VA'S MANAGEMENT OF THE
FECA FEDERAL EMPLOYEES COMPENSATION ACT PROGRAM
TESTIMONY
OF
RICHARD J. GRIFFIN, INSPECTOR GENERAL
DEPARTMENT OF VETERANS AFFAIRS

HOUSE COMMITTEE ON VETERANS' AFFAIRS
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

March 25, 1999

Mr. Chairman and Members of the Subcommittee, I am pleased to be here today to comment on opportunities for improving management of the Department of Veterans Affairs (VA) Federal Employees’ Compensation Act (FECA) program, also known as the Workers’ Compensation Program (WCP). The Office of Inspector General (OIG) is committed to reducing fraud, waste, and abuse in the Department’s WCP. While VAWhile VA’s management has made improvements in the administration of the WCP, recent OIG audits and investigations have found that the Department is still significantly at risk for program fraud, abuse, and unnecessary costs.

In our view, enhanced management and oversight of VA’s WCP is essential as the Department is a significant Federal employer and annually incurs substantial costs associated with WCP claims resulting from injury (physical injury, illness, or disease) sustained in the performance of duty. The Department’s Fiscal Year 1998 payment for WCP costs to the Department of Labor (DOL), which administers the FECA program for the Federal Government, totaled about $140.8 million. These costs are based upon actual payments made by DOL in Charge Back Year (CBY) 1996 for the period July 1, 1995 to June 30, 1996.

In order to address the Department’s risk in the WCP area, we have applied a three-step approach: comprehensive national audits; joint OIG and Veterans Health Administration (VHA) investigative and fraud detection efforts; and the development of a protocol package and handbook for use by VA managers for enhanced program oversight and fraud detection. Our efforts have shown that there are opportunities for the Department to reduce program fraud and abuse with more effective review and oversight of WCP claims.

OIG Initiatives in the Workers’ Compensation Program

1985 OIG WCP Audit

In 1985, the OIG conducted an audit of claims filed under FECA. The report cited that the absence of clear program guidelines and the lack of overall program management resulted in higher WCP costs. The report projected that program cost would increase from $85 million to $98 million by 1990 if corrective actions were not taken to control costs. The principal audit recommendation was to assign responsibility in VA for program review, oversight, and evaluation of Department, agency, and facility activities. In response to the recommendation, VA established a part-time WCP Specialist position and developed program guidelines. A circular, which provided instructions for managing WCP cases and costs, was issued in 1989.

1992 OIG WCP Audit

In 1992, the OIG conducted an audit of the WCP as part of a government-wide review of the FECA program sponsored by the President’s Council on Integrity and Efficiency. Government-wide, VA had the fourth largest FECA program, costing $116 million. The audit focused on VHA claims because they accounted for about 95 percent of all VA WCP claims. This audit found management of the WCP could be improved. The audit findings were based on case reviews of national statistical samples and questionnaires completed by 108 VHA field activities. Specifically, the audit found that:

• Work-capable employees were not returned to work because VHA field activities were not proactively monitoring WCP cases. We estimated that for the year ended June 30, 1992, about $11 million of WCP costs could have been avoided by returning claimants to work.

• In addition, we noted that long-term claimants received over 50 percent of the WCP compensation benefits paid. By returning to work current claimants who are no longer disabled, VA could reduce future payments by an estimated $232 million.

• Additionally, we found that VHA field activities did not consistently offer light duty positions to partially recovered employees.

We found that VHA field activities also did not have current medical information for some claimants, and in some instances, did not even have case files. Accordingly, the field activity could not monitor the claimants’ recovery process. Additionally, we found that VA was not aggressively challenging questionable claims. As a result, we estimated that VA could not verify $17.8 million in annual WCP compensation payments.

We recommended that the Under Secretary for Health take actions to ensure that work-capable WCP claimants were removed from the rolls, and to improve management of the WCP area by developing a system to monitor program effectiveness. We also recommended that VA provide accountability at the local level by changing policy so that associated WCP costs were charged back to local facilities. In response to the audit findings, VA began charging part of the WCP costs to local facilities in 1994 and all of the costs in 1995. VA also began developing a WCP Management Information System (WC-MIS) in 1994, and issued new policies and procedures in August of 1997.

1995 Joint OIG/VISN Task Force to Prevent and Detect Fraud

In 1995, a joint OIG Office of Investigation and VHA effort at 4 VHA field activities in the New York City area resulted in 14 indictments and convictions for fraudulent WCP claims. Fines and restitution ordered totaled over $500,000 and lifetime savings from removal of the claimants from the WCP rolls would be about $4.3 million. Our efforts used numerous investigative techniques including surveillance, grand jury subpoenas, record reviews, and interviews.

One investigation involved a former motor vehicle operator at a VA Medical Center (VAMC) who received $85,800 in workers' compensation benefits between May 1991 and June 1996. In May 1997, the employee pleaded guilty to one count of making false statements in order to receive workers' compensation benefits. The employee admitted that he had submitted false statements to the Government indicating that he was unable to work due to an on-the-job injury at the VAMC while, in fact, he was the owner and operator of a restaurant. In August 1997, the employee was sentenced to 6 months' home confinement, 5 years' probation, and ordered to pay $85,800 in restitution. It is estimated that VA will realize a savings and cost recovery of $843,574. Civil action is pending.

In another case, a former food service supervisor at a VAMC through his wife, a former chief of labor relations at the same VAMC, filed for workers' compensation benefits in July 1990, after reporting he sustained an injury to his lower back, and has received approximately $128,000 in benefits. In September 1996, the employee was indicted on one count each of false statements and conspiracy and his wife was indicted on one count of conspiracy. In November 1996, the employee pleaded guilty to both charges. He admitted that, while he was receiving workers' compensation benefits, he owned and operated a limousine service. In February 1997, his wife, the chief of labor relations, pleaded guilty to one count of conspiracy to defraud the Government. The wife admitted she assisted her husband in the preparation of the false documents he submitted. In April 1997, the employee was sentenced to 1 month's imprisonment, 36 months' supervised release, to include 6 months' home detention, and was ordered to pay $40,000 in restitution to the Government. In June 1997, the wife was sentenced to 4 months' imprisonment and 24 months' supervised release, to include 5 months' home detention. It is estimated that VA will realize a savings and cost recovery of $930,000.

A discussion of some of the other program fraud cases we developed is presented in the Appendix to this testimony.

The remaining part of my testimony will discuss WCP audit and investigative review efforts in the following areas:

• OIG Audit and Investigative Experience in the WCP Area.

• 1998 National Audit of VA’s WCP Costs.

• Joint OIG and VHA Fraud Detection Efforts in VISN 2 and 22.

• Development of WCP Protocol Package and Handbook.

1998 National Audit of VA’s WCP Costs

In 1998, at the request of Department officials, the OIG conducted a national audit of VA’s WCP costs. The objective of the audit was to identify opportunities for the Department to reduce costs associated with WCP claims. The audit focused on the effectiveness of VA’s case management of WCP claims.

The audit report was issued on July 1, 1998 and found that VA had made improvements in returning injured workers back to work and that overall program costs had been reduced for three Charge Back Years by a total of 6 percent. However, we found a lack of effective WCP case management at some VA facilities and that the Department was still at risk for program abuse, fraud, and unnecessary costs. A national statistical sample of active cases found that better case management could be achieved in 20.4 percent of the WCP cases reviewed. Based on the sample results, we estimated that VA in CBY 1996 could have potentially avoided $17.5 million in WCP compensation costs by returning employees back to work and/or removing employees from WCP rolls. We also estimated a future cost avoidance of about $247 million in reduced WCP compensation costs for projected lifetime benefits for claimants. Our review also identified 26 potential fraud cases that were referred to the OIG Office of Investigations. Based on the sample results, we estimated that in CBY 1996 there were over 500 fraudulent WCP cases totaling about $9 million.

The audit found that there are opportunities for VA to further reduce WCP compensation costs nationally with improvements in key case management areas. Key areas that can be enhanced included:

• Offering light duty to employees.

• Providing more timely follow-up actions.

• Maintaining case files on all open/active WCP cases.

• Providing more consistent resources to the program.

• Collecting and using "Continuation of Pay" cost information as a management tool for monitoring potential WCP cost and employee health and safety issues.

• Establishing more comprehensive WCP policies and procedures that take advantage of the best practices and proven case management methods identified in our review.

• Completing certain WC-MIS modifications to enhance the use of the system.

The report included recommendations that should strengthen WCP case management and reduce program cost by more effectively identifying employees to be brought back to work or removed from the rolls. Given the significance of the audit findings and the continued risk of program abuse and fraud, we recommended that the WCP continue to be monitored by the Department and included on its potential material weakness watch list of Internal High Priority Areas.

1998 Joint OIG and VHA Fraud Detection Efforts in Veterans Integrated Service Networks (VISNs) 2 and 22

Our audit and investigative experience has shown that potential WCP fraud can be profiled using selected case attributes or "red flags". Identification of these red flags range from analysis of automated data to detail discussions with appropriate facility staff and/or review of WCP claim and personnel files. Examples of red flags that can be identified through analysis of automated data are:

• High compensation costs with little or no medical costs.

• Claimant lives out-of-state or has a Post Office box address.

• Extremely old case.

Examples of red flags that can be initially identified through analysis of automated data but are also dependent on local economies or other factors are:

• Claimant has marketable job skills.

• Claimant alleges soft tissue injuries such as lower back injuries.

• Claimant has a history of WCP claims.

Examples of red flags that can only be identified by review of WCP claim and personnel files and/or discussions with appropriate facility staff are:

• Employees that are about to be terminated or have an adverse personal action taken.

• Temporary or seasonal work about to end.

• A tip from facility employees or other sources such as local newspapers.

During 1998 we used the red flags identified by our audit and investigative efforts and developed methodologies for identifying questionable and potential fraudulent WCP claims. Through initial analysis of CBY 1996 WCP data and discussions with VHA’s Chief Network Officer, VISN 22 (Long Beach, CA) was selected for testing and refinement of our protocol package review methodology. At the request of the Network Officer, we also reviewed WCP claims in VISN 2 (Albany, NY) using CBY 1997 WCP data.

Our initial case selection criteria was made through automated analysis of WCP claims that received compensation payments in a given CBY using the red flag of high compensation with little or no medical cost. Cases were reviewed and analyzed to identify potential fraud and to determine and/or prioritize what actions needed to be taken to remove the claimants from the WCP rolls. Our efforts included:

• Site visits to DOL’s Office of Workers’ Compensation Program (OWCP) District Offices in San Francisco, New York, and Jacksonville.

• Discussions with the DOL Office of Inspector General, Office of Investigations.

• Discussions with the California State Insurance Fraud Division.

We selected only those WCP cases with compensation payments over $5,000 and medical payments less than $1,500 in the CBY being reviewed. Our review efforts have shown that these cases have the highest potential for fraud and removal from the WCP rolls. Although all WCP cases should be reviewed, using the above methodology assisted in prioritizingdetermining which cases to reviewshould be reviewed first.

These reviews have identified a number of potential fraud cases and claimants that have or will be removed from the WCP rolls. Overall, these reviews resulted in potential lifetime benefit reductions in compensation payments totaling about $45 million.

Development of WCP Protocol Package and Handbook

Based on work that we jointly completed with the Department in VISNs 2 and 22, a protocol package was developed to provide a methodology for enhanced VISN level review and oversight of WCP claims. Key aspects of the review methodology include:

• Coordination of review efforts with DOL’s OWCP District Office to establish procedures for requesting assistance such as interpretations of information in OWCP case files.

• Identification of best practices and other tools that can be used to enhance case management and reduce program costs.

• Automated case targeting package for each VISN that prioritizes cases for review that have the highest opportunity for potential removal from the rolls and identification of fraudulent claims.

• Case review instructions and worksheets to organize the start of review efforts.

In addition to the protocol package, we also developed a handbook to aid individual VA WCP coordinators and specialists with day-to-day case management and fraud detection. This handbook contains key information and instructions from the protocol package but is designed for individual facilities. The methodology presented in the handbook was tested in VISNs 2 and 22 with the very successful results that I have discussed in this testimony. Although the protocol package was developed to provide VISNs with an effective methodology to enhance review and oversight of WCP claims and reduce annual VHA costs, these methodologies can be used by all Departmental offices.

One of the most important factors identified in our protocol package for effective WCP case management and fraud detection is providing sufficient program resources. In addition, our review found that the use of ergonomics and back programs is very effective in reducing employee injuries. There should be an ergonomic technical advisory group established to oversee the development of policies that emphasizes safety and training.

There should also be an accident review team that reviews all accidents that occur at the facility. This team should be made up of the WCP specialist, the safety officer, someone from occupational health, and a management representative. The accident review team should evaluate the circumstances of the accident to determine what should be done to prevent a recurrence.

The protocol package also contains an automated analysis of WCP claims as well as instructions on how to review WCP cases for identifying potential fraud. The automated analysis of WCP claims provides a basis to prioritize cases for review and identify cases most likely to be fraudulent based on indicators developed during recent OIG initiatives in this program area.

Once the WCP cases have been prioritized through automated analysis, individual case reviews are needed to identify actions to remove the claimants from the rolls and to identify potential fraud. Specific instructions, including worksheets to aid in review and analysis, for case reviews are presented in the protocol package and handbook. Additionally, documents that will be reviewed and indicators of fraud are discussed. The case analysis and review worksheets provided with the protocol package were designed to provide a structured methodology for classifying WCP cases.

ThatThis concludes my testimony. I would be pleased to answer any questions you may have.

APPENDIX

Program Fraud Case Examples

WCP fraud occurs when someone knowingly and with intent to mislead, presents or causes to be presented, any written statement that is materially false and in order to obtain some benefit or advantage. Our 1998 audit of WCP costs showed that an estimated $9 million of CBY 1996 WCP costs could potentially be the result of program fraud.

The following examples are provided to highlight some of the types of FECA fraud cases that we have identified involving VA employees.

A former director of a Regional Education Medical Center received $530,000 in workers' compensation benefits since 1989. Information provided by the VAMC in 1994 indicated that the employee was teaching on behalf of an international organization, traveling throughout Europe and the Far East. The employee filed for workers' compensation benefits in 1989, claiming that an on-the-job automobile accident in 1987, in which he sustained injuries to his head and neck, also aggravated an injury to his lower back, which he reportedly sustained in 1983. As a result, the employee claimed he could not work. A Federal search warrant was executed on the employee's home and 15 boxes of evidence were seized including: financial records, tax returns, correspondence identifying employment related activities and travel records. In mid-1997, the employee and the United States Attorney's office (criminal and civil) reached a civil agreement. The employee agreed to relinquish any right to receive further benefits and to pay back to the Government $260,000. A certified check was received 2 weeks later.

A former nurse's assistant at a VA extended care center received nearly $160,000 in workers' compensation benefits from March 1980, until her conviction in March 1997. The employee is a licensed practical nurse and was employed by at least six employers including another VA facility while she received her workers' compensation benefits. In December 1996, the employee was indicted on one count of false statements and in March 1997, was sentenced to 5 years' probation. It is estimated that VA will realize a savings and restitution of $320,600.

A former electrician at a VAMC received approximately $320,000 in workers' compensation benefits since 1989, when he claimed post-traumatic stress disorder. The employee was arrested in July 1996 and admitted he had been employed while receiving workers' compensation benefits. In December 1996, the employee pleaded guilty to a one-count information and in April 1997, was sentenced to 6 months' home detention and 2 years' probation. In November 1997, the employee agreed to a civil settlement of approximately $38,000. It is estimated that VA will realize savings of $440,000.

A former VA registered nurse received $271,600 in workers' compensation benefits since 1980, when she claimed a lower back injury. Inquiries determined that the employee has worked for three different employers while collecting workers' compensation benefits. In April 1997, the employee was indicted on one count of submitting a false statement to the Government. We estimate projected savings of $370,000.

An individual received workers' compensation while operating several contracting businesses and receiving 100-percent VA compensation benefits based on unemployability. In February 1996, the individual pleaded guilty to one count each of mail fraud and fraudulent acceptance of VA benefits. In June 1996, the individual was sentenced to 36 months' imprisonment and 2 years' probation. VA created a compensation overpayment of $46,163.

A former VA police officer received $82,600 in workers' compensation benefits from March 1977 until June 1996, for a claimed lumbar injury. In May 1996, a one-count information was filed in U.S. District Court charging the employee with failure to report his employment with a local roofing contractor while receiving workers' compensation benefits. In August 1996, the employee pleaded guilty and was sentenced to 5 months' imprisonment, 5 months' home confinement, and 3 years' probation. VA will realize savings of $102,322.

A former licensed practical nurse received workers' compensation from April 1988 until December 1996 for a claimed electrical shock. The investigation established that she had worked from 1993 through 1995 while receiving workers' compensation benefits. The employee was indicted in November 1996, on 15 counts of making false statements. In February 1997, the employee pleaded guilty to all 15 counts and was sentenced to 6 months' home detention, 36 months' probation, and was ordered to pay $30,804 in restitution. The Government will realize recovery and savings of $81,554.

A VA claims clerk received workers' compensation from 1985 until June 1997. The employee was indicted on three counts of making false statements to the Government in order to obtain workers' compensation benefits. In September 1997, the employee pled guilty and admitted that she had lied when she claimed not to be working when, in fact, she was employed numerous times as a licensed vocational nurse. She was sentenced to 6 months' imprisonment, 6 months' home confinement, 3 years' probation, and was ordered to pay $46,245 in restitution. As a result of her false statements, she was overpaid more than $159,000 in workers' compensation. It is estimated that VA will have savings of $295,000.