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Office of Budget

Fiscal Year 2004 Performance and Accountability Report
Published November 15, 2004

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16. Contingencies

VA is a party in various administrative proceedings, legal actions, and tort claims arising from various sources including: disputes with contractors, challenges to compensation and education award decisions, loan guaranty indemnity debt cases, and allegations of medical malpractice. Certain legal matters to which VA may be a named party are administered and, in some instances, litigated by the Department of Justice. Generally, amounts (more than $2,500 for Federal Tort Claims Act cases) to be paid under any decision, settlement, or award are funded from the Judgment Fund, which is maintained by Treasury. Of the amounts paid from the Judgment Fund, malpractice cases claimed 85 percent in FY 2004 and 84 percent in FY 2003. Contract dispute payments for FY 2004 and FY 2003 were $9.4 and $5.9 million, respectively.

VA uses accepted actuarial methods to estimate the liability resulting from medical malpractice and other tort claim exposure. In FY 2004, VA discounted future estimated payments using U.S. Treasury spot rates as of September 30, 2004. Had these payments not been discounted, the associated liability would have been $41 million more.

VA has recorded a liability for pending legal claims that are estimated to be paid by the Judgment Fund. This liability is established for all pending claims whether reimbursement is required or not. This liability was $501 million for FY 2004 and $528 million for FY 2003. There were 16 contract and personnel law cases with claimed amounts totaling $117.8 million where there was at least a reasonable possibility that a loss may occur. VA is also required to record an operating expense and imputed financing source for the Judgment Fund's pending claims and settlements. Judgment Fund accounting is shown below:

Judgment Fund For the Years Ended September 30,
2004 2003
Fiscal Year Settlement Payments $ 108 $ 92
Less Contract Dispute Payments (11) (6)
Imputed Financing-Paid by Other Entities 97 86
Increase (Decrease) in Liability for Claims 27 (97)
Operating Expense (Revenue) $ 70 $ (11)

It is the opinion of VA's management that resolution of pending legal actions as of September 30, 2004 will not materially affect VA's operations or financial position when consideration is given to the availability of the Judgment Fund appropriation to pay some court-settled legal cases. Fiscal year 2004 settlement payments were $97 million.

The amount of unobligated and obligated authority relating to appropriations cancelled on September 30, 2004 and 2003 was $16.9 million and $20.5 million, respectively. Any payments due that may arise relating to cancelled appropriations will be paid out of the current year's appropriations in accordance with the provisions of the Expired Funds Control Act of 1990.

VA provides medical care to veterans on an "as available" basis, subject to the limits of the annual appropriations. In accordance with 38 CFR 17.36 (c), VA's Secretary makes an annual enrollment decision that defines the veterans, by priority, who will be treated for that fiscal year subject to change based on funds appropriated, estimated collections, usage, the severity index of enrolled veterans, and changes in cost. While VA expects to continue to provide medical care to veterans in future years, an estimate of this amount cannot be reasonably made. Accordingly, VA recognizes the medical care expenses in the period the medical care services are provided. For the fiscal years 2000-2004, the average medical care cost per year was $22 billion.