    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                       EXPLORING VBA'S FIDUCIARY PROGRAM

    =======================================================================

                                    HEARING

                                   BEFORE THE

           SUBCOMMITTEE ON DISABILITY ASSISTANCE AND MEMORIAL AFFAIRS

                                     OF THE

                         COMMITTEE ON VETERANS' AFFAIRS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                            THURSDAY, JUNE 11, 2015

                                   __________

                               Serial No. 114-26

                                   __________

           Printed for the use of the Committee on Veterans' Affairs

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                         COMMITTEE ON VETERANS' AFFAIRS

                         JEFF MILLER, Florida, Chairman

    DOUG LAMBORN, Colorado               CORRINE BROWN, Florida, Ranking
    GUS M. BILIRAKIS, Florida, Vice-         Minority Member
        Chairman                         MARK TAKANO, California
    DAVID P. ROE, Tennessee              JULIA BROWNLEY, California
    DAN BENISHEK, Michigan               DINA TITUS, Nevada
    TIM HUELSKAMP, Kansas                RAUL RUIZ, California
    MIKE COFFMAN, Colorado               ANN M. KUSTER, New Hampshire
    BRAD R. WENSTRUP, Ohio               BETO O'ROURKE, Texas
    JACKIE WALORSKI, Indiana             KATHLEEN RICE, New York
    RALPH ABRAHAM, Louisiana             TIMOTHY J. WALZ, Minnesota
    LEE ZELDIN, New York                 JERRY McNERNEY, California
    RYAN COSTELLO, Pennsylvania
    AMATA COLEMAN RADEWAGEN, American
        Samoa
    MIKE BOST, Illinois
                           Jon Towers, Staff Director
                    Don Phillips, Democratic Staff Director

           SUBCOMMITTEE ON DISABILITY ASSISTANCE AND MEMORIAL AFFAIRS

                       RALPH ABRAHAM, Louisiana, Chairman

    DOUG LAMBORN, Colorado               DINA TITUS, Nevada, Ranking Member
    LEE ZELDIN, New York                 JULIA BROWNLEY, California
    RYAN COSTELLO, Pennsylvania          RAUL RUIZ, California
    MIKE BOST, Illinois

    Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
    hearing records of the Committee on Veterans' Affairs are also
    published in electronic form. The printed hearing record remains the
    official version. Because electronic submissions are used to prepare
    both printed and electronic versions of the hearing record, the process
    of converting between various electronic formats may introduce
    unintentional errors or omissions. Such occurrences are inherent in the
    current publication process and should diminish as the process is
    further refined.

                                C O N T E N T S

                                  ----------

                            Thursday, June 11, 2015

                                                                       Page

    Exploring VBA's Fiduciary Program................................     1

                               OPENING STATEMENTS

    Ralph Abraham, Chairman..........................................     1
    Dina Titus, Ranking Member.......................................     3

                                   WITNESSES

    Mr. David R. McLenachen, Acting Deputy Under Secretary for
      Disability Assistance Director, Pension and Fiduciary Service,
      VBA, U.S. Department of Veterans Affairs.......................     5
        Prepared Statement...........................................    24

        Accompanied by:

            Mr. Michael R. Stephens, Director, Indianapolis Regional
                Office, Veterans Benefits Administration, U.S.
                Department of Veterans Affairs

        And

            Marcia Hempy, Acting Deputy Director, Pension and
                Fiduciary Service and Manager, Columbia Fiduciary
                Hub, Veterans Benefits Administration, U.S.
                Department of Veterans Affairs

    Mr. Gary Abe, Deputy Assistant Inspector General for Audits and
      Evaluations, Office of Inspector General, U.S. Department of
      Veterans Affairs...............................................     5
        Prepared Statement...........................................    30

        Accompanied by:

            Quentin Aucoin, Assistant Inspector General for
                Investigations, Office of Inspector General, U.S.
                Department of Veterans Affairs

        And

            Timothy Crowe, Director, St. Petersburg Office of Audits
                and Evaluations, Office of Inspector General, U.S.
                Department of Veterans Affairs

    Mr. Zachary Hearn, Deputy Director for Claims, Veterans Affairs
      and Rehabilitation Division, The American Legion...............    15
        Prepared Statement...........................................    38
    Mr. Sam J. Albritton, III, Executive Vice President, Regions Bank    15
        Prepared Statement...........................................    43
    Mr. Douglas J. Rosinski, Attorney, Veterans Justice Group, LLC       15
        Prepared Statement...........................................    51

