is put into service. (Three Management Letters - Management Oversight of Property, Plant, and Equipment Financial Information; Accuracy of Non-Expendable Equipment Financial Information; and Accuracy of Real Property Financial Information)

A sixth management letter concluded that staff established required internal controls for monitoring life insurance financial information, and generally complied with VA policies and procedures based on audit tests made. Of the eight conditions discussed in our prior year audit report, one had been overtaken by events, management had corrected two, and actions were in process to correct the other five. No new conditions were identified in this year's audit. (Management Letter - FY 1996 Financial Statement VA Life Insurance Programs)

A seventh management letter provided additional explanation and detail regarding a reportable condition in our previous report on VA's FY 1996 Consolidated Financial Statements to aid in establishing an effective corrective plan. We concluded stronger financial reporting controls were necessary to provide reasonable assurance that transactions continue to be properly reported, and that material misstatements would be prevented or detected in three areas: (i) the automation and integration of financial accounting and reporting systems, (ii) financial and credit reform accounting training of staff responsible for HCA financial data, and (iii) review of financial data and reports. (Management Letter - Tests of Selected VA Housing Credit Assistance Accounting Functions Performed at VA Central Office)

We conducted the eighth review at management's request. We evaluated accounting procedures used to resolve errors caused by data limitations in some total dollar fields resulting in truncation during the February 1997 transfer of active policy master records from the computer data base administered by the St. Paul, MN Department of Veterans Affairs Regional Office and Insurance Center (VAROIC) to the VAROIC Philadelphia, PA data base. In our advisory, we concluded that management performed adequate adjustments to general ledger insurance accounts to resolve errors in certain fields which occurred during the first in a series of data transfers. In addition, management's procedures should adequately preserve the integrity of financial data transferred during the consolidation. (Adequacy of Procedures Used to Transfer Life Insurance Policy Data from VAROIC St. Paul, MN to VAROIC Philadelphia, PA)

The ninth report contained the results of a requested contractor review. The contractor concluded that application controls incorporated into the Accounts Receivable Subsystem and the Fixed Asset Subsystem of VA's FMS were adequate. However, the general controls over the information systems did not adequately ensure that computer programs and data files were protected from unauthorized access and modification. The review identified 9 reportable conditions and 15 significant but less important management letter comments. VA management agreed with all but two items. We will follow-up and evaluate the effectiveness of the actions and related compensating controls for all items in our Audit of VA's FY 1997 Consolidated Financial Statements (CFS). (Electronic Data Processing Controls in the Financial Management System Accounts Receivable and Fixed Asset Subsystems)

None of the conditions noted above for the nine reports had a material financial effect on the FY 1996 CFS, but correction of the conditions is considered necessary for effective operations. Where needed, appropriate adjustments were made to the financial statements.

2. OTHER FINANCIAL CONTROL ISSUES

As part of our ongoing audit of VA's financial operations and reporting, we identified two duplicate payments made to a commercial vendor totaling over $1 million that had not been previously detected. VA Central Office financial staff promptly confirmed the overpayment and sent a collection letter, and the vendor paid the amount due. VA management officials agreed that collection efforts should be handled in a timely manner, and agreed to aggressively pursue collection of duplicate payments. (Duplicate Payments)

Each year, VHA's Health Eligibility Center (HEC) matches VA's records with the records of the Internal Revenue Service and Social Security Administration based on income information provided by VHA facilities. During FY 1996, HEC matched 726,758 veteran records and identified 106,029 veterans whose incomes exceeded statutory thresholds, and who were potentially responsible for making medical care co-payments.

We reviewed VHA procedures for verification of veterans reporting no income on means tests, and assessed VHA compliance with means test and Privacy Act requirements. We found that over 87 percent of the cases reviewed had no signed means test documents to attest to the accuracy of income information reported or to certify receipt of the Privacy Act statement. We also found that VHA lost the opportunity to collect over $3 million because some veterans had been erroneously identified as exempt from co-payments. We recommended that VHA take action to improve compliance with means test and Privacy Act requirements, including ensuring that VHA facilities obtain means test and Privacy Act information, and requiring VISN Directors to conduct periodic reviews of zero income means tests. The Under Secretary concurred with the findings and recommendations and provided an acceptable implementation plan. (Means Testing and Income Verification Procedures)

1. TELEPHONE ACCESS SYSTEMS

In Fiscal Year 1996, VA medical centers spent about $22.4 million on long distance services (62 percent of VA's $36.1 million long distance costs). We evaluated the effectiveness of PIN telephone access systems used by three VAMCs. The three VAMCs had installed PIN access systems as a means of reducing telephone costs and improving accountability over telephone usage. They reported that system installation costs were minimal, accountability for telephone usage had improved, and long distance expenses had been reduced by an average of 68.9 percent, with total annual savings estimated at $934,000.

