VAOIG report says opportunities exist to bypass internal controls to generate fraudulent large benefits payments.

by Larry Scott, VA Watchdog dot Org

Another day ... another VAOIG report pointing out unacceptable operations at the VA.

Review of Veterans Benefits Administration Large Retroactive Payments -- Report Number 08-01136-156, 6/30/2009 | Summary | Report (PDF)

In this report, when VAOIG mentions fraud, it is fraud by VBA employees or those employees working with veterans.

Be sure to look at the photos in the full report ... a mailroom door lock taped open so anyone can have access ... date stamps left out at night.  Which means, this is just an extension of the VA's shredding / document mishandling debacle where document security (or lack of it) and date-stamping were key issues.

While VAOIG found no fraud in the three Regional Offices (VAROs) they audited, I feel that sample is way too small ... it should have been four to six times that number to get an accurate look at fraud and potential for fraud.

Bottom line:  While the VA worries about veterans committing benefits fraud, they should pay more attention to their employees.

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Executive Summary

Results in Brief

The Office of Inspector General (OIG) conducted a special review of large retroactive payments, of $25,000 and above, made by Veterans Benefits Administration (VBA) Regional Offices (VAROs) in response to an ongoing OIG investigation. The objective of this review was to determine whether other such incidents were occurring at other VAROs processing large retroactive payments, and to what extent VBA and VAROs have designed and implemented effective policies, procedures and mechanisms to prevent and detect this type of fraudulent activity.

Our review of 690 large retroactive payments at three VAROs found no similar cases to the alleged fraud under investigation. These results mean we can say with 90 percent confidence that this particular type of fraud is unlikely to be occurring at the VAROs selected for review during the sampled period. If fraud were occurring at less than a one percent rate, our statistical sample may not detect it.

Background

Retroactive payments made by VBA to eligible claimants are based upon adjustments made to a prior monetary benefit allowance, or payments for a first-time claim covering the period from the date the claim was received through the date the claim was approved. Retroactive payments differ from recurring benefit payments released each month that are based upon a disability determination.

While large retroactive payments constitute less than two percent of all retroactive payments, they represent over 27 percent of all the retroactive funds paid out and amounted to over $2.2 billion distributed from January 2005 through February 2008. Prior investigations of fraud relating to large retroactive payments heightened the need for more attention to prevention and detection of fraud-related to these benefits payments. For example, in 2001, the OIG disclosed that employees at the Atlanta VARO generated approximately $11 million in fraudulent compensation claims.

At each of the three VAROs visited, we selected claim files associated with each retroactive payment for review and compared medical examination information in the file to medical information in Department of Veterans Affairs (VA) systems. We also assessed the extent controls ensured the security and integrity of date stamps and date stamping devices used to establish receipt of medical and other claim-related documentation at the VARO. In addition, we assessed the internal control environment in place for the processing and approval of retroactive payments to determine if internal controls would be likely to detect this type of alleged fraud.

Findings

The physical date stamping of claims, applications, and associated evidence is a critical aspect of VBA benefits processing operations. We found that VBA lacks sufficient guidance directing VAROs to maintain accountability over its official date stamps. The VAROs we visited did not maintain adequate control over their date stamps, and thus the VAROs were vulnerable to fraud from backdated claim documentation. In general, the VAROs followed the required VBA procedures for reviewing, and approving large retroactive payments. However, the internal controls in place were not designed, and therefore are not an effective means, to uncover large retroactive payments based upon fraudulent documentation. Therefore, opportunities exist to bypass VBA internal controls to generate fraudulent large benefits payments.

VBA raters and authorizers stated that they were not required to, and therefore, do not compare hard-copy medical examination information in a claims folder to information contained in other media, such as CAPRI,1 to ensure its validity. VBA uses a third-signature review to serve as a control for preventing improper retroactive payments. However, we found that third-signature designees performed their reviews with a focus on the technical sufficiency and completeness of a claim and do not focus on identifying potentially fraudulent medical information.

In October 2001, and in response to the fraud found at the Atlanta, GA VARO, VBA established the “Large Payment Verification Process”, which is commonly referred to as the “25K Review”. As part of this process, each VARO Director, or designated Assistant Director, reviews retroactive payments of $25,000 or greater and completes a four-question checklist to detect potential fraud and verify the payment is supported by medical evidence, a rating decision, and was paid to the correct payee. However, these procedures were not designed, and, therefore, would not be effective in detecting fraud based on fraudulent documentation. Director-level reviews of large retroactive payments focus on the technical sufficiency of the claim and are therefore unlikely to identify fraudulent medical examination information placed in the official claims files.

According to VBA’s Office of Performance Analysis and Integrity (PA&I), the purpose of VBA’s $25K Review Process is “fraud prevention and detection.” Annual reports published by PA&I compile information provided by individual VAROs on processing large, retroactive payments $25K and larger. While PA&I’s analysis is intended as an independent review of the $25K Review Process, it only focuses on analyzing “response timeliness” and processing errors for large payments. The PA&I analysis does not evaluate whether the controls put into place as a result of prior fraud schemes are functioning as intended.

In addition, review of VARO processing and control procedures regarding retroactive payments is accomplished through the Compensation and Pension (C&P) “Site Visit” program and through VBA’s monthly Systematic Technical Accuracy Review (STAR) and VA’s Management Quality Assurance Service (MQAS) reviews. However, these reviews also do not appear to be designed to serve as effective means to detect fraudulent retroactive payments that include altered medical examination documentation.

VBA will continue to be vulnerable to these types of fraud-related activities if controls are not improved throughout VAROs. Accordingly, we are recommending that VBA take additional steps to address internal control weaknesses in the review and approval of large retroactive payments. VBA needs to ensure that reviews of these payments address technical accuracy and provide reasonable assurance regarding the appropriateness of the payments.

Recommendations

We recommend that the Under Secretary for Benefits:

1. Develop and issue policies and procedures to establish and improve the accountability of VARO date stamps.

2. Implement a process to review large retroactive payments that requires reviewers to match a sample of the supporting medical examination information in VHA's records to VBA's claims information for large retroactive payments valued above $25,000.

3. Modify the C&P Site Visit program’s protocols to match a sample of the supporting medical examination information in VHA's records to VBA's claims information for large retroactive payments valued above $25,000.

Management Comments and OIG Response

The Under Secretary for Benefits concurred with the report’s conclusions and recommendations. Comments indicated guidance to improve accountability for date stamps was issued in VBA Letter 20-09-10 (dated February 20, 2009). We were also advised that VBA developed a Standard Operating Procedure (SOP) for Quality Assurance Medical Evidence Validation Review.

The SOP tasks the C&P Quality Assurance Systematic Technical Accuracy Review Staff and the Quality Assurance Program Oversight Staff to review a sample of large retroactive payment decisions and validate the authenticity of the medical evidence used to support those decisions. VBA requested closure of all the recommendations.

We consider the completed actions for the recommendation 1 responsive to our concerns about the security of VARO date stamps and consider the issue resolved. We consider VBA’s proposed actions for recommendations 2 and 3 to be responsive to our concerns related to the lack of effective validation of medical evidence used to support large retroactive payments. However, until VBA fully implements the SOP for Quality Assurance Medical Evidence Validation Review, the recommendations will remain open. The OIG will assess the effectiveness of these new controls in future reviews of regional office operations.

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TOPICS: veterans, veterans' benefits, VA, Department of Veterans' Affairs, VAOIG, fraud, large benefits payments