Citation Nr: 0814979 Decision Date: 05/06/08 Archive Date: 05/12/08 DOCKET NO. 04-30 447 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Muskogee, Oklahoma THE ISSUES 1. Entitlement to waiver of the recovery of overpayment of VA educational assistance benefits for the veteran's periods of enrollment at Ramon Magsaysay Technological University (RMTU) from November 2, 1998, to March 19, 1999. 2. Entitlement to waiver of the recovery of overpayment of VA educational assistance benefits for the veteran's periods of enrollment at RMTU from April 12, 1999, to March 8, 2002. ATTORNEY FOR THE BOARD C. Ferguson, Associate Counsel INTRODUCTION The Board is unable to ascertain the veteran's dates of active military service from the record. This matter returns to the Board of Veterans' Appeals (Board) following Remands issued in October 2005 and December 2005. This matter was originally on appeal from a May 2004 decision by the Committee on Waivers and Compromises at the Department of Veterans Affairs (VA) Regional Office (RO) in Muskogee, Oklahoma, which denied the veteran's request for waiver of overpayment upon determining that the veteran exercised bad faith in receiving educational benefits from November 2, 1998, to March 8, 2002. In light of the disposition in this case that is explained in greater detail below, the Board has separated the issue on appeal into two issues, as reflected on the title page of this decision. The issue of entitlement to waiver of the recovery of overpayment of VA educational assistance benefits for the veteran's period of enrollment at RMTU from November 2, 1998, to March 19, 1999, is addressed in the REMAND portion of the decision below and is REMANDED to the RO via the Appeals Management Center (AMC) in Washington, DC. FINDINGS OF FACT 1. The veteran was enrolled in a program of education at RMTU to achieve a Diploma in Agricultural Technology. The veteran received educational assistance benefits administered in the amount of $32,608.73 based on his enrollment at RMTU from November 2, 1998, to March 30, 2002. 2. A fraud investigation conducted by the Manila RO determined that a fraud scheme was perpetuated by the 60 veterans enrolled at RMTU, including the veteran that is the subject of this decision. 3. The investigation concluded that veteran students were listed as enrolled at RMTU, as full time students, solely to collect VA benefits, but never really attended classes. 4. An investigation conducted by the VA Office of Inspector General in San Francisco also determined that a fraud scheme was perpetuated by all 60 veterans enrolled at RMTU, and that the fraud resulted in these students collecting VA educational assistance benefits even though they were not really attending classes. 5. The veteran received educational assistance benefits for courses that he did not attend, resulting in the current overpayment of $32,608.73. 6. The preponderance of the evidence does not establish that the veteran was aware of the fraud scheme when he enrolled in RMTU in November 1998. However, after his first semester at RMTU, the Board finds that the veteran either knew or should have known that he was accepting education benefits for purposes other than what was intended and that his continued enrollment in the university amounted to perpetuation of the scheme. 7. For the veteran's first period of enrollment at RMTU from November 2, 1998, to March 19, 1999, the preponderance of the evidence does not establish that the veteran was acting in bad faith. 8. For the veteran's periods of enrollment at RMTU after March 1999, however, the Board finds that the overpayment was due to bad faith by the veteran. CONCLUSION OF LAW Waiver of recovery of the overpayment of educational assistance benefits for the veteran's periods of enrollment from April 12, 1999, to March 8, 2002, at RMTU is precluded by reason of bad faith on the part of the veteran. 38 U.S.C.A. § 5302 (West 2002); 38 C.F.R. §§ 1.962, 1.963, 1.965 (2007). REASONS AND BASES FOR FINDINGS AND CONCLUSION I. The Veterans Claims Assistance Act of 2000 (VCAA) The VCAA describes VA's duty to notify and assist claimants in substantiating a claim for VA benefits. 38 U.S.C.A. §§ 5100, 5102, 5103, 5103A, 5107, 5126 (West 2002); 38 C.F.R. §§ 3.102, 3.156(a), 3.159 and 3.326(a) (2007). A VCAA notice, as required by 38 U.S.C. § 5103(a), must be provided to a claimant before the initial unfavorable agency of original jurisdiction (AOJ) decision on a claim for VA benefits. Pelegrini v. Principi, 18 Vet. App. 112, 120 (2004). However, in Barger v. Principi, 16 Vet. App. 132 (2002), the United States Court of Appeals for Veterans Claims (Court) held that the VCAA, with its expanded duties, is not applicable to cases involving the waiver of recovery of overpayment claims, noting that the statute at issue in such cases is found in Chapter 53, Title 38, United States Code, and that the provisions of the VCAA are relevant to a different Chapter (i.e. Chapter 51). Therefore, the VCAA (and, it follows, its implementing regulations) is not for application in this matter. Notwithstanding the above, the Board notes that the RO explained to the veteran the basis for finding overpayment and why his waiver request was denied in the May 2004 decision, the July 2004 Statement of the Case (SOC), and the April 2007 Supplemental Statement of the Case (SSOC). The veteran has also been afforded with ample opportunity to present information and evidence in support of his claim. The