We contacted all 158 other VAMCs and found that 148 VAMCs did not have PIN systems or plans to install them. Based on the experience of the three VAMCs reviewed, we concluded telephone costs could be reduced by an estimated $10.1 million annually if all VAMCs installed PIN systems. In addition, VBA, NCS, and VA Central Office activities could benefit from installing PIN systems. We recommended that management officials inform facilities and activities about the benefits of PIN access and encourage installation in existing telephone systems, and/or integration of PIN access with new telephone systems or upgrades.

The Under Secretary for Health concurred with the recommendations and stated that VHA had initiated actions to install PIN systems at all VAMCs, as appropriate, with first-year start up costs expected to be about $10.8 million. The Acting Under Secretary for Benefits; Director, National Cemetery System; and Assistant Secretary for Management all expressed an interest and commitment to improving telephone system management and reducing long distance costs. (VA Use of Personal Identification Number Telephone Access Systems)

2. SECURITY CONTROLS OVER AUTOMATED BENEFITS PAYMENTS

We evaluated the adequacy and appropriateness of security controls at the Hines Benefits Delivery Center (BDC), focusing on areas where management could strengthen physical and electronic access controls. In FY 1996, the BDC provided key automation support for processing over 40 million benefit payments totaling $20 billion to veterans and their families. The audit identified a number of key security enhancement opportunities needed to make the BDC facility more physically secure and less vulnerable to unauthorized electronic access of systems and data. The BDC Director concurred with our recommendations and agreed to: establish a proactive security program, complete a risk assessment, and implement necessary physical and electronic security controls to correct weaknesses identified by the audit. (Security Controls at the Hines Benefits Delivery Center)

3. INTEGRATION OF COMMERCIAL SOFTWARE IN VHA SYSTEMS

As part of our audit of the Veterans Health Information System and Technology Architecture (VISTA), we evaluated the effectiveness of VHA efforts to integrate commercial off-the-shelf software applications into VISTA. We found that VHA has been reviewing methods for integrating commercial software into VISTA, and has made progress assisting VAMC programmers in integration efforts. Three of the seven commercial software applications were successfully integrated with VISTA, and satisfactory progress had been made toward integrating the remaining four applications. A Message Routing and Translation System (MRTS) had been installed at one medical center, which allows commercial software to be recognized by VHA internal computer systems and has the potential to lessen the burden of adapting commercial software to VISTA.

We also found that nationwide use of MRTS technology has been delayed because VA management officials have differing opinions on deployment and funding strategies for MRTS. We recommended that VHA and the Office of Management determine whether to continue to use MRTS or develop another alternative approach to the system integration.

The Under Secretary for Health and the Assistant Secretary for Management concurred in principle and the Under Secretary agreed to establish a working group to review alternatives, including the MRTS. (Efforts to Integrate Commercially-Developed Software to Hospital Information Systems)

1. SPECIALIZED INVESTIGATIONS

The SIRTF is an enforcement unit comprised of special agents from the VA OIG and VHA. Under the direct control of the VA OIG, SIRTF became operational in the spring of 1994, and has successfully investigated allegations of drug diversion, sales of controlled substances, sales and possession of firearms, and other criminal violations occurring at VAMCs in the New York metropolitan area.

SIRTF was created in response to concerns voiced by the directors of three New York area VAMCs over various criminal activities taking place at their facilities. The VA OIG's assistance was sought because federal agencies such as the DEA and the FBI have workloads and priorities which often preclude addressing criminal activity at VAMCs. In addition, VA Security Police lack the personnel and expertise to conduct these investigations, and local authorities were unable or unwilling to devote limited resources to what they perceived as a Federal problem.

In the three years that SIRTF has been operational, the unit has achieved a remarkable record of success. Initially targeted at the criminal activities mentioned above, the unit's role was expanded to include the investigation of workers' compensation fraud, a problem that was costing VA millions of dollars each year, funds that could be spent on our nation's veterans. This effort also enjoyed great success as indicated by the cases cited below.

Controlled Substances

• An individual pleaded guilty to charges of distribution and possession with intent to distribute cocaine after selling cocaine to an undercover special agent assigned to SIRTF on the grounds of a VAMC. The individual was sentenced to 30 months' imprisonment followed by 6 years' probation.
   
• An individual was sentenced to 5 years' probation after pleading guilty to the illegal sale of controlled substances. An investigation conducted by SIRTF determined that the controlled substance, Percocet, which he sold to an undercover agent, was diverted from a VA pharmacy.
   
• A former Environmental Management Services employee at a VAMC pleaded guilty to charges of distribution of, and possession with intent to distribute, controlled substances. A joint investigation by special agents from VA OIG and SIRTF revealed that the individual purchased drugs in large quantities from local neighborhood drug establishments, and resold the drugs for profit inside and outside the VAMC to employees and patients. Sentencing is pending.

