Mr. David R. McLenachen
STATEMENT OF
DAVID R. MCLENACHEN
ACTING DEPUTY UNDER SECRETARY FOR DISABILITY ASSISTANCE
VETERANS BENEFITS ADMINISTRATION
BEFORE THE
HOUSE COMMITTEE ON VETERANS’ AFFAIRS
SUBCOMMITTEE ON DISABILITY ASSISTANCE AND MEMORIAL AFFAIRS
June 11, 2015
Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to discuss the Department of Veterans Affairs (VA) fiduciary program. I am accompanied by Mr. Michael Stephens, Director, Indianapolis Regional Office, who oversees the activities of VA’s Eastern Area Fiduciary Hub.
In the fiduciary program, VA appoints and oversees fiduciaries for Veterans and other beneficiaries who, because of injury, disease, or the infirmities of advanced age, are unable to manage their VA benefits. In 2014, VA protected more than 172,800 Veterans and their survivors, who were in receipt of VA benefits, which is a 41 percent increase in the number of beneficiaries overseen from 2011. Approximately 138,900 fiduciaries provided services to these beneficiaries who received annual VA benefit payments of almost $2.9 billion. The number of beneficiaries in the program will continue to grow as VA decides more benefit claims and the beneficiary population ages.
VA is working hard to implement fiduciary program improvements to enhance service delivery and protection of beneficiaries. These efforts include implementing operational efficiencies, clarifying and strengthening policies and procedures, modernizing information technology systems, and providing training to fiduciary program staff and fiduciaries. VA appreciates the Committee’s oversight and interest in improving the fiduciary program, and welcomes the opportunity to highlight recent program enhancements, as set out in detail below.
Organizational Changes
VA has consistently noted the need for heightened awareness regarding the Department’s most vulnerable beneficiaries, who rely on the services of VA-appointed fiduciaries to properly manage their VA benefits. Recognizing the need for program reforms and additional oversight, VA reorganized to create its Pension and Fiduciary (P&F) Service in 2011. P&F Service focuses on the unique needs of these beneficiaries, more than 50 percent of whom are also in VA’s needs-based pension program, and on strengthening oversight of VA-appointed fiduciaries. This reorganization has allowed VA to increase the staff responsible for fiduciary program policies and procedures, quality, training, and site visits.
In March 2012, VA consolidated the management of its fiduciary activities at six fiduciary hubs nationwide. VA moved all fiduciary workload from individual VA Regional Offices (ROs) to the hubs to improve controls and consistency in processing the work. These hubs are located at the Salt Lake City, Lincoln, Milwaukee, Indianapolis, Louisville, and Columbia VA ROs. Under this hub concept, fiduciary hub managers deploy their field examination resources according to the location of beneficiaries within the hub and without regard to state borders or VA regional office jurisdiction, while centralizing all other fiduciary functions at the hub site.
In August 2014, VA established claims processing teams in each of the fiduciary hubs to improve the internal procedures for delivering benefits to individuals who require the assistance of a fiduciary. These teams produce beneficiaries’ final ratings of incompetency, initiate monthly benefit payments to fiduciaries on behalf of beneficiaries, and release beneficiaries’ retroactive benefits to their fiduciaries. The new process eliminates the hand offs between VA’s Pension Management Centers and Veterans Service Centers and the fiduciary hubs and ensures more timely release of benefits to fiduciaries.
Strengthening Oversight through Policy and Procedures
In January 2014, VA published proposed fiduciary regulations that would prescribe new rules for all aspects of the fiduciary program’s administration. This is the first major update of fiduciary regulations since 1975. VA rewrote the proposed regulations in easier to understand language and proposed policy changes that would modernize VA’s oversight of beneficiaries and fiduciaries. The proposed regulations would also incorporate statutory changes and court decisions that have had an impact on the program over the past decade. Among other things, the new regulations would prescribe beneficiary rights and fiduciary responsibilities, and define VA’s oversight role in ensuring that fiduciaries properly manage VA benefits for the beneficiaries they serve. We anticipate publishing the final regulations in 2015.
Effective in October 2014, VA changed its policies and procedures to allow the fiduciary hubs to expand the use of streamlined oversight for certain less vulnerable beneficiaries. In some cases, the beneficiary’s well-being is assessed by other means, including by the beneficiary’s spouse, through programs approved by the Veterans Health Administration, or by the licensed health care facility where the beneficiary resides. For example, a beneficiary in a Medicaid-eligible nursing home is in a protected environment monitored by a government agency and does not require duplicative oversight by VA. This new policy provides more frequent oversight through other means such as telephone calls or correspondence in order to provide less intrusive oversight of these beneficiaries, when appropriate. It also allows VA to shift resources to improving its oversight of its most severely disabled beneficiaries.
