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 March 31, 1996. During this reporting period, 74 audit, review, and inspection reports were issued, 2 settlement agreements were completed, and 145 investigations were closed which identified actual and potential recoveries of $26 million and made operational recommendations which could result in better use of an estimated $42 million. In addition, as a deterrent to fraud, waste, and mismanagement, our investigations and other review efforts resulted in 71 indictments, 74 convictions, and 111 administrative actions against third parties, VA employees, and benefit recipients.

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

PROCUREMENT PROGRAMS

Contractor Overcharges

The Government will recover an estimated $22 million as a result of a team effort by OIG and Departmental staff to ensure that overcharges by VA contractors are recovered. During the period, three major settlement agreements were reached through these joint efforts. In one case, a Federal Supply Schedule (FSS) contractor for surgical instruments and supplies agreed to pay the Government $10 million and, in the second case, an FSS generic drug company agreed to pay $7.5 million. In a third case, a pharmaceutical company agreed to pay VA $1.8 million to resolve contract overcharges.

Procurement Fraud

Investigations disclosed third-party fraud in VA's procurement program, including submission or payment of fraudulent invoices and price fixing. In one case, an investigation disclosed that an ambulance service submitted fraudulent billings to a VA medical center (VAMC) for transportation of veterans. In another case, the former president of a national baking corporation was found guilty of price fixing on bread and bread products sold to VA and other Government agencies.

MEDICAL CARE PROGRAMS

Control of Drugs

A summary report on the Veterans Health Administration's (VHA) management of drugs since Fiscal Year (FY) 1989 concludes that VHA has made significant improvements resulting in better customer service, accountability, security, and operational efficiency, and is applying business practices effectively used in the private sector. Our investigations, however, continue to show that VA Medical Centers (VAMCs) remain vulnerable to fraudulent acts by individuals to obtain drugs.

Access to and Delivery of Care

Three OIG reviews addressed either access to, or provision of, care to veterans. A review of VA's Spinal Cord Injury (SCI) Program disclosed that it is effective. We identified opportunities for improving access to, and delivery of, services at VA's 22 SCI Centers, including establishing more consistent admission criteria and range of services, and establishing waiting lists. An evaluation of Pap smear collection practices concluded they were generally sound, with recommendations made to develop nationwide training to ensure uniform processing and to develop prototypes for quality assurance and patient monitoring. The third review assessed VHA's management of violent and potentially violent psychiatric patients and concluded that these types of patients are appropriately managed and treated, with recommendations made that could potentially reduce the incidence of injury associated with the violent behavior.

VHA Income Verification

A review of VHA's Income Verification Match (IVM) program concluded that VHA can increase its Medical Care Cost Recovery billings by $16 million, improve its cost benefit ratio, and improve services to veterans. We recommended actions to ensure prompt billing of IVM cases, verification of income information for multiple years, and correction of inaccuracies in veterans' disability status.

BENEFIT PROGRAMS

VBA Income Verification

We also reviewed the Veterans Benefits Administration's (VBA) IVM program and found that VBA could reduce its annual program costs by about $7 million, and improve its cost benefit ratio. We recommended adjustments to the automated screening process and increase of the minimum income discrepancy amount for case referrals.

Loan Guaranty Program

Our investigations disclosed cases of loan origination fraud, equity skimming, and property management fraud. In one case, a realtor sold VA properties but did not remit the sales proceeds of over $75,000 to VA. A multi-agency investigation disclosed an equity skimming scheme, resulting in various home owners that had been defrauded receiving restitution of $18,000. In another case, a property management broker inflated the costs of maintenance and repair services charged on VA-owned properties he managed.

Benefits Fraud

Cases of compensation, pension, fiduciary, and education fraud were disclosed by OIG investigations. One individual admitted fraudulently receiving over $142,000 in VA disability compensation benefits by falsely reporting that he was unemployed. Another individual admitted submitting false annual income reports to VA and forging U.S. Treasury pension benefit checks totalling over $39,000 that were intended for a beneficiary that had died. An attorney serving as fiduciary for two veterans admitted his participation in misappropriation of over $240,000 of their funds. An employee of a state university, the coordinator of the school's veterans' work study program, was convicted of conspiracy and alteration of student transcripts. The employee received cash bribes from the students for altering their transcripts which enabled them to collect VA education benefits and/or receive higher grades than that to which they were entitled.

CONSTRUCTION PROGRAMS

Construction Project Cost Overrun

We reviewed the need for a $15 million cost limit increase (CLI) for a clinical addition project at a VAMC and concluded that program managers made or accepted inaccurate cost estimates and understated space to be constructed or renovated, did not adjust the project scope as necessary, and did not take effective action to stay within budget. No recommendations were made because nothing could be done to change the need for the CLI and VHA had already initiated action to address weaknesses in the construction management process.

VA's Value Engineering Program

At the request of VA management, we reviewed VA's compliance with the requirements of OMB Circular A-131, Value Engineering, and found that most of the requirements have not been implemented and VA's FY 1994 report to OMB on value engineering activities was inaccurate. VA management officials plan to issue policy and guidance and conduct training to improve the program.

Construction Fraud

Individuals and companies were ordered to pay nearly $4 million for fraudulent acts disclosed by investigations, including submitting fraudulent surety bonds for VA construction projects, and bribery to obtain construction awards. In one case, the Government was awarded $3.3 million as the result of an investigation that disclosed an individual submitted fraudulent surety bonds for several VA construction and other Federal agency contracts. Another investigation resulted in the owner of a construction firm being fined $425,000, after pleading guilty to paying bribes to a VA project engineer in exchange for construction contract awards.

FINANCIAL MANAGEMENT

Activation Funding

We evaluated VA's administration, use, and oversight of activation funds for construction projects and concluded that VA needs better accountability and control over the use of these funds. Funds had been used well ahead of actual project needs and for other facility needs. We recommended actions to improve accountability and control, and development of performance measurements to assess activation results.

Consolidated ,Financial Statements

As part of our audit of VA's consolidated financial statements for FY 1995, we conducted limited testing of VA's Financial Management System (FMS) conversion procedures at selected sites and found internal control and procedural problems that could be wide-spread, including incompatible employee access unauthorizations, on-line connection problems, incomplete FMS fund control reports, and FMS security weaknesses. We issued an advisory report for further analysis and/or resolution by financial management officials.

EMPLOYEE INTEGRITY

Illegal Acts and Misconduct by Employees

In addition to disclosing cases of theft and diversion of VA pharmaceuticals by VA employees, our investigations also disclosed cases of employee theft of VA property, illegal receipt of Office of Workers' Compensation (OWCP) benefits, misappropriation of patients' funds, and making false claims to the Government. A joint OIG and FBI investigation revealed that a VA employee misappropriated in excess of $150,000 in VA computer equipment. Another individual was charged with illegal receipt of OWCP payments totalling over $136,000. In another case, a VA nurse was arrested and charged with misappropriating $85,000 from a patient in a VA nursing home care unit.

FOLLOWUP ON OIG AND GAO REPORTS

Unresolved Reports

As of March 31, 1996, the OIG did not have any significant reports unresolved for over 6 months. Four internal reports were unresolved with associated potential monetary benefits totalling $4.9 million.