veteran stated in June 2007 correspondence that he had sent "all [his] papers" and indicated that he had nothing further to submit in support of his claim. The veteran has not made the RO or the Board aware of any additional evidence that needs to be obtained in order to fairly decide this appeal. Furthermore, the Board finds that the RO substantially complied with its prior Remands. Stegall v. West, 11 Vet. App. 268 (1998). In light of the foregoing, the Board finds that this case is ready for appellate review. II. Analysis As a preliminary matter, the Board notes the veteran has not contested the validity of the debt, and as such, this is not an issue for consideration in the present appeal. Rather, the only question before the Board is whether the veteran is entitled to a waiver of overpayment as to such debt. Recovery of overpayment of any benefits made under laws administered by VA shall be waived if there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver. 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. § 1.963(a) (2007). "Bad faith" is defined in VA regulations as "unfair or deceptive dealing by one who seeks to gain thereby at another's expense. Thus, a debtor's conduct in connection with a debt arising from participation in a VA benefits/services program exhibits bad faith if such conduct, although not undertaken with actual fraudulent intent, is undertaken with intent to seek an unfair advantage, with knowledge of the likely consequences, and results in a loss to the government." 38 C.F.R. § 1.965(b)(2) (2007). The veteran essentially asserts that he should not have to repay an overpayment of educational assistance benefits in the amount of $32,608.73 because he did not act in bad faith. He also indicates that repayment of the debt would result in financial hardship. Addressing the veteran's claim for a waiver of recovery of the overpayment, the initial question is whether there was any indication of fraud, misrepresentation or bad faith on the part of the veteran in the creation of the overpayment. 38 U.S.C.A. § 5303(c); 38 C.F.R. § 1.962(b). If any of these elements are found to exist, a waiver of the overpayment debt is precluded. 38 C.F.R. § 1.965(b) (2007). In that regard, the Board notes that the RO denied the veteran's request for waiver of overpayment of Chapter 30 educational assistance benefits after determining that the veteran had exercised bad faith in May 2004. The RO's determination was based on findings of a VA compliance survey conducted in the Republic of the Philippines, discussed in greater detail below, which found that the veteran did not attend regular classes at RMTU from November 2, 1998, to March 8, 2002. The February 2003 memorandum details the results of the fraud investigation involving education benefits at RMTU. It was noted in the memorandum that its findings were based on an extensive review of interviews conducted by the Manila RO, correspondences sent in by veterans, a review of files at Muskogee, and interviews of various VA officials and other individuals. The fraud was determined to be perpetuated by all of the 60 veterans enrolled at RMTU to include the veteran that is the subject of this decision. Initially, a routine educational compliance survey was conducted by one of the Manila RO Educational Compliance Survey Specialists (ECSS) in October 2002. The audit examined school records associated with 10% of the veteran student population. Of the 6 records examined, there were discrepancies found in all records. The primary contact at RMTU for this survey was the Registrar Clerk. She made available the records of the randomly selected students, which consisted of individual envelopes for each student containing personal interview forms, immigration papers, Certificates of Honorable Discharge, and records from previous or secondary schools. No other documents such as school curriculum, enrollment forms, or adding/dropping of subject forms were found inside. Significant discrepancies were found in the records that were reviewed. For example, some students had no addresses listed other than P.O. Box addresses, and others had addresses at locations of such distance that it raised questions as to regular attendance at any of the campuses of RMTU. Although no overpayments were found based on the available school records presented, it was noted that it may be necessary to conduct a more extensive compliance survey at a later date, including class checks to monitor actual class attendance of the students. Based on the results of the initial survey, a 100% compliance audit was then initiated in February 2003. This audit examined records associated with all 60 veteran students. The survey began at the San Marcelino Campus by interviewing the Chancellor of RMTU, who reported that the veterans had established their own school club on campus called the U.S. Veteran Students Organization. He indicated that they were allowed to have their own "Vet-Park" inside the campus where they often meet, and that they had donated several garbage bins located throughout the campus. The compliance survey continued at the Registrar's office of the Porac Botolan Campus of RMTU, where additional student records were reviewed. In reviewing the records, discrepancies were found in all 60 records. These included the following: the absence of final grades for certain courses or for entire semesters; different signatures or penmanship appearing on certificates of registration (the staff of the university reported that sometimes students' wives or classmates filled out the forms on their behalf); and indications that some students received credits consistent with only part-time enrollment even though they were receiving VA benefits for full-time enrollment. As a result of these findings, the Manila RO subsequently conducted a field investigation, which involved eleven Manila employees, including 8 field investigators, the head of the Field Section, and two Educational Compliance Survey Specialists (ECSS's) . From May 10, 2003, to May 15, 2003, they interviewed 39 individuals, including RMTU administration officials, professors, veteran students, and non-veteran students. The investigators determined that veteran students were listed as enrolled at RMTU, as full time students, solely to collect VA benefits, but never really attended classes. The veterans would meet once a week at a location on campus and circulate attendance sheets for the various classes they were enrolled in and signed them. The elected leader of the group would turn the sheets into the relevant professors. Mid-term and final examinations were done collectively by a group of veterans. All the veterans received passing grades. In depositions, some instructors revealed that they did not personally verify the presence of the veterans students in their classes, but, instead, relied on attendance sheets regularly submitted by a representative of the veteran students. Some of the instructors indicated that they either did not know whether the veteran students actually attended, and some admitted that they were aware of the fact that the veteran students did not attend many classes. Instructors also gave various reasons for the different treatment accorded veteran students over non-veteran students, such as language barriers, "humanitarian reasons," or the veteran students already having advanced knowledge. Some faculty members acknowledged that veteran students were only expected to act as financiers by providing monetary assistance to complete projects while the non-veteran students were expected to do the labor. Several faculty members and non- veteran students reported that the non-veteran students were stringently held to the requirement of reporting to class five days a week, but that veteran students were not. Some faculty members also admitted that he had been given cash incentives by the administration, which they were told came from donations by the veteran students. The scheme was found to have been happening for decades with one teacher disclosing that veteran students had been enjoying the arrangement since that teacher had started in 1989. Most teachers, staff, and non-veteran students admitted that the veteran students had not been attending classes, which was contrary to the insistent claims of the veteran students that they had. The school also benefited because the veterans would pay for various expenses the school could not afford, to include new curtains, sports equipments, water dispensers, renovations, holiday party expenses, etc. The veterans also provided cash payments directly to professors and school administration officials. All the veterans were enrolled in the Diploma in Agriculture or the Bachelors in Agriculture program under the College of Agriculture. Thereafter, in February 2004, an agent of the Criminal Investigation Division of the VA Office of Inspector General (OIG) in San Francisco, California, completed a report regarding his review of the situation at RMTU. The agent explained that his analysis was based on an extensive review of the documentation detailing interviews conducted by the Manila RO, correspondence sent by the veterans, a review of files at the Muskogee RO, and interviews of various VA officials and other individuals. The agent further explained that his review was also based on 14 years of experience as a Special Agent with the OIG, some of which has been as a Resident Agent in Charge. The agent noted that he had extensive training in conducting fraud investigations, and has also worked extensively in the Philippines on VA-related investigations. Based on his review, the agent concluded that fraud was committed by the 60 veterans who had attended RMTU, and it was his recommendation that all administrative action be taken to recover monetary damages suffered by VA and to forfeit the benefits of the involved veterans. However, based on the complexities and expense of prosecuting individuals in the Philippines, the OIG decided not to proceed with a criminal investigation of the matter. Regarding the findings of the OIG, the agent explained that the essence of the "scheme" at RMTU was that veteran students were listed as enrolled at RMTU, as full time students, solely to collect VA benefits. They never really attended classes, and would meet once a week at a location on campus to circulate attendance sheets for various classes they were enrolled in. They would sign these sheets, and a representative would take them to the relevant professors. The students were given mid-term and final exams, but these exams were given to a representative, and taken to the veteran's park, where they would be answered collectively based on the "honor system." All of the veterans would subsequently receive passing grades, and the school benefits from this system because the veterans would pay for various expenses, usually collectively, through money collected by their "treasurer." It was noted that items paid for by the students included new curtains, sports equipment, water dispensers, renovations, holiday party expenses, and the materials costs associated with class projects. The agent explained that the evidence of all 60 veterans' guilt included the following: the testimony of 13 professors/instructors, plus the Dean of Agricultural Technology, who indicated that the veterans never attended classes; the testimony of seven non-veteran students and one veteran student that was not involved in the scheme, who all indicated that the veterans did not attend classes; and the testimony of non-veteran students, who indicated that the veterans began attending classes regularly after the onset of the investigation by the Manila RO. The agent also pointed to the joint statement signed by 17 of the veteran students in which they asserted that they met the minimum requirement of 1 hour of classroom instruction per week and/or 3 hours of laboratory time for each subject. The agent found that this statement was clearly contrary to the testimony provided by instructors and fellow students, but is indicative of their knowledge that classroom attendance was required. The agent also noted that a similar scheme was in place at Laney College in Oakland, California, and that scheme resulted in a loss of $6 million for VA. The agent indicated that it was his belief that the scheme at Laney College was exported from the school in the Philippines, as there were many similarities beyond just the mechanics of the scheme, similar terminology, and the fact that the RMTU scheme had reportedly been going on since the 1980's. Furthermore, several RMTU professors noted that, when the naval center was still active, they had many more veterans enrolled. The agent noted that the students at Laney College had been sued in Federal Court under the Civil False Claims Act, and most of them paid double damages plus fines. In August 2003, the veteran that is the subject of this decision, received a letter from the Muskogee RO advising him that he had been certified and paid educational assistance benefits for attending RMTU from November 2, 1998 to March 8, 2002, but that records indicated that he did not attend classes during that period, which resulted in an overpayment in the amount of $32,608.73. He was also advised of his right to request a waiver of this overpayment. In September 2003, the veteran requested a waiver of overpayment; he did not challenge the validity of the debt. In May 2004, the Muskogee RO sent the veteran a letter notifying him that the Committee on Waivers and Compromises had denied his request for waiver of debt because he was paid at the full time rate from November 2, 1998 through March 8, 2002 and a compliance survey found that he did not attend regular classes at the school during that period. Based on the findings of the survey, the Committee determined that the veteran had exercised bad faith. Thereafter, the veteran filed a notice of disagreement in June 2004, a statement of the case was issued in July 2004, and the veteran perfected his appeal with respect to denial in August 2004. In support of his claim, the veteran wrote in an August 2004 statement that he complied with all requirements dictated by the school and staff while he was at RMTU and referenced his school transcripts, enrollment certificates, tuition receipts, and class schedules in support of his assertion. He also noted that any discrepancies related to his attendance were solely due to problems with RMTU's record keeping. He further stated that the school was certified by VA and VA inspected the school numerous times during his time at RMTU and any identified problems were corrected; he was unaware of any activities that transpired at the school after he left. Moreover, in a June 2007 statement, the veteran reiterated that he did everything that the school asked him to do and attended on the days that he was told to. The veteran has also submitted copies of his enrollment receipts, tests taken while enrolled at RMTU, Certificates of Registration for his periods of enrollment at RMTU, Certification of Enrollment for the second semester of the 2000 to 2001 school year, and Enrollment Certification forms for RMTU for the periods of November 2, 1998 to March 19, 1999; April 12, 1999 to May 21, 1999; June 7, 1999 to October 8, 1999; November 8, 1999 to March 24, 2000; April 17, 2000 to May 26, 2000; June 13, 2000 to October 13, 2000; November 13, 2000 to March 30, 2001; April 10, 2001 to May 18, 2001; June 4, 2001 to October 5, 2001; and October 22, 2001 to March 8, 2002. While the Board has considered the veteran's assertions and the evidence submitted in support of his appeal, the veteran has not presented argument or evidence that is contradictory to the above investigative findings. The veteran indicated that he complied with all requirements dictated by RMTU and its staff and pointed to various documentation from RMTU in support of his appeal; however, the evidence in the investigation included testimony from several faculty members and non-veteran students at RMTU who stated that the veteran students were not being held to the same standards of attendance or class participation that the non-veteran students were, and that this was due to the donations made to the school by the veteran students. Under these circumstances, it cannot be said that the veteran students were meeting the regularly prescribed standards of RMTU as contemplated by 38 C.F.R. § 21.7153(c). In addition, it was implicit in the scheme discovered by the Manila RO, and later confirmed by the OIG, that the veteran students at RMTU received course credit in return for the donations and gifts that they provided the school. Certainly, it is clear that RMTU routinely confirmed to the RO that these students were enrolled, attending classes, and receiving passing grades. Documentation to that effect, such as enrollment certifications, in no way contradicts the findings of the Manila RO or the OIG. For the foregoing reasons, the Board finds the submitted evidence to be of no probative value. Furthermore, it is implicit in all of the statutes and regulations dealing with the administration of Chapter 30 benefits that a veteran beneficiary be pursuing a meaningful program of education in exchange for his VA benefits. As noted, the scheme discovered by the Manila RO involved beneficiaries who received course credit and passing grades without having to attend classes or otherwise participate in class in return for monetary donations and other gifts they made to the university. It is difficult for the Board to imagine any argument that could justify this scheme as being consistent with the purpose of Chapter 30 benefits. To the contrary, the participants of the scheme, including this veteran, either must have known, or should have known, that receiving VA benefits based on their enrollment at RMTU amounted to defrauding the government. In the Board's opinion, the school's complicity does not in any way mitigate the actions of the veteran in participating in this scheme. Nonetheless, the evidence does not establish that the veteran was aware or should have been aware of the scheme at RMTU when he enrolled in November 1998. Although the February 2003 OIG memorandum indicates that the veteran may have known of the scheme prior to his enrollment due to the similarities between the scheme perpetuated at Laney College in Oakland, California, and the one perpetuated at RMTU as well as the fact that the veteran participants were all former Navy personnel, such information alone is not enough to establish that the veteran knew of the scheme prior to his enrollment at RMTU. However, at the completion of his first semester at RMTU, the veteran must have learned or should have learned of the scheme at RMTU and the preferential treatment bestowed upon the veteran students that gave financial benefits to the institution. Indeed, by that time, the veteran either had become aware or should have become aware that he was not required to participate in his classes as a regular student to receive passing grades in classes for which he was enrolled at RMTU. In light of the foregoing, the Board finds that the preponderance of the evidence does not establish that the veteran acted in bad faith from November 2, 1998, to March 19, 1999. However, for his subsequent periods of enrollment at RMTU, the Board finds the evidence shows that the veteran acted in bad faith and, consequently, waiver of recovery of overpayment for educational assistance benefits received during that period is precluded. ORDER Entitlement to a waiver of recovery of the overpayment in VA educational assistance benefits for the veteran's periods of enrollment at RMTU from April 12, 1999, to March 8, 2002, is denied. REMAND The Board determined that the record did not demonstrate, contrary to the RO's determination, that there was fraud, misrepresentation or bad faith on the part of the veteran in the creation of the overpayment during his first semester of enrollment at RMTU from November 1998 to March 1999, as explained above. Therefore, the Board must return the case to the RO for consideration of the veteran's claim for waiver of recovery of the overpayment for that period under the standard of "equity and good conscience." Accordingly, the case is REMANDED for the following action: The RO should consider the veteran's claim for waiver of recovery of the overpayment under the standard of equity and good conscience pursuant to 38 U.S.C.A. § 5302; 38 U.S.C.A. §§ 1.963, 1.965 for the period from November 1998 to March 1999. The RO should consider all of the elements of equity and good conscience. If the benefit sought on appeal remains denied, the veteran should be provided with a supplemental statement of the case that contains notice of all relevant actions taken, including a summary of the evidence and applicable law and regulations considered pertinent to the issue. An appropriate period of time should be allowed for response by the veteran. Thereafter, the case should be returned to the Board for further appellate consideration, if in order. The purpose of this REMAND is to ensure due process. The Board does not intimate any opinion as to the merits of the case, either favorable or unfavorable, at this time. The veteran has the right to submit additional evidence and argument on the matter or matters the Board has remanded. Kutscherousky v. West, 12 Vet. App. 369 (1999). This claim must be afforded expeditious treatment. The law requires that all claims that are remanded by the Board of Veterans' Appeals or by the United States Court of Appeals for Veterans Claims for additional development or other appropriate action must be handled in an expeditious manner. See 38 U.S.C.A. §§ 5109B, 7112 (West Supp. 2007). ______________________________________________ KATHLEEN K. GALLAGHER Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs