OFFICE OF AUDITS AND EVALUATIONS

VA Office of Inspector General

Veterans Benefits 

Administration 

Audit of 

Compensation and Pension 

Benefit Payments to 

Incarcerated Veterans 


June 28, 2016
13-02255-276


ACRONYMS
BOP

Bureau of Prisons

C&P

Compensation and Pension

CMA

Computer Matching Agreement

FY

Fiscal Year

IEA

Information Exchange Agreement

OIG

Office of Inspector General

PMC

Pension Management Center

SSA

Social Security Administration

USC

United States Code

VA

Department of Veterans Affairs

VARO

Veterans Affairs Regional Office

VBA

Veterans Benefits Administration

To Report Suspected Wrongdoing in VA Programs and Operations: 

Telephone: 1-800-488-8244 

Email: vaoighotline@va.gov

(Hotline Information: www.va.gov/oig/hotline)


Highlights: Audit of VBA’s
Compensation and Pension Benefit
Payments to Incarcerated Veterans
Why We Did This Audit
We conducted this audit to determine whether
the Veterans Benefits Administration (VBA)
was adjusting compensation and pension
(C&P) benefits payments timely for veterans
incarcerated in Federal, state, and local penal
institutions. Federal law requires VBA to
reduce C&P benefits for veterans incarcerated
for more than 60 days in a Federal, state, or
local penal institution.

What We Found
VA Regional Office (VARO) and Pension
Management Center (PMC) staff did not
consistently take action to adjust C&P benefits
for veterans incarcerated in Federal penal
institutions. Specifically, based on Federal
incarceration
data
ranging
from
May 2008 through June 2015, VBA did not
adjust veterans’ C&P benefits, as required, in
an
estimated
1,300
of
2,500 cases
(53 percent), which resulted in improper
payments
totaling
approximately
$59.9 million. Without improvements, we
estimated VBA could make additional
improper benefits payments totaling about
$41.8 million for Federal incarceration cases
from fiscal year (FY) 2016 through FY 2020.
VARO and PMC staff also did not take
consistent and timely action to adjust C&P
benefits for veterans incarcerated in state and
local penal institutions.
Based on
incarceration notifications received from
March 2013 to August 2014—the most current
data available at the time of our audit—VBA
did not effectively adjust veterans’ C&P
benefits in an estimated 3,800 of 21,600 state
and local incarceration cases (18 percent),
which resulted in significant delays and
improper payments totaling approximately

VA OIG 13-02255-276

$44.2 million. Without improvements, we
estimated VBA could make additional
improper benefits payments totaling about
$162 million for state and local incarceration
cases from FY 2016 through FY 2020. In
total, we estimated improper benefit payments
of about $307.9 million.
In general, VBA did not place priority on
processing incarceration adjustments because
VBA did not consider these non-rating claims
to be part of the disability claims backlog.
Both VBA Central Office staff from
Compensation Service and the Office of
Field Operations as well as VARO service
center managers and staff consistently
reported that incarceration adjustments were
not a high priority.

What We Recommended
We recommended the Acting Under Secretary
for Benefits increase the priority of VBA’s
incarceration adjustment workload.

Agency Comments
The Acting Under Secretary for Benefits
concurred with our recommendations.
Management’s planned actions were
responsive and we will follow up as
required.

GARY K. ABE 

Acting Assistant Inspector General 

for Audits and Evaluations


June 28, 2016

TABLE OF CONTENTS 

Introduction......................................................................................................................................1
 
Results and Recommendations ........................................................................................................2
 
Finding 1 

VBA Needs To Improve Its Processing of Federal Incarceration 

Adjustments ........................................................................................................2
 
Recommendations ...............................................................................................6
 

Finding 2 

VBA Needed To Prioritize State and Local Incarceration Adjustments.............7
 
Recommendations .............................................................................................12
 

Appendix A 

Background .......................................................................................................13
 

Appendix B 

Scope and Methodology....................................................................................14
 

Appendix C 

Statistical Sampling Methodology ....................................................................16
 

Appendix D 

Potential Monetary Benefits in Accordance With Inspector General Act 

Amendments ......................................................................................................21
 

Appendix E 

Management Comments ....................................................................................22
 

Appendix F 

OIG Contact and Staff Acknowledgments ........................................................25
 

Appendix G 

Report Distribution............................................................................................26
 

Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

INTRODUCTION
Objective

The purpose of the audit was to determine whether the Veterans Benefits
Administration (VBA) was adjusting compensation and pension (C&P)
benefit payments timely for veterans incarcerated in Federal, state, and local
penal institutions.

Incarceration
Adjustments

VA disability compensation is paid to veterans with disabilities that are the
result of a disease or injury incurred or aggravated during military service.
VA pension is paid to low-income wartime veterans. Federal law1 requires
VBA to reduce C&P benefits for veterans incarcerated in a Federal, state, or
local penal institution in excess of 60 days. Effective the 61st day of
incarceration, VBA must reduce compensation benefits for veterans
convicted of a felony and discontinue pension benefits for veterans convicted
of a felony or misdemeanor. VBA reduces compensation benefits to the
10 percent disability rate for veterans rated 20 percent service-connected or
more. For veterans whose service-connected disability rating is 10 percent,
VBA reduces the benefit payment by one-half.
VA Regional
Office (VARO) and Pension Management Center (PMC) employees are
responsible for making incarceration adjustments. Once the veteran is
released from the penal institution, VBA can restore C&P benefits.

Non-Rating
Claims

Authorization end products—also known as non-rating claims—require
development, review, and administrative decision or award action. VBA
classifies incarceration adjustments as non-rating claims because Veterans
Service Representatives can process them without a rating decision. This
workload is not included as part of VBA’s disability claims backlog.

VBA Program
Offices

Compensation Service is responsible for developing policy requirements and
disseminating procedures for the administration of compensation benefit
programs. Pension and Fiduciary Service has jurisdiction and responsibility
over the three PMCs, which are located in Philadelphia, PA; Milwaukee, WI;
and St. Paul, MN. The Office of Field Operations oversees operations and
establishes workload priorities at the VAROs.

Other
Information



Appendix A provides pertinent background information.



Appendix B provides details on our scope and methodology.



Appendix C provides details on our statistical sampling methodology.

1

Relevant Federal laws are Title 38 United States Code (USC) Section 3113, Title 38 USC
Section 5313, and Title 38 USC Section 1505.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

RESULTS AND RECOMMENDATIONS
Finding 1 	

VBA Needs To Improve Its Processing of Federal
Incarceration Adjustments
VARO and PMC staff did not consistently take action to adjust C&P benefits
for veterans incarcerated in Federal penal institutions. Specifically, based on
Federal incarceration data from May 2008 through June 2015, employees did
not adjust veterans’ C&P benefits, as required, for an estimated 1,300 of
2,500 cases (53 percent), which resulted in improper payments totaling
VBA had a computer matching
approximately $59.9 million.2
agreement (CMA) with the U.S. Department of Justice, Federal Bureau of
Prisons (BOP), to obtain monthly data on individuals confined in Federal
penal institutions. The agreement allowed VBA to use this information to
match against its records of veterans in receipt of C&P benefits to identify
potential incarceration adjustments.
VBA did not receive BOP data for Federal incarcerations from
July 2008 through May 2015. This occurred because VBA did not ensure a
secure method of receiving electronic data from BOP. Furthermore, VBA
did not effectively monitor the terms of the CMA with BOP, and VBA let
the agreement expire in April 2012. VBA and BOP established a new CMA
and Interconnection Security Agreement, which was finalized in April 2015.3
The following month, BOP began providing VBA with data on Federal
incarcerations. However, in March 2016—10 months after VBA received
backup files from BOP—VBA Central Office staff told us VBA had not yet
used the BOP data to make incarceration adjustments because it was still
determining how to manage this workload.
VBA did not consistently process Federal incarceration adjustments
primarily because VBA set its priority on eliminating the disability claims
backlog. In general, VBA did not place priority on incarceration adjustments
because VBA did not consider these non-rating claims part of the disability
claims backlog. Both VBA Central Office staff from Compensation Service
and the Office of Field Operations as well as VARO service center managers
and staff consistently reported that incarceration adjustments were not a high
priority. If VBA does not improve its processing of Federal incarceration
adjustments and conditions remain the same, we estimated VBA could make

2

Figures, costs, and percentages have been rounded for reporting purposes. As a result,

totals may not always sum due to rounding.

3
The CMA went into effect in December 2014; however, the Interconnection Security 

Agreement was not signed until April 2015. Since both were required to resume the transfer 

of data, we determined the new agreements were finalized in April 2015. 


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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

additional improper payments totaling about $41.8 million from FY 2016
through FY 2020.
Lack of
Federal
Incarceration
Adjustments

VBA needed to improve its process of adjusting C&P benefits for veterans
incarcerated in Federal penal institutions. Based on Federal incarceration
data from May 2008 through June 2015, we reviewed a statistical sample of
132 Federal incarcerations for veterans who had received C&P benefits prior
to their incarcerations, which included past incarcerations and incarcerations
that were current at the time of our review. Based on this review, we
estimated that VARO and PMC staff did not adjust veterans’ C&P benefits,
as required, in about 1,300 of 2,500 cases (53 percent). Specifically, VBA
employees did not adjust C&P benefits in about 590 past Federal
incarcerations, which resulted in improper payments totaling
approximately $8.6 million. In these cases, veterans were convicted, served
time in Federal penal institutions, and had been released (as of
October 1, 2015).
The following is an example of a veteran who was overpaid benefits while
incarcerated in a Federal penal institution.

Example 1

We determined a veteran was incarcerated in a Federal penal
institution for felony charges while receiving compensation benefits
at a 100 percent rate. He was sentenced to serve in a penal
institution from January 2012 until he was released in October 2013.
VBA did not adjust the veteran’s benefits as required, and, as a result,
this veteran was overpaid more than $55,000. VBA should take
action to issue a bill of collection to the veteran to recover the
improper benefit payments.
VARO and PMC staff also did not adjust C&P benefit payments in about
720 Federal incarcerations that were current at the time of our review, which
resulted in improper payments totaling approximately $51.3 million. In
these cases, convicted veterans still serving their sentence in a Federal penal
institution (as of October 1, 2015).
The following is an example of a veteran who was overpaid benefits while in
a Federal penal institution and continues to be overpaid.

Example 2

VA OIG 13-02255-276

We determined a veteran was incarcerated in a Federal penal
institution for felony charges while receiving compensation benefits
at the 70 percent rate. He was sentenced to serve 151 months in a
penal institution starting in April 2012. VBA had not adjusted the
veteran’s benefits, as required. As a result, this veteran had been
overpaid about $107,000 (as of October 1, 2015) with the potential of
an additional overpayment of more than $240,000 (based on the
veteran’s expected release date from the Federal penal institution) if

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

VBA does not take action to reduce benefit payments to the 10 percent
rate, as required by Federal law.
Prior to July 2008, VBA had a CMA with BOP to receive data on individuals
admitted to Federal penal institutions. The purpose of the agreement was to
identify veterans and VA beneficiaries in receipt of VA benefit payments
who were confined in Federal penal institutions for more than 60 days
because of a felony or a misdemeanor conviction. The agreement allowed
VBA to use the BOP data to match against its records of veterans in receipt
of C&P benefits to identify the need for potential incarceration adjustments.
However, in July 2008, the agreement between VBA and BOP expired.
No Federal
Incarceration
Data Since
2008

After the CMA expired, VBA did not receive data from BOP on Federal
incarcerations from July 2008 through May 2015—a total of 83 months. A
new CMA did not go into effect until October 2010. Prior to the effective
date of the new CMA, VA’s Office of Information and Technology had
revised VA policy regarding VA information systems. Specifically, it
required sensitive data to be encrypted when transferred. In order to comply,
VBA needed to set up a secure connection with BOP. Even though the new
CMA was in effect, VBA reported that it did not receive data from BOP
because VBA did not fully implement a secure connection to receive
electronic data until July 2012.
Once VBA fully implemented the secure connection, BOP still could not
transfer data because VBA allowed the CMA to expire in April 2012. VBA
could have extended the agreement for 1 year if VBA and BOP certified in
writing that the matching program complied with the original agreement and
would continue without change. However, VBA needed to complete this
action within 3 months prior to the end of the agreement. VBA did not
complete these necessary steps in a timely manner and the CMA expired.
In April 2015, VBA finalized a new agreement with BOP. In May 2015,
BOP transferred to VBA 83 backup files with data on individuals
incarcerated in Federal penal institutions from May 2008 through
March 2015—almost 7 years of data not previously provided to VBA. From
this point forward, BOP agreed to provide monthly data files to VBA on
Federal incarcerations.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

The following figure shows a timeline of CMAs and the transfer of Federal
incarceration data between BOP and VBA.
Figure. Timeline Recapping Data Transfer Between BOP and VBA

Source: VBA Compensation Service and Federal Bureau of Prisons
No Action
Taken With
BOP Data

In December 2015, VBA Central Office staff told us VBA had not yet used
the 83 backup files or the monthly data from BOP to make incarceration
adjustments. Staff stated VBA was still in the process of analyzing the BOP
data and determining how to manage this workload. Consequently, VBA
could not provide a timeline for when VBA would make incarceration
adjustments based on the BOP Federal incarceration data. VBA needed to
prioritize this workload by reviewing the BOP data, taking action to make
appropriate benefit adjustments, and issuing bills of collection to recover
improper payments.

Causes for
Federal
Incarceration
Adjustment
Issues

VBA did not process Federal incarceration adjustments primarily because of
how VBA set its priority on eliminating the disability claims backlog. In
general, VBA did not place priority on incarceration adjustments because
VBA does not consider these non-rating claims part of the disability claims
backlog.4 Both VBA Central Office staff from Compensation Service and
the Office of Field Operations as well as VARO service center managers and
staff consistently reported that incarceration adjustments were not a high
priority. Several VARO employees stated that they had not worked
incarceration adjustments for up to 2 years. Furthermore, VBA did not
effectively monitor the terms of its agreements with BOP, which led to an
almost 7-year lapse in obtaining data on Federal incarcerations.

4

The disability claims backlog includes disability compensation and pension claims
exceeding 125 days that require a rating decision. Non-rating claims require development,
review, and administrative decision or award action; however, they generally do not require
a rating decision.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Effects of
Federal
Incarceration
Adjustment
Issues

VBA’s ineffective actions in processing Federal incarceration adjustments
from May 2008 through June 2015 resulted in improper payments totaling
about $59.9 million. Based on these results, we calculated the amount of
additional improper payments VBA could make over a 5-year period if
conditions remained the same. We estimated VBA could make additional
improper payments totaling about $41.8 million, from FY 2016 through
FY 2020.

Conclusion

Federal law requires VBA to adjust veterans’ C&P benefits when veterans
are incarcerated for more than 60 days because of a felony, and in some
cases a misdemeanor conviction. VBA staff did not consistently take action
to make Federal penal incarceration adjustments when appropriate. VBA
needs to prioritize this workload and make improvements to ensure sound
financial stewardship and minimize improper benefit payments.

Recommendations
1.	 We recommended the Acting Under Secretary for Benefits review the
data on Federal incarcerations from May 2008 through June 2015 and
issue bills of collection to recover improper payments made to veterans
while they were incarcerated.
2.	 We recommended the Acting Under Secretary for Benefits review the
data on Federal incarcerations from May 2008 through June 2015 and
take action to make appropriate benefits adjustments and issue bills of
collection to recover improper payments for veterans currently
incarcerated in Federal penal institutions.
3.	 We recommended the Acting Under Secretary for Benefits increase the
priority placed on the Federal incarceration adjustment workload by
using monthly data on Federal incarcerations to make appropriate and
timely compensation and pension benefits adjustments.
4.	 We recommended the Acting Under Secretary for Benefits monitor the
terms of the current agreement with the Bureau of Prisons and take
timely action to extend the agreement when appropriate.
Management
Comments
and OIG
Response

The Acting Under Secretary for Benefits concurred with our
recommendations and agreed that VBA’s current process for award
adjustments due to incarceration needs to be improved. The Acting Under
Secretary provided action plans that were responsive to our
recommendations. As of June 14, 2016, VBA had not completed their
planned actions. We will monitor VBA’s progress and follow up, as
required, until all proposed actions are completed. The Acting Under
Secretary for Benefit’s full response is included in Appendix E.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Finding 2

VBA Needs To Prioritize State and Local Incarceration
Adjustments
VARO and PMC staff did not take consistent and timely action to adjust
C&P benefits for veterans who were incarcerated in state and local penal
institutions.
Based on incarceration notifications received from
March 2013 to August 2014,5 employees did not effectively adjust veterans’
C&P benefits for an estimated 3,800 of 21,600 state and local incarcerations
(18 percent), which resulted in significant delays and improper benefit
payments totaling approximately $44.2 million. VBA had an Information
Exchange Agreement (IEA) with the Social Security Administration (SSA)
to identify veterans incarcerated in state and local penal institutions while
receiving C&P benefits. VBA used these data to identify potential
incarceration adjustments. We identified issues and delays with VBA
employees initiating development action (taking steps to determine whether a
benefit adjustment is needed) and making final incarceration adjustments
after providing due process notification to veterans.
VBA did not effectively make state and local incarceration adjustments
primarily because VBA set its priority on eliminating the disability claims
backlog. In general, VBA did not place priority on incarceration adjustments
because VBA does not consider these non-rating claims part of the disability
claims backlog. Both VBA Central Office staff from Compensation Service
and the Office of Field Operations as well as VARO service center managers
and staff consistently reported that incarceration adjustments were not a high
priority. If VBA does not improve processing of state and local incarceration
adjustments and conditions remain the same, we estimated VBA could make
additional improper payments totaling about $162 million from FY 2016
through FY 2020.

Issues
Processing
State and
Local
Incarceration
Adjustments

VBA needed to improve processing of C&P benefit adjustments for veterans
incarcerated in state and local penal institutions to reduce improper
payments.
Specifically, based on SSA notifications received from
March 2013 to August 2014, we reviewed a statistical sample of 331 state
and local incarcerations for veterans who had received C&P benefits. Based
on this review, we estimated that VARO and PMC staff did not effectively
adjust veterans’ C&P benefits for about 3,800 of 21,600 state and local
incarcerations (18 percent), which resulted in significant delays and improper
payments totaling approximately $44.2 million.
VBA had a 5-year IEA with SSA that identified veterans incarcerated in state
and local penal institutions and who were in receipt of C&P benefits. Under
the agreement, data on VBA benefit recipients are matched against SSA’s
5

The actual date range for the notifications was March 29, 2013, through August 8, 2014,
which was the most current data available at the time of our audit.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

state and local data. For each match, a notification of incarceration is
created. The notification includes veteran information—such as name,
Social Security number, and date of birth. It also includes information on the
incarceration, such as name and address of penal institution, telephone
number, fax number, and date of confinement. The notification does not
include information on the veteran’s conviction and does not regularly
include the actual date of release from the state or local penal institution.
Therefore, VBA employees needed to take development action to determine
whether the veteran’s benefits needed adjustment.6 We identified issues and
delays with VBA employees initiating development action and making final
C&P benefit adjustments after providing due process notification to veterans.
Lack of
Development
Action

VARO and PMC staff did not consistently initiate development action after
receiving notifications of incarceration from SSA. We estimated VBA had
not initiated development action for about 11,500 of 21,600 incarcerations
(53 percent) at the time of our audit. In these cases, VBA received
notifications from SSA; however, employees had not taken any action to
determine whether benefit adjustments were needed. The average number of
days pending without initiating development action for these incarcerations
was about 360 days.
VBA policy7 requires that employees put all claims, including incarceration
adjustments, promptly under control. For incarceration adjustments, the
claim is placed under control when VBA employees initiate development by
taking action to determine whether the notice contains sufficient information
to verify the individual’s incarceration status. Should additional information
be required, the employees must continue development action until it is
determined whether an incarceration adjustment is necessary.

Delays Initiating
Development
Action

VBA had placed claims under control and initiated development action for
about 10,200 of 21,600 incarcerations (47 percent). However, VBA did not
consistently complete this action promptly upon receipt of incarceration
notifications. The average number of days to initiate development for state
and local incarceration notifications received from March 2013 to
August 2014 was about 76 days.8 Therefore, we concluded that significant
delays existed.

6

In its response to this report, VBA stated it would continue to work with BOP and SSA to

obtain the needed data, as part of the data matching agreements, and identify additional ways 

to streamline the process.

7
Relevant VBA policy is M21-4 Manual, Appendix B.

8
This average is for cases in which VBA had initiated development action.


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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Table 1 summarizes estimates for the average number of days to initiate
development action for state and local incarceration notifications received
from March 2013 to August 2014.
Table 1. Time To Initiate Development Action
Average Number
of Days To Initiate
Development Action

Number From
Population

Percent of
Population

0 to 7 Days

1,500

16%

8 to 60 Days

4,700

49%

450

5%

91 to 180 Days

1,300

14%

More Than 180 Days

1,500

16%

61 to 90 Days

Source: VA OIG analysis of statistically sampled state and local incarcerations
Note: This table includes estimates for cases in which VBA had initiated development 

action.


The following is an example in which we identified a significant delay in
adjusting the veteran’s compensation benefits because VARO staff had not
placed the claim under control or initiated development action at the time of
our review.
A veteran was receiving compensation benefits at the 100 percent
rate. In June 2013, the veteran was identified as being incarcerated
through data provided by SSA. At that time, an electronic notification
was created for the VARO of jurisdiction related to the incarceration.
At the time of our audit, we determined staff did not place this claim
under control or initiate development action. At our request, the
VARO developed this claim and determined an adjustment was
needed. In January 2015, VBA provided due process notification to
the veteran, and finalized the incarceration adjustment in April 2015.
Due to a processing delay of about 500 days, VBA overpaid the
veteran a total of about $27,000. After our review, VARO staff took
steps, through VA’s Debt Management Center, to recover the
improper benefit payments made to the veteran.

Example 3


Delays After 

Due Process 

Notification 


We found that VBA employees delayed making final incarceration
adjustments after providing due process notification to veterans. Once VBA
staff complete a development action, a determination is made whether a
veteran’s C&P benefits should be adjusted. For cases in which an
adjustment is needed, VBA staff send a due process notification to the
veteran. VBA allows the veteran 60 days to provide additional evidence
showing that his or her benefits should not be adjusted. After 60 days, if

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

VBA has not received additional evidence from the veteran, staff should
adjust the veteran’s benefits as proposed—retroactively dating back to the
veteran’s 61st day of incarceration.
VBA staff made final incarceration adjustments in about 3,000 cases after
sending due process notifications to the veterans. For these claims, it took
VBA staff an average of about 110 days to make final benefit adjustments
from the date of due process notification. Since VBA staff should make final
benefit adjustments after the 60-day due process period expires, we
concluded that significant delays existed.
The following is an example in which we identified a significant delay in
adjusting the veteran’s pension benefits after VBA provided due process
notification to the veteran.
Example 4

Overall
Delays

A veteran was receiving VA pension benefits. In April 2013, VBA
identified the veteran as being incarcerated through data provided by
SSA. At that time, an electronic notification was created for the PMC
of jurisdiction related to the incarceration. In April 2014, more than
360 days after being notified by SSA, PMC staff initiated development
action on this case. In August 2014, PMC staff sent the veteran due
process notification, proposing a termination of pension benefits.
VBA reported that the letter was returned undeliverable and was
resent to an updated prison address in December 2014. As of
March 2015, PMC staff had not taken action to suspend pension
benefits even though the 60-day due process period had expired.
Because of delays in this case, VBA overpaid the veteran a total of
more than $28,000. After our review, PMC staff took steps, through
VA’s Debt Management Center, to recover the improper benefit
payments made to the veteran.
Delays in initiating development action and making final C&P benefits
adjustments after due process notifications had a negative effect on overall
timeliness of state and local incarceration adjustments. The longer the
incarceration adjustment remains unaddressed, the larger the overpayment
will be to the veteran. It took VBA an average of about 300 days to process
state and local incarceration notifications received from March 2013 to
August 2014.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Table 2 summarizes estimates for the total number of days to process state
and local incarceration notifications received from March 2013 to
August 2014.
Table 2. Time To Process State and Local Incarceration Notifications 

From March 2013 to August 2014 

Total Number of Days
To Process Notifications

Number From
Population

Percent of
Population

0 to 125 Days

4,700

23%

126 to 180 Days

2,400

12%

181 to 300 Days

3,700

17%

301 to 500 Days

6,200

29%

More Than 500 Days

4,000

19%

Source: VA OIG analysis of statistically sampled state and local incarcerations
Note: Figures have been rounded for reporting purposes. As a result, totals may not
always sum due to rounding.
Causes for
Untimely State
and Local
Incarceration
Adjustments

VBA did not effectively make state and local incarceration adjustments
primarily because VBA set its priority on eliminating the disability claims
backlog. This priority had a negative effect on timeliness of other workload.
In general, VBA did not place priority on processing state and local
incarceration adjustments because VBA does not consider these non-rating
claims part of the disability claims backlog. Both VBA Central Office staff
from Compensation Service and the Office of Field Operations as well as
VARO service center managers and staff consistently reported that
incarceration adjustments were not a high priority. Several VARO
employees stated that they had not worked incarceration adjustments for up
to 2 years. Furthermore, VBA did not effectively monitor the timeliness of
initiating development action for these claims, and did not make final
benefits adjustments after due process expired.

Effects of
Untimely State
and Local
Incarceration
Adjustments

VBA’s failure to timely process state and local incarceration data resulted in
significant delays and improper payments totaling an estimated
$44.2 million. If VBA does not improve its processing of state and local
incarceration adjustments, we estimated it could make additional improper
payments totaling about $162 million from FY 2016 through FY 2020.

Conclusion

Federal law requires VBA to adjust veterans’ C&P benefits when they are
incarcerated for more than 60 days due to a felony and in some cases a
misdemeanor conviction. VBA staff did not take consistent and timely
action to make state and local incarceration adjustments when appropriate.
VBA needed to prioritize this workload and make improvements to ensure
sound financial stewardship and minimize improper benefit payments.

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Recommendations
5.	 We recommended the Acting Under Secretary for Benefits increase the
priority placed on state and local incarceration adjustment workload by
initiating timely development action after receiving notifications of
incarceration from the Social Security Administration.
6.	 We recommended the Acting Under Secretary for Benefits increase
priority of state and local incarceration adjustment workload by making
timely incarceration adjustments and issue bills of collection to recover
improper payments, as appropriate, after providing due process
notification to veterans.
Management
Comments and
OIG Response

The Acting Under Secretary for Benefits concurred with our
recommendations and agreed that VBA’s current process for award
adjustments due to incarceration needs to be improved. The Acting Under
Secretary provided action plans that were responsive to our
recommendations. As of June 14, 2016, VBA had not completed their
planned actions. We will monitor VBA’s progress and follow up, as
required, until all proposed actions are completed. The Acting Under
Secretary for Benefit’s full response is included in Appendix E.

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Appendix A

Background
VBA Compensation Service is responsible for establishing and maintaining
computer-matching agreements between VBA and other Government
agencies, including those used to identify veteran incarcerations.

BOP
Agreement

VBA has a CMA with BOP under which VBA receives information on
Federal prisoners whose VA benefits may be subject to reduction or
termination. The current CMA went into effect in December 2014 for a
period of 18 months, expiring in June 2016. The purpose of this agreement
is to identify veterans and beneficiaries who are in receipt of VBA benefits,
including C&P, and who are incarcerated for a period exceeding 60 days due
to a felony or misdemeanor conviction.

SSA
Agreement

VBA has an IEA with SSA under which VBA receives information on state
and local prisoners whose VA benefits may be subject to reduction or
termination. The current IEA went into effect in May 2011 for a period of
5 years, expiring in May 2016. The purpose of this agreement is to identify
those veterans and beneficiaries who are in receipt of VBA benefits,
including compensation and pension, and who are incarcerated for a period
exceeding 60 days due to a felony or misdemeanor conviction.

Prior OIG
Report

In 2007, OIG issued a report titled, Audit of Veterans Benefits Administration
Controls to Minimize Compensation Benefit Overpayments (Report
No. 06-01623-220, September 28, 2007). OIG recommended the timeliness
of compensation benefit adjustments be monitored—including incarceration
adjustments.

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Appendix B

Scope and Methodology

Scope

We conducted our audit work from August 2014 through March 2016. We
suspended our audit from March through October 2015 until VBA made the
Federal incarceration data available to OIG for our review. The audit
focused on VBA’s processes, procedures, and controls related to
incarceration adjustments. Specifically, our scope included the following:

Methodology



Veterans incarcerated in Federal penal institutions from
May 2008 through June 2015, as identified by BOP data provided to
VBA under the new CMA.



Veterans incarcerated in state and local penal institutions, identified by
SSA notifications from March 2013 to August 2014—the most current
data available at the time of our audit.

To achieve our objectives, we reviewed a statistical sample of 132 Federal
incarcerations and a statistical sample of 331 state and local incarcerations.
Appendix C contains details on our statistical sampling methodology.
We performed site visits at the following VAROs from October through
December 2014:


Los Angeles, CA



St. Petersburg, FL



Winston-Salem, NC



Cleveland, OH



Houston, TX



Waco, TX



Seattle, WA

We also visited the PMC in St. Paul, MN. During our site visits, we
conducted tours to obtain an understanding of the local workflow processes.
We also interviewed management and staff regarding topics related to our
audit objectives.
We reviewed VBA’s policies and procedures for incarceration adjustments
and interviewed management and staff from VBA Central Office to discuss
oversight and training.

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Fraud
Assessment

The audit team assessed the risk that fraud, violations of legal and regulatory
requirements, and abuse could occur during this audit. The audit team
exercised due diligence in staying alert to any fraud indicators by taking
actions such as:
	 Soliciting the OIG’s Office of Investigations for indicators
	 Interviewing VBA management and staff concerning potential fraudulent
activities within the scope of our objectives
	 Reviewing and assessing documentation in veterans’ claims folders and
in VBA’s electronic data systems
We did not identify any instances of fraud during this audit.

Data
Reliability

We relied on computer-processed data from SHARE and data provided by
OIG’s Austin Data Section, which obtained data related to veterans
incarcerated in Federal, state, and local penal institutions from BOP and
SSA. We tested the reliability of these data by comparing certain elements,
such as the veteran’s name and file number, to information available in VBA
systems, such as Veterans Benefits Management System, Virtual VA, and
the Modern Award Processing Development system. In addition, we
reviewed records maintained in the Public Access to Court Electronic
Records9 system to verify the date of incarceration. Based on our reliability
assessments, we concluded these data were appropriate and sufficient for our
audit purposes.

Government
Standards

Our assessment of internal controls focused on those controls relating to our
audit objectives. We conducted this performance audit in accordance with
generally accepted government auditing standards. These standards require
that we plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on our
audit objective. We believe the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objective.

9

This is an electronic public access service that allows users to obtain case and docket
information online from Federal, district, and bankruptcy courts.

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Appendix C

Statistical Sampling Methodology
To determine whether VBA was adjusting C&P benefit payments timely for
veterans incarcerated in Federal, state, and local penal institutions, we
selected a statistical sample of: (1) veterans incarcerated in Federal penal
institutions, and (2) veterans incarcerated in state and local penal institutions.
Figures, costs, and percentages have been rounded for reporting purposes.
As a result, totals may not always sum due to rounding.
Federal Incarcerations Review

Population

For veterans incarcerated in Federal penal institutions, we identified veterans
who had received C&P benefits prior to incarceration. Our population
consisted of 2,915 Federal incarceration notifications for the period from
May 2008 through June 2015.

Sampling
Design

For veterans incarcerated in Federal penal institutions, we used a simple
random sample. We reviewed 132 incarceration cases from the population,
and all records had a known chance of selection. This allowed us to make
estimates over the entire population.

Weights

We calculated estimates in this report using weighted sample data. Sampling
weights are computed by taking the product of the inverse of the
probabilities of selection at each stage of sampling.

Projections
and Margins
of Error

Our review indicated VBA staff did not consistently take action to adjust
C&P benefits for veterans incarcerated in Federal penal institutions. VBA
did not adjust veterans’ C&P benefits, as required, for about 1,300 of
2,500 cases (53 percent), which resulted in improper payments totaling
approximately $59.9 million. Specifically, VBA did not adjust C&P benefits
for about 590 past Federal incarcerations, which resulted in improper
payments totaling approximately $8.6 million. VBA also did not adjust C&P
benefit payments for about 720 Federal incarcerations that were current at
the time of our review, which resulted in improper payments totaling
approximately $51.3 million.
The margins of error and confidence intervals are indicators of the precision
of the estimates. If we repeated this audit with multiple samples, the
confidence intervals would differ for each sample, but would include the true
population value 90 percent of the time.

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Table 3 presents estimates over the entire population, including the estimate,
margin of error, lower 90 percent value, and upper 90 percent value.
Table 3. Statistical Projections – Federal Incarcerations
(Dollars are in millions)

Results

Sample
Margin
Estimate
Results
of Error

Lower
90%

Upper
90%

2,312

2,604

Total number of Federal
incarcerations in
universe

113

2,458

146

Number of
incarcerations for which
C&P benefits were not
adjusted as required

60

1,305
(53.1%)

207
(7.8%)

Past Federal
incarcerations (as of
October 1, 2015)

27

587

168

420

755

Current Federal
incarcerations (as of
October 1, 2015)

33

718

180

538

898

Overpayments as a
result of veterans’ C&P
benefits not being
adjusted as required

60

$59.9

$23.9

$36

$83.7

Past Federal
incarcerations (as of
October 1, 2015)

27

$8.6

$4.8

$3.8

$13.3

Current Federal
incarcerations (as of
October 1, 2015)

33

$51.3

$23.8

$27.6

$75.1

1,098
1,512
(45.3 %) (60.9%)

Source: VA OIG analysis of statistical sample results projected over the sample population

VBA’s ineffective actions processing Federal incarceration adjustments,
from May 2008 through June 2015, resulted in improper payments totaling
about $59.9 million. Based on these results, we calculated additional
improper payments VBA could make over a 5-year period based on the date
range of our population. If conditions remained the same, we estimated
VBA could make additional improper payments totaling about $41.8 million
from FY 2016 through FY 2020.

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State and Local Incarcerations Review
Population

For veterans incarcerated in state and local penal institutions, our population
consisted of SSA notifications used to identify incarcerated veterans who
were in receipt of C&P benefits. Our population consisted of 21,658 state
and local incarceration notifications from March 29, 2013, through
August 8, 2014.

Sampling
Design

For veterans incarcerated in state and local penal institutions, we selected a
random sample of incarceration cases based on our site visit locations. We
conducted site visits at seven VAROs (Los Angeles, CA; St. Petersburg, FL;
Winston-Salem, NC; Cleveland, OH; Houston, TX; Waco, TX; Seattle, WA)
and one PMC (St. Paul, MN). All records had a known chance of selection
per VARO and PMC. We also selected a random sample of incarceration
cases from locations that were not part of our site visits and all records had a
known chance of selection. This allowed us to make estimates over the
entire population.

Weights

We calculated estimates in this report using weighted sample data. Sampling
weights are computed by taking the product of the inverse of the
probabilities of selection at each stage of sampling.

Projections
and Margins
of Error

Our review indicated VBA staff did not consistently take action to adjust
C&P benefits for veterans incarcerated in state and local penal institutions.
VBA did not adjust veterans’ C&P benefits timely for about 3,800 of
21,600 state and local incarcerations (18 percent), which resulted in improper
payments totaling approximately $44.2 million.
The margins of error and confidence intervals are indicators of the precision
of the estimates. If we repeated this audit with multiple samples, the
confidence intervals would differ for each sample, but would include the true
population value 90 percent of the time. Table 4 presents estimates over the
entire population, including the estimate, margin of error, lower 90 percent
value, and upper 90 percent value.

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Table 4. Statistical Projections – State and Local Incarcerations
(Dollars are in millions)

Sample
Results

Estimate

Margin
of Error

Lower
90%

Upper
90%

Total number of
state and local
incarcerations in
universe

331

21,646

38

21,608

21,684

Number of
incarcerations in
which C&P
benefits were not
adjusted timely
that resulted in
overpayments

42

3,839
(17.7%)

1,430
(6.6%)

2,409
(11.1%)

5,269
(24.3%)

Overpayments as
a result of
veterans’ C&P
benefits not being
adjusted timely

42

$44.2

$21.4

$22.8

$65.5

Cases in which
development
action was not
initiated

151

11,458
(52.9%)

1,695
(7.8%)

9,762
(45.1%)

13,153
(60.8%)

Average number
of pending
without
development

151

357

38

319

395

Cases in which
development
action was
initiated

180

10,188
(47.1%)

1,696
(7.8%)

8,492
(39.2%)

11,884
(54.9%)

0–7 days
to initiate

20

1,536
(16%)

951
(9.4%)

586
(6.6%)

2,487
(25.4%)

8–60 days
to initiate

85

4,743
(49.4%)

1,385
(11.5%)

3,357
(38%)

6,128
(60.9%)

61–90 days
to initiate

13

450
(4.7%)

238
(2.6%)

212
(2.1%)

689
(7.3%)

91–180 days
to initiate

28

1,344
(14%)

658
(6.8%)

686
(7.2%)

2,002
(20.8%)

Results

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Sample
Results

Estimate

Margin
of Error

Lower
90%

Upper
90%

24

1,524
(15.9%)

839
(8.4%)

685
(7.5%)

2,363
(24.3%)

Average number
of days to initiate
development

180

76

23

53

100

Cases in which
final incarceration
adjustment was
made after due
process
notification

40

2,992

1,145

1,846

4,137

321

296

30

267

326

105

4,737
(22.6%)

1,229
(5.9%)

3,508
(16.7%)

5,967
(28.4%)

126–180 days
to process

33

2,419
(11.5%)

1,111
(5.3%)

1,308
(6.2%)

3,530
(16.8%)

181–300 days
to process

61

3,658
(17.4%)

1,241
(5.9%)

2,417
(11.5%)

4,899
(23.3%)

301–500 days
to process

72

6,169
(29.4%)

1,632
(7.7%)

4,537
(21.7%)

7,800
(37.1%)

501+ days
to process

50

4,008
(19.1%)

1,430
(6.8%)

2,577
(12.3%)

5,438
(25.9%)

Table 4.
Statistical
Projections
(cont’d)

Results
181+ days
to initiate

Average number
of days to process
state and local
incarceration
notifications
0–125 days
to process

Source: VA OIG analysis of statistical sample results projected over the sample
population

VBA’s ineffective actions processing state and local incarceration
adjustments resulted in significant delays and improper payments totaling
about $44.2 million. Based on these results, we calculated additional
improper payments VBA could make over a 5-year period based on the date
range of our population. If conditions remained the same, we estimated
VBA could make additional improper payments totaling about $162 million
from FY 2016 through FY 2020.

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Appendix D

Potential Monetary Benefits in Accordance With
Inspector General Act Amendments

Better Use of
Funds

Questioned
Costs

Improper payments based
on Federal incarcerations
from May 2008 through
June 2015
(as of October 1, 2015)

$0

$59,900,000

Potential improper
payments based on
Federal incarcerations
from FY 2016 through
FY 2020

$0

$41,800,000

5–6

Improper payments based
on state and local
incarceration notifications
from March 2013 to
August 2014

$0

$44,200,000

5–6

Potential improper
payments based on state
and local incarceration
notifications from
FY 2016 through FY 2020

$0

$162,000,000

Total

$0

$307,900,000

Recommendation

1–2

3

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Explanation of Benefits

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Appendix E

Management Comments

Department of
Veterans Affairs
Date:
From:

Subj:

To:

Memorandum

April 18, 2016
Acting Under Secretary for Benefits (20)
OIG Draft Report—Audit of Compensation and Pension Benefit Payments to
Incarcerated Veterans—VAIQ 7683359
Assistant Inspector General for Audits and Evaluations (52)

1. Attached is VBA’s response to the OIG draft report: 	Audit of Compensation and
Pension Benefit Payments to Incarcerated Veterans.
2. Questions may be referred to Catherine Milano, Senior Program Analyst, at
461-9216.
(original signed by:)
DANNY G.I. PUMMILL
Attachment

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Attachment
Veterans Benefits Administration (VBA)

Comments on OIG Draft Report

Audit of Compensation and Pension Benefit Payments to Incarcerated Veterans


The Veterans Benefits Administration provides the following comments:
VA has a statutory responsibility to reduce or terminate disability compensation or pension benefits for
VA beneficiaries incarcerated in a Federal, State, or local penal institution in excess of 60 days. VBA
conducts an electronic data match of all disability compensation and pension benefit recipients with the
Department of Justice, Federal Bureau of Prisons (FBOP), and the Social Security Administration (SSA)
to identify those individuals confined in penal institutions.
VBA agrees with the OIG that the current process for award adjustments due to incarceration needs to be
improved. VBA is required to make the adjustments effective on the date of the beneficiary’s conviction;
however, the electronic data currently received from FBOP does not include this information. Therefore,
after verifying that the match results correctly correspond to the identified beneficiary, VBA personnel
must perform additional, time-consuming research to determine the date of conviction (e.g., contacting
the beneficiary or prison in writing and/or by phone). VBA is working with FBOP to determine the
changes needed to obtain conviction dates as part of the data-matching agreement. This will allow VBA
to more timely and efficiently make the adjustments and will also support future automation of the
process. VBA will continue to work with FBOP and SSA to obtain the needed data and identify additional
ways to streamline the process.
Incarceration adjustments are part of VBA’s non-rating workload. As VBA continues to receive and
complete record numbers of disability rating claims, the result is a corresponding increase in the volume
of non-rating claims. In fiscal year (FY) 2015, VBA completed a record 3.1 million non-rating claims, a
15-percent increase over FY 2014.
The following comments are submitted in response to the recommendations in the OIG draft
report:
Recommendation 1: We recommended the Acting Under Secretary for Benefits review the data on
Federal incarcerations from May 2008 through June 2015 and issue bills of collection to recover improper
payments made to veterans while they were incarcerated.
VBA Response: Concur. VBA received the data on Federal incarcerations from May 2008 through June
2015 and has identified approximately 3,400 cases that need to be reviewed for potential award
adjustment. VBA will take action to complete all necessary award adjustments on these cases.
Target Completion Date: December 31, 2016
Recommendation 2: We recommended the Acting Under Secretary for Benefits review the data on
Federal incarcerations from May 2008 through June 2015 and take action to make appropriate benefit
adjustments and issue bills of collection to recover improper payments for veterans currently incarcerated
in Federal penal institutions.
VBA Response: Concur. VBA received the data on Federal incarcerations from May 2008 through June
2015 and has identified approximately 3,400 cases that need to be reviewed for potential award
adjustment. VBA will take action to complete all necessary award adjustments on these cases.
Target Completion Date: December 31, 2016

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Recommendation 3: We recommended the Acting Under Secretary for Benefits increase the priority
placed on Federal incarceration adjustment workload by using monthly data on Federal incarcerations to
make appropriate and timely compensation and pension benefit adjustments.
VBA Response: Concur. VBA agrees that processing incarceration adjustments is important and will
prioritize these adjustments based on the date of incarceration, working the oldest dates first. VBA will
also continue to work to balance available resources in order to increase its focus on processing
incarceration adjustments. By May 31, 2016, VBA will communicate additional guidance to regional
offices (ROs) on the prioritization of Federal, State, and local incarceration adjustments.
Target Completion Date: May 31, 2016
Recommendation 4: We recommended the Acting Under Secretary for Benefits monitor the terms of the
current agreement with the Bureau of Prisons and take timely action to extend the agreement when
appropriate.
VBA Response: Concur. VBA initiated the renewal of this agreement in the first quarter of FY 2016 and
expects it to be completed by June 30, 2016.
Target Completion Date: June 30, 2016
Recommendation 5: We recommended the Acting Under Secretary for Benefits increase the priority
placed on State and local incarceration adjustment workload by initiating timely development action after
receiving notifications of incarceration from the Social Security Administration.
VBA Response: Concur. VBA agrees that processing incarceration adjustments is important and will
prioritize these adjustments based on the date of incarceration, working the oldest dates first. VBA will
also continue to work to balance available resources in order to increase its focus on processing
incarceration adjustments. By May 31, 2016, VBA will communicate additional guidance to ROs on the
prioritization of Federal, State, and local incarceration adjustments.
Target Completion Date: May 31, 2016
Recommendation 6: We recommended the Acting Under Secretary for Benefits increase priority of State
and local incarceration adjustment workload by making timely incarceration adjustments and issue bills of
collection to recover improper payments, as appropriate, after providing due process notification to
veterans.
VBA Response: Concur. VBA agrees that processing incarceration adjustments is important and will
prioritize these adjustments based on the date of incarceration, working the oldest dates first. VBA will
also continue to work to balance available resources in order to increase its focus on processing
incarceration adjustments. By May 31, 2016, VBA will communicate additional guidance to ROs on the
prioritization of Federal, State, and local incarceration adjustments.
Target Completion Date: May 31, 2016

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Appendix F

OIG Contact and Staff Acknowledgments

VA OIG 13-02255-276

Contact 	

For more information about this report, please
contact the Office of Inspector General at
(202) 461-4720.

Acknowledgments	

Nick Dahl, Director
Stephen Bracci
Michael Cannata
John Cintolo
Ron Comtois
Michael Derick
Lee Giesbrecht
Karen Myers
David Orfalea
Victor Rhee
Joseph Vivolo
Ann Wolf

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Audit of VBA’s C&P Benefit Payments to Incarcerated Veterans

Appendix G

Report Distribution
VA Distribution
Office of the Secretary
Veterans Health Administration
Veterans Benefits Administration
National Cemetery Administration
Assistant Secretaries
Office of General Counsel
Board of Veterans Appeals
Non-VA Distribution
House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, 

Veterans Affairs, and Related Agencies
House Committee on Oversight and Government Reform
Senate Committee on Veterans’ Affairs
Senate Appropriations Subcommittee on Military Construction,
Veterans Affairs, and Related Agencies
Senate Committee on Homeland Security and Governmental Affairs
National Veterans Service Organizations
Government Accountability Office
Office of Management and Budget

This report is available on our Web site at www.va.gov/oig.

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