Workers' Compensation Fraud

• The former Director of a Regional Educational Medical Center at a VAMC signed a settlement agreement with the U.S. Attorney's Office to make restitution in the amount of $260,000 for overpayment of workers' compensation benefits. An investigation conducted by SIRTF revealed that for almost 8 years, the individual was employed in various pursuits, including ownership of a real estate management company, operating a private medical practice, and teaching in Europe and the Far East, while collecting workers' compensation benefits.
   
• A former motor vehicle operator at a VAMC was sentenced to 5 years' probation, 6 months' home detention and ordered to pay the Government $85,800 in restitution. The individual pleaded guilty to one count of making false statements in order to receive workers' compensation benefits as a result of a SIRTF investigation. The individual admitted that, over a 6-year period, he submitted false statements to the Government indicating he was unable to work due to an on-the-job injury received at the medical center. During that period, he received over $85,000 in workers' compensation benefits while owning and operating a restaurant, where he was observed engaging in strenuous physical activity. The estimated Office of Workers' Compensation Program (OWCP) costs that will not be paid out as a result of his removal from the program are $200,000.

 
• A former Chief of Labor Relations at a VAMC was sentenced to 4 months' imprisonment, 5 months' home confinement, and 19 months' supervised release after pleading guilty to conspiracy to commit workers' compensation fraud. An investigation by SIRTF revealed that the individual assisted her husband, who previously pleaded guilty in this case, in submitting false claims to the Department of Labor in order to receive workers' compensation benefits.

 
• A former food service worker at a VAMC was sentenced to 60 months' probation and ordered to pay $14,042 in restitution to the Government. The employee claimed to have injured his lower back during 1992 while working at the medical center. He subsequently received $29,049 in workers' compensation payments. An investigation conducted by SIRTF revealed that the food service worker was employed as a home health care attendant while receiving benefits and failed to report the income as required by the Department of Labor. The estimated OWCP costs that will not be paid out as a result of the conviction and termination from the program are approximately $374,000.

Corruption

• A former VAMC police sergeant was sentenced to 15 months' imprisonment and 3 years' probation after pleading guilty to bribery of a public official. An investigation by SIRTF revealed that the former employee accepted money and things of value from an undercover agent in exchange for allowing the sale of narcotic drugs inside the VAMC cafeteria. During the undercover operation, 20 individuals were arrested for possession or distribution of narcotics at the VAMC.

2. EMPLOYEE AND THIRD-PARTY INTEGRITY

Employee Theft/Diversion of Pharmaceuticals

• A licensed practical nurse in the Nursing Home Care Unit at a VAMC was sentenced to 5 years' probation, 360 hours' community service, and ordered to pay a fine of $2,000. The nurse had pleaded guilty to one felony count of obtaining the administration of a narcotic drug and one misdemeanor count of reckless endangerment. A joint investigation by VA OIG, DEA, and local authorities revealed that the nurse had diverted Demerol, used to mitigate patient pain, and replaced it with saline solution. If undetected, the saline solution, when administered to a patient needing medication for pain control, would have no effect and would constitute patient abuse. The individual was placed on administrative leave by VAMC officials and has since resigned.
   
• A former licensed practical nurse at a VAMC was sentenced to 4 years' imprisonment (suspended), 4 years' probation, and fined $850 following a guilty plea to 31 counts of theft by deception of a controlled substance. A VA OIG investigation revealed that the nurse diverted Demerol from the hospital ward while on duty by signing out doses to patients who had already been discharged.
   
• A former pharmacy technician at a VAMC was sentenced to 2 years' supervised probation, 200 hours of community service, and fined $500. He previously pleaded guilty to the theft of Government property. An investigation revealed that he had stolen numerous types of medication and other items from the medical center pharmacy for his own use.
   
• Two former VA employees, a food service worker and a housekeeping aide at a VAMC, were arraigned before a Federal Magistrate Judge following their arrest on charges of possession with intent to distribute marijuana and cocaine. A VA OIG investigation revealed that the individuals were selling controlled substances to substance abuse patients at the VAMC. Both individuals have prior criminal records. A trial date is pending.
   
• A former employee at a VAMC was arraigned in state court in response to a superseding indictment charging the individual with three counts of selling controlled substances on VAMC property. A VA OIG investigation revealed that the individual sold heroin to undercover agents inside of, and on property adjacent to, the VAMC. A trial date is pending.
   
• A former pharmacist at a VAMC was indicted by a Federal grand jury on 11 counts of distribution of a controlled substance. The former employee was charged with forging prescriptions to divert Percocet, morphine sulfate, and Darvon. In a sworn statement taken by VA OIG special agents, the employee admitted forging the prescriptions and subsequently resigned from VA employment.

Theft and Embezzlement

• The former president of a labor union at a VAMC pleaded guilty to charges of conspiracy, mail fraud, making false statements, and concealing material facts from the Department of Labor, all in connection with the embezzlement of union funds; and to filing false Federal income tax returns and possession of a firearm in a Federal facility. The union officer had been employed at the VAMC as a morgue technician. A joint VA OIG, IRS, and Department of Labor investigation determined that approximately $190,000 of union funds had been misappropriated. The individual and co-conspirators caused false Labor Organization Annual Reports to be mailed to the Department of Labor.
   
• Three individuals pleaded guilty to charges of conspiracy and theft of Government funds and were sentenced to serve various terms of home confinement, probation, community service and restitution. An investigation revealed that the individuals fraudulently caused five U.S. Treasury checks to be generated and mailed to a non-existent vendor. The checks were then cashed and the money funneled through two bank accounts opened under a false identity. The money was distributed among the three conspirators. The loss to VA was over $88,800.
   
• A husband and wife both resigned their positions as medical clerks at a VAMC after receiving notices of proposed removal actions. These actions were based on information developed as a result of a joint investigation by the VA OIG and the Postal Inspection Service. While working at the hospital, the husband allegedly stole pre-approved credit card applications and other mailings intended for patients and, using personal information from the VA computer system, obtained credit cards in the names of patients. The couple allegedly used the credit cards to purchase various items and services, and to obtain cash for their personal use.
   
• Two former VA employees were voluntarily separated from Government service following charges of unauthorized use of Government property. A joint investigation by the VA OIG and local police revealed that the first individual, the former chief of Community Resource Services at a VAMC, used a Government-issued credit card for personal purchases of musical equipment and permitted the inappropriate use of the credit card by unauthorized parties, including VAMC volunteers, in over 20 instances. The second individual, a former VA program specialist in Community Resource Services, was charged with use of the Government-issued credit card for personal items.

Acceptance of Gratuity

• A former VA benefits counselor was sentenced to 4 months' home detention and 5 years' probation after pleading guilty to a two-count Information charging him with the acceptance of a gratuity by a public official. The Information charged that, while he was a VA employee, he accepted cash payments to expedite processing of various VA loan application documents.

Workers' Compensation Fraud

• A former claims clerk at a VAMC was sentenced to 6 months in prison; 3 years' supervised release, with the first 6 months' in home confinement; and ordered to pay restitution in the amount of $46,245. The sentence followed her conviction on a three-count indictment charging her with making false statements to obtain workers' compensation benefits. A VA OIG investigation revealed that the individual worked as a licensed vocational nurse while claiming workers' compensation benefits. She failed to report employment income on documentation submitted to the Department of Labor in order to receive benefits in excess of $159,000.
   
• An individual was sentenced to 20 months' imprisonment, 36 months' probation, and was ordered to pay $14,500 in restitution to VA. The individual pleaded guilty to multiple counts of fraud against the Government following a joint investigation by the VA OIG, Department of Labor OIG, FBI, and Army Criminal Investigations Division. The investigation determined that the individual submitted fraudulent claims of unemployability over a 3-year period causing the Government to pay approximately $80,000 in workers' compensation and VA pension benefits to which he was not entitled.

 
• A former registered nurse at a VAMC was indicted on one count of making false statements on Department of Labor workers' compensation forms. An investigation disclosed that the nurse was employed by at least two home health care services while reporting that she had no outside income. She was paid approximately $181,000 in workers' compensation payments.

Other Employee Misconduct

• A Federal grand jury returned a superseding indictment charging a physician, formerly assigned to a residency program at a VAMC, with one count of false statements, and five counts of possession of controlled substances by misrepresentation, deception and subterfuge. The individual was originally indicted in July 1997 for the false statement charge only. It is charged that, in connection with his application to enter a residency program at a state university, he failed to disclose to officials that he had been convicted and incarcerated for assault arising from the non-lethal poisoning of his co-workers while employed as a paramedic. Upon his assignment to the VAMC, he was able to dispense controlled substances including Demerol and morphine. In 1993, an arrest warrant was issued based on the false statement charge. The individual left the United States at that time and accepted an appointment as a resident at a mission hospital in Zimbabwe. An arrest warrant was issued in Zimbabwe charging him with five counts of murder and two counts of attempted murder of patients at that hospital. He was arrested upon his return to the United States in July 1997. He is being held in Federal custody pending trial on the false statement and controlled substance charges. If convicted, he could receive a maximum sentence of 25 years' imprisonment and $150,000 fine.
   
• Two individuals, one a VAMC Environmental Management Service Chief, were indicted b