Strengthening Oversight through Technology
In May 2014, VA deployed a new information technology system for the fiduciary program, called the Beneficiary Fiduciary Field System (BFFS). Use of the previous antiquated system was discontinued and all useful data was migrated to BFFS. VA designed the system to improve workload management, to deploy streamlined processing tools, and to enhance beneficiary and fiduciary oversight. In addition, BFFS provides real time reporting capabilities; robust and meaningful data capture to identify trends and conduct analysis; custom workflows designed to automatically and effectively assign fiduciary work; and audit tracking to improve user monitoring and data integrity. BFFS also provides improved oversight of fiduciaries and affords more effective safeguards against misuse of benefits through improved fiduciary misuse reporting and monitoring.
In January 2015, VA deployed its electronic Knowledge Management (KM) system to all fiduciary program staff. KM replaced the fiduciary intranet site and is the official source for all fiduciary guidance, including the Fiduciary Program Manual, regulations, statutes, and other program guidance. This innovative tool, which an individual employee can tailor to his or her personal needs and can collect employee feedback for Pension and Fiduciary Service’s consideration, is the single source of all fiduciary reference material in an easily searchable format.
In 2012, VA established phone units in the hubs to respond to direct inquiries from beneficiaries and fiduciaries and ensure consistent service delivery. The fiduciary hubs have a toll-free number dedicated to answering fiduciary program inquiries. VA is in the process of modernizing the current telephone system to improve call routing and reporting capabilities and allow for the recording of telephone calls for quality monitoring.
Strengthening Oversight through People
VA has improved its internal training programs and delivery of fiduciary-related information to external stakeholders. First, VA designed a National Training Curriculum to promote standardized practices for its field fiduciary program personnel. Since 2013, VA has provided an 80-hour training course to 217 fiduciary field examiners who had less than 12-months of experience. In 2014, VA deployed an online self-study training course for more experienced field examiners and will train over 160 journey-level field examiners using this course in 2015. In addition, VA developed a web-based misuse training course designed for the specific roles of fiduciary field personnel. The misuse training is mandatory for all fiduciary staff and provides the knowledge and tools necessary to properly address misuse allegations, conduct investigations, and finalize misuse determinations. In addition to these centralized training efforts, onsite training is provided to field fiduciary program personnel on hub-specific topics, such as misuse procedures, BFFS tools and reports, and error trends discovered during quality reviews or site visits.
Second, the Veterans Benefits Administration (VBA) has developed a standardized computer-based training module for fiduciaries that VA hosts on its internet site. VA also published A Guide for VA Fiduciaries, which is a reference booklet for fiduciaries that helps them understand their responsibilities and perform their duties. The guide book is available in hard copy and electronically on the VA fiduciary program internet site at https://www.benefits.va.gov/fiduciary/index.asp. As an additional tool for fiduciaries, VA is developing an on-line accounting assistant to aid fiduciaries in completing their accounting forms. All of these products aim to educate fiduciaries on beneficiary rights, fiduciary responsibilities, management of funds, and accounting and audit procedures.
Currently, VBA is conducting a Work Measurement Study (WMS) of all fiduciary work tasks. This study is under contract and should be completed in June 2015. The fiduciary program has experienced tremendous growth and significant revisions to policies and procedures, and the WMS is capturing work performance in this new fiduciary program environment. With the information provided through the WMS, VA will be able to more accurately define and quantify the time involved in completing fiduciary program work and will be able to refine fiduciary program resource requirements.
Fiduciary Appointment and Oversight
Under current policy, VA appoints fiduciaries by first considering the individual or entity that the beneficiary requests. If the beneficiary does not state a preference, VA considers the beneficiary’s family members, friends, and other acquaintances who are willing to serve without charging a fee. Absent such an appointment, VA will appoint an individual or entity that will provide fiduciary services for a fee. VA's policy is to select the least restrictive and most effective method of payment for a beneficiary. Currently, about 80 percent of the beneficiaries in the program have a one-to-one relationship with their fiduciary and approximately 90 percent of fiduciaries perform their duties without cost to the beneficiary.
As required by 38 United States Code (U.S.C.) § 5507, VA conducts an investigation prior to appointing a person as a fiduciary for a beneficiary. As part of that investigation, VA has a face-to-face meeting with the proposed fiduciary and obtains a copy of a credit report regarding the proposed fiduciary. VA also checks the proposed fiduciary’s criminal history, determines whether appointment of the proposed fiduciary would be in the interest of the beneficiary, and requires the proposed fiduciary to obtain a surety bond if necessary. Fiduciaries must enter into an agreement with VA regarding their responsibilities, such as meeting the beneficiary’s needs, maintaining a separate financial institution account for the beneficiary, accounting for funds under management, and protecting any reserved funds. VA ensures that an individual or entity that serves as a fiduciary meets each of these qualification requirements.
It is VA’s obligation to oversee the fiduciaries it appoints to manage VA benefits for beneficiaries. VA conducts this oversight through visits with the beneficiary and fiduciary, by auditing the fiduciary’s annual accounting and supporting financial documentation, by conducting on-site reviews, by verifying surety bonds, and by investigating misuse allegations.
VA confirms that the fiduciary is fulfilling his or her obligation to determine and meet the needs of the beneficiary through periodic, follow up field examinations. During the follow up field examination, VA interviews the beneficiary and fiduciary, and either recommends continuing the appointment or replacing the fiduciary. VA may perform these follow up field examinations through face-to-face contact, or a telephone call or letter. VA schedules the first follow up field examination one year after the initial appointment field examination and then schedules subsequent follow up on one- to three-year intervals based on the beneficiary’s situation. In addition, VA conducts an unscheduled field exam when it identifies a problem in the beneficiary-fiduciary relationship, receives a public report of concern, or the fiduciary fails to respond or inappropriately responds to a VA telephone or correspondence inquiry.
Under 38 U.S.C. § 5509(a), Congress authorized VA to require fiduciaries to file reports or accountings regarding the management of funds by the fiduciary. Currently, VA requires annual accountings when: the fiduciary is also the beneficiary’s court-appointed guardian; VA has authorized a fee; or, the funds under management by the fiduciary for the beneficiary exceed $10,000. VA requires fiduciaries to provide detailed financial documents, including bank records, with their annual accountings. Collection of this additional information allows VA to verify reported expenditures and identify potential misuse of funds for further investigation. This requirement also serves as a misuse deterrent for fiduciaries. To ensure transparency for beneficiaries, VA changed its accounting procedures to include instructing fiduciaries to provide a copy of any VA-approved accounting to the beneficiary. VA audits approximately 35,000 accountings each year.
Congress also authorized VA to conduct on-site reviews of fiduciaries who handle 20 or more beneficiaries. In these cases, VA visits the fiduciary's place of business and inspects the fiduciary’s activities on behalf of VA beneficiaries. There are currently 264 fiduciaries that meet the statutory requirements for on-site reviews. VA schedules these reviews once every three years; however, VA may conduct an unscheduled on-site review as part of a misuse investigation, in response to a complaint, or upon failure of the fiduciary to submit a timely accounting or appropriately respond to VA contact.
Management and Oversight of Fiduciary Hub Managers
Each fiduciary hub manager reports to and has his or her performance evaluated by the Director of the VA Regional Office where the hub is located. Fiduciary hub managers are responsible for meeting fiduciary program performance measures, to include the timely completion of initial appointment field examinations, follow up field examinations, fiduciary accountings, and the misuse protocol, to include investigating misuse allegations and making misuse determinations. In addition, VA conducts recurring quality reviews of fiduciary field work to measure the accuracy of the work and identify error trends. VA analyzes these trends to identify training gaps, clarify policies and procedures, and modify the information technology requirements for the fiduciary program.
In December 2014, VA revised its site survey protocol to ensure that Pension and Fiduciary Service’s site visit teams conduct comprehensive inspections of fiduciary hub compliance with program policies and procedures. During a site visit, the assigned team reviews the hub’s organizational structure, workload management plans, and performance data to determine whether the hub is appropriately using its resources. Prior to the visit and while on-site, the site visit team reviews processing operations and station controls for data integrity, quality and training. During this fiscal year, VA has conducted site visits at two fiduciary hubs.
Fiduciary Misuse of VA Funds
VA has implemented several procedures to enhance its prevention and identification of misuse of beneficiary funds. First, as noted above, VA requires fiduciaries to submit detailed financial documents, including bank records, with their annual accountings. This policy allows VA to detect inappropriate movement of funds for the purpose of concealing misuse. VA also centralized allegations of misuse within its National Call Centers, developed mandatory misuse training for all fiduciary personnel, and modified its new information technology system to add internal controls for the misuse work process and reporting of misuse data and protocol timeliness. VA is also developing procedures for expanding the quality assurance program for fiduciary work to include the tasks associated with investigating fiduciary misuse of beneficiary funds.
After fiduciary hub consolidation in 2012, VA began an effort to identify and complete all pending misuse matters, including final misuse determinations, debt establishment, and benefit reissuance. Although misuse of benefits is rare in the fiduciary program, approximately one-tenth of one percent of beneficiaries are the victims of fiduciary misuse. VA recognizes that fiduciary misuse of benefits can cause financial hardship for beneficiaries.
VA is aggressively pursuing recoupment of VA benefits in all cases of misuse, particularly in cases where VA is not authorized to reissue benefits. In November 2013, VA implemented formal procedures for creating a debt against a fiduciary who misused VA benefits, for initiating debt collection activities, and for referring debts to the U.S. Department of the Treasury for offset against other Federal payments, including Federal tax return refunds. If a bond was in place when a fiduciary misused a beneficiary’s benefits, the fiduciary hub manager will attempt to recoup benefits from the surety company.
Under 38 U.S.C. § 6107, VA must reissue benefits to victims of fiduciary misuse when the fiduciary is not an individual, or when the fiduciary is an individual who manages benefits for 10 or more beneficiaries. In all other cases of fiduciary misuse, VA’s authority to reissue benefits is limited to cases in which VA was negligent in its appointment or oversight of the fiduciary. This law leaves many beneficiaries unprotected because VA-appointed fiduciaries are generally family members, friends, or care providers who have a one-to-one relationship with the beneficiary they serve. It is also arbitrary because VA must treat two beneficiaries, who have the same disability and the same inability to manage their financial affairs differently depending upon the fiduciary that it appoints.
Under current law, if one beneficiary has an individual fiduciary who manages benefits for nine other beneficiaries, that beneficiary has the added protection of VA's reissuance of benefits upon a VA finding of fiduciary misuse. If the other beneficiary has a fiduciary who manages benefits for eight other beneficiaries, that beneficiary has the added protection of reissuance of benefits only if VA determines that it was negligent. Absent negligence in these cases, the Government's ability to make the beneficiary whole is limited to court-ordered restitution in a criminal or civil action or recovery under a surety bond that the fiduciary purchased. To address this problem, VA submitted a legislative proposal during the 2016 budget process that would authorize VA to automatically reissue misused benefits in all cases of fiduciary misuse.
Challenges
Despite VA’s successful implementation of many program enhancements over the past few years, challenges remain. As noted previously, the VA’s fiduciary program is experiencing extraordinary growth. The program’s current staffing levels are inadequate to further strengthen oversight of beneficiaries, resulting in an increasing workload of initial appointment and follow up field examinations. In 2014, fiduciary program personnel conducted almost 85,000 field examinations, however, almost 42,000 field examinations remained pending at the end of the fiscal year. From 2011 to 2014, the field employee allocation increased 22 percent (703 to 855 employees); however, staffing has not kept pace with program growth. VA completed 19 percent more field examinations in 2014 than in 2012, but the number of field examinations received increased by 32 percent during the same period. Even though fiduciary hubs are completing more work through increased staffing and improved efficiency, the inventory of pending field examinations continues to grow.
VA implemented a fiduciary program workload management plan at four fiduciary hubs to improve the timeliness of initial appointment field examinations. The national average days pending for an initial appointment field examination decreased to 33 days in April 2015, down from 142 days in October 2012. VA’s emphasis on average days pending prioritizes the oldest pending initial appointment field examination. As a result, VA improved the number of initial appointments pending less than 45 days from 34 percent in September 2012, to 83 percent in April 2015. While VA successfully reduced the length of time a beneficiary must wait for the appointment of a fiduciary, the average days pending for follow up field examinations increased to 244 days in April 2015, up from 199 days in October 2012. If VBA’s FY 2016 budget request isn’t provided, beneficiary protection will be compromised by increased intervals between visits.
VA is grateful for funding in 2015 to hire 50 fiduciary employees and has requested funding in the 2016 budget process to hire another 85 fiduciary employees.
Conclusion
In conclusion, I want to affirm VA’s commitment to serve and protect our most vulnerable population of Veterans and other beneficiaries. VA has significantly improved the fiduciary program to ensure that these beneficiaries receive the benefits and services they have earned. The interest in our program expressed by this Committee reflects the importance of this effort. I assure you that VA is committed to taking all steps necessary to ensure we fulfill our obligation to protect the beneficiaries in this program.
Mr. Chairman, this concludes my prepared remarks. I would be happy to address any questions or comments regarding my testimony today.