                                 FOR THE RECORD

    Deliverable......................................................    65

                       EXPLORING VBA'S FIDUCIARY PROGRAM

                                  ----------

                            Thursday, June 11, 2015

                      House of Representatives,
                        Committee on Veterans' Affairs,
    Subcommittee on Disability Assistance and Memorial Affairs,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 3:09 p.m., in
    Room 334, Cannon House Office Building, Hon. Ralph Abraham
    [chairman of the subcommittee] presiding.
        Present:  Representatives Abraham, Lamborn, Costello, Bost,
    Titus, and Brownley.
        Also Present: Representative Johnson.

              OPENING STATEMENT OF CHAIRMAN RALPH ABRAHAM

        Mr. Abraham. Good afternoon, everyone. Thank you for your
    patience.
        This oversight hearing of the subcommittee on Disability
    Assistance and Memorial Affairs will now come to order. The
    purpose of this hearing is to explore VBA's fiduciary program,
    which is intended to protect veterans, who, due to their
    injury, disease, or other infirmity, are unable to manage their
    own financial affairs.
        According to the VA, in 2014, this program covered more
    than 172,800 beneficiaries who received approximately $2.9
    billion in VA benefit payments.
        The fiduciary program is supposed to help protect our
    Nation's most vulnerable veterans, and it is absolutely
    essential that this subcommittee has the most up-to-date
    information about whether the changes to the program over the
    last few years have been effective.
        Today's hearings will review the criteria VA uses to
    determine whether a veteran needs help managing his or her
    finances and how VA determines who should be appointed as
    fiduciary.
        We will also look at VA's oversight of fiduciaries,
    including use of the field exam, which helps assess the
    veteran's general welfare, and evaluate how well the fiduciary
    is managing the veteran's finances.
        Inevitably, this hearing will focus on oversight of the
    fiduciaries and how to protect veterans from fraud. But I want
    to acknowledge at the onset that the vast majority of
    fiduciaries are doing the right thing and serving the veterans
    to the best of their ability. In most cases, the fiduciary is a
    loving family member who is naturally committed to ensuring the
    veteran's health and welfare.
        There are also many businesses that as a way to show their
    appreciation to our veterans develop significant resources to
    provide this service for veterans and their families.
        However, serious concerns have been raised about the VBA's
    oversight of fiduciaries. On June 1st, 2015, the Office of
    Inspector General issued a report substantiating allegations
    that VBA has not conducted field examinations in a timely
    manner in 42 percent of cases in 2013. Let me repeat that. The
    VBA did not conduct 42 percent of field examinations in a
    timely manner.
        VBA is supposed to conduct field examinations in order to
    assess the welfare of the beneficiary and evaluate the overall
    performance of the fiduciary.
        According to the OIG, the delay in conducting field
    examination placed $360.7 million in benefit payments and
    $487.6 million in estate value at increased risk.
        According to the VA figures, fiduciaries have misused
    almost $19.3 million of veterans benefits in a little more than
    3 years, money that was intended to ensure the care and comfort
    of some of the Nation's most valuable heroes.
        Although taxpayers re-issued $5.6 million to replace some
    of these lost benefits, the veterans involved may have lost as
    much as $14 million.
        Another problem previously highlighted by the OIG in 2014
    reports that 89 percent of the merit reviews, which are
    investigations into allegations of misuse of funds, were not
    completed by the EAFH within VBA's performance standard of 14
    days after receipt of an allegation. This is unacceptable.
        I look forward to hearing VA's plan to implement the OIG's
    recommendation as well as other initiatives to improve the
    oversight of fiduciaries. The welfare of veterans served by the
    fiduciary program should be one of VA's top priorities.
        This hearing will also address whether there are any
    negative, unintended consequences for the veteran after the VA
    determines that a beneficiary is incompetent.
        While the fiduciary program is essential to protect the
    welfare of veterans who are unable to manage their own
    financial affairs, it is also crucial that the VA ensure that
    our Nation's heroes are not deprived of the constitutional
    rights they have fought so hard to defend.
        Before we begin, I have to say that I am extremely
    frustrated that the VA's eastern area hub manager is not here
    to answer questions, despite the fact that my staff
    specifically requested the individual's presence in light of
    the findings of the 2014 OIG report.
        VA has not indicated that there were any scheduling
    conflicts that would have prevented the eastern area hub
    manager to appear, so I am forced to question whether this
    absence is because VA did not want this particular hub manager
    to answer questions related to the problems uncovered by the
    OIG.
        This appears to be another example of VA's failure to
    follow through on Secretary McDonald's promise of improving
    VA's transparency and accountability. Our Nation's veterans
    deserve better than the status quo. Although I am pleased that
    Ms. Marcia Hempy, the Columbia Area Hub manager, is here to
    answer some of these questions, I note that she is only here
    because I directed that subcommittee staff insist that a
    regional hub manager be present to answer questions about this
    vital problem in this program, and that Ms. Hempy is currently
    working from the VA central office here in Washington. Going
    forward, I hope VA will more fully cooperate with the
    subcommittee's requests and help us to conduct effective
    oversight so that we can work together to provide veterans with
    the service they deserve.
        I am looking forward to hearing from our witnesses. With
    that, I would like unanimous consent that our colleague,
    Representative Johnson of Ohio, be allowed to participate in
    today's hearing. Representative Johnson has been working on
    fiduciary issues for a long time and recently introduced H.R.
    2605, the Veterans Fiduciary Reform Act of 2015.
        Hearing no objections, so ordered.
        I now call on distinguished Ranking Member Ms. Titus for
    her opening statement.

             OPENING STATEMENT OF RANKING MEMBER DINA TITUS

        Ms. Titus. Thank you, Mr. Chairman, and thank you for
    holding this hearing on the VBA's fiduciary program. It is very
    important that we look at this program, because it was designed
    to protect some of our most vulnerable veterans.
        I would like to welcome Mr. Abe from the VA Office of
    Inspector General, and also Undersecretary McLenachen and thank
    them and their team for the diligent work that they are doing
    on this subject.
        I am like you, though, I share some of your concerns. After
    reviewing today's testimony and the figures that have been
    shared with us by our witnesses, I fear that the fiduciary
    program may be much under-resourced and in need of critical
    changes. Part of the problem appears to be that the VA failed
    to anticipate the need for more field examiners and other
    employees when they submitted their 2015 budget request.
    Instead, much like with the appeals process, which we are also
    trying to address, they have allowed the problem to fester and
    grow before asking for additional resources.
        A basic and important responsibility of the fiduciary
    program is to conduct field examinations. That is how qualified
    veterans gain access to the program and how the integrity of
    the work that the fiduciaries are doing is maintained. So if
    the VBA fails to complete timely examinations and to review and
    investigate misuse allegations, then the well-being of the
    beneficiaries is put at risk.
        Yet, according to the IG, as you stated, 42 percent of
    field examinations are not being completed in a timely fashion.
    And even more concerning is the fact that the VA hasn't
    completed 89 percent of its misuse allegations in a timely
    manner, leaving some veterans in challenging, perhaps even
    dangerous, situations for about a half a year on average.
        To this point, I was also surprised to learn that VA field
    examiners are expected to visit only one veteran a day. Surely,
    we can visit more than one veteran a day. And I would welcome
    your suggestions on what we can do to better utilize the
    resources that we have to be more efficient in the meantime.
        I am also curious about how those in the hub offices, now
    that it is been reorganized, track and oversee those in the
    field, those field examiner positions, because they can be as
    far away as from St. Louis to Honolulu. If you look at the
    western regional hub, you can see that is pretty long
    distances, and I wonder what kind of leadership and scrutiny is
    occurring in those field offices to try to bring these numbers
    down.
        So in short, I am afraid the program is drastically under-
    resourced and not scrutinized by leadership. So it is clearly
    time that we had a complete review of the fiduciary program's
    effectiveness. These are some of our most vulnerable veterans,
    and we have to do all we can to ensure their financial and
    physical well-being.
        So, Mr. Chairman, I look forward to working with you in the
    bipartisan spirit of this committee to address some of these
    questions and improve the program. And I would yield back.
        Mr. Abraham. Thank you, Ms. Titus. I ask that all members
    waive their opening as per this committee's custom.
        I would like to welcome our first panel. Thank you for
    coming today, and thank you, again, for your patience.
        David McLenachen, the Director of Pension and Fiduciary
    Service and Acting Deputy Under Secretary for Disability
    Assistance of the Veterans Benefits Administration. He is
    accompanied by Mr. Michael Stephens, the Director of the
    Indianapolis office; and Ms. Marcia Hempy, the Manager of the
    Columbia Fiduciary Hub and Acting Deputy Director of Pension
    and Fiduciary Service.
        Mr. Gary Abe, the Deputy Assistant Inspector General for
    Audits and Evaluations. He is accompanied by Mr. Aucoin,
    Assistant Inspector General for Investigations, and Mr. Timothy
    Crowe, the Director of the St. Petersburg's Office of Audits
    and Evaluations.
        And after we conclude panel 1, we will seat a second panel
    consisting of Mr. Zachary Hearn, the Deputy Director for
    Claims, Veterans Affairs and Rehabilitation Division of the
    American Legion; Mr. Samuel J. Albritton, the Executive Vice
    President of Regions Bank, and Mr. Douglas Rosinski, a founding
    member and attorney with the Veterans Justice Group, LLC.
        I want to remind the witnesses that your complete written
    statements will be entered into the hearing record, and because
    of the time constraints, the panel has agreed to waive their
    opening statement. We can go straight to questions. We have all
    your opening statements in our books, and I have actually read
    them.

        STATEMENTS OF DAVID R. MCLENACHEN, ACTING DEPUTY UNDER
      SECRETARY FOR DISABILITY ASSISTANCE, DIRECTOR, PENSION AND
       FIDUCIARY SERVICE, VETERANS BENEFITS ADMINISTRATION, U.S.
     DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MR. MICHAEL R.
      STEPHENS, DIRECTOR, INDIANAPOLIS REGIONAL OFFICE, VETERANS
     BENEFITS ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS,
    AND MARCIA HEMPY, ACTING DEPUTY DIRECTOR, PENSION AND FIDUCIARY
    SERVICE AND MANAGER, COLUMBIA FIDUCIARY HUB, VETERANS BENEFITS
     ADMINISTRATION U.S. DEPARTMENT OF VETERANS AFFAIRS; GARY ABE,
    DEPUTY ASSISTANT INSPECTOR GENERAL FOR AUDITS AND EVALUATIONS,
       OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS
      AFFAIRS, ACCOMPANIED BY QUENTIN AUCOIN, ASSISTANT INSPECTOR
     GENERAL FOR INVESTIGATIONS, OFFICE OF INSPECTOR GENERAL, U.S.
    DEPARTMENT OF VETERANS AFFAIRS, AND TIMOTHY CROWE DIRECTOR, ST.
    PETERSBURG OFFICE OF AUDITS AND EVALUATIONS OFFICE OF INSPECTOR
              GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS

        Mr. Abraham. So I will begin the questioning.
        Mr. McLenachen, VA testified in 2012 that the misuse rate
    for beneficiary funds was less than one-tenth of 1 percent at
    the time. And I have a few follow-up questions. Is that rate
    still accurate?
        Mr. McLenachen. That is still correct.
        Mr. Abraham. Okay. And how did the VBA calculate that
    figure?
        Mr. McLenachen. It is based on the number of beneficiaries
    and the number of misuse cases.
        Mr. Abraham. Okay. All right. Can you be a little more
    specific on that, sir, please?
        Mr. McLenachen. Sure. The process that we go through is we
    can have misuse allegation, and within 14 days, we look at that
    allegation to see whether it merits further investigation.
        If it is determined that it does, we will investigate that
    misuse allegation, and the investigation has to be completed
    within a period of time, the entire process.
        Mr. Abraham. You think those calculations are good
    calculations? You think there is any misalignment of the
    numbers?
        Mr. McLenachen. In the prehearing information that we
    provided, you will see that those numbers grow from over the
    last few years. The reason for that is, after we did the hub
    consolidation in March 2012, it allowed us to get better
    control of this work. And so we have been involved in a
    cleanup--essentially, a cleanup effort over the last few years.
    And that is why when you look at that data, you will see over
    the last 3 years, those numbers have grown. And we have done a
    better job of detecting misuse.
        Mr. Abraham. So VBA still stands by those figures at this
    point so to speak?
        Mr. McLenachen. Yes. And those numbers are based on when we
    make a determination that there has been misuse in a case, that
    number is based on the number of beneficiaries in the program.
        Mr. Abraham. Now, is VBA's suggestion that it can
    effectively measure all misuse of the beneficiary funds that
    has taken place, and is that rate of misuse almost negligible?
    Is that what you are saying?
        Mr. McLenachen. It is a very low number. And if you are
    asking is there misuse out there that we are not detecting, I
    hope there is not. But for me to guarantee that, I cannot
    guarantee that. The important role of the fiduciary program is
    to detect misuse. And as you saw in the inspector general's
    testimony, there is a number of criminal cases that they have
    prosecuted, and the majority of those have been detected by our
    program and referred to the inspector general's office. So it
    is a very important role for the fiduciary program.
        And if you look at the data that we have provided prior to
    the hearing, you will see that the allegation numbers have gone
    up. We are doing a much better job now of getting allegations
    of misuse and acting upon them. We did a couple of different
    things. We centralized allegations of misuse in our phone
    centers, so our phone centers are tracking that information as
    it comes in, referring it to the fiduciary hubs.
        Mr. Abraham. Mr. Abe, would you agree with those figures?
    Do you think they are accurate?
        Mr. Abe. Well, I would like to turn that over to Mr. Crowe,
    because he has actually reviewed that statistic, and he can
    explain how we view it.
        Mr. Crowe. It does represent the dollar amount of misuse
    that VBA has determined that occurred, I presume, divided by
    the total States they are managing. Would that be correct?
        Given the magnitude of the number of beneficiaries out
    there and the kind of money you are talking about, we would
    tend to think that there is misuse going on out there that has
    not been detected.
        Mr. Abraham. Mr. McLenachen, as of 2013, the VBA procedure
    required the VBA to initiate debt collection procedures for all
    fiduciaries who misused funds. What specific controls have you
    implemented to ensure debt collection procedures are conducted
    effectively?
        Mr. McLenachen. That is one of the significant changes that
    we made in the program recently in the misuse area.
        Prior to that we were, admittedly, not doing a good job of
    establishing debts when the fiduciaries misused benefits. We
    initiated new procedures. We did training in the area of debt--
    establishing debts. In 2014, we deployed a new IT system, which
    has built into it the entire misuse protocol for managing the
    misuse work. The protocol is what we go through to make a
    misuse determination.
        Mr. Abraham. Before I run out of time, what are those
    procedures, per se? Could you give me a couple of examples?
        Mr. McLenachen. Well, we have a pretty significant and
    detailed procedure that our finance activities, local offices
    and the fiduciary hubs are supposed to follow. If I have time,
    sir, I could maybe ask Ms. Hempy, she could probably give you a
    better idea of what she does in her hub under those new
    procedures.
        Mr. Abraham. Well, I am out of time. But if you will just
    give me a copy of those procedures later, I would appreciate
    that.
        Mr. McLenachen. I would be happy to.
        Mr. Abraham. Ms. Titus.
        Ms. Titus. Thank you, Mr. Chairman.
        Mr. Secretary, do you have some figures that are broken
    down within the regions that you can tell me how this process
    is working in Nevada?
        Mr. McLenachen. I do. We, nationally--and I am going to
    distinguish the national number for you, and I am specifically
    referring to our initial appointments, initial appointment
    field exams, which is a very point in the process, because that
    is when we start payment of benefits to a fiduciary.
        Nationally, we have driven that number down, thanks to the
    hard work in our hubs, down to about an average of 33 days for
    those initial appointment field examinations.
        However, in Nevada, the State of Nevada, we are at about 68
    days. So we have a lot of work to do in Nevada to get it down
    to the point--the standard for those is 45 days. So we are
    above standard in the State of Nevada. You might ask why that
    is. There are only three field examiners in Nevada right now.
    We lost one recently. However, to address that concern, the hub
    has already adjusted to get some assistance, for southern
    Nevada from Utah. One of the good points of the consolidation
    is that we are able to move our resources across State lines,
    which we were not able to do before.
        In addition to that, they are hiring another field
    examiner. So they will be up to 5 field examiners with one in
    Reno, two in Vegas, and then an additional person that they are
    hiring, and a person in Utah. So hopefully that will help
    address that situation.
        I just want to point out, one of the resource management
    hard issues in the fiduciary program is it depends on the
    nature of the area where we are doing the field examinations.
    In a rural area, can be a challenging resource area, compare an
    urban--densely-populated urban issue, less travel,
    beneficiaries are closer together, it is a different resource
    issue. So Nevada, we have a lot of rural areas to cover.
        Ms. Titus. Do you have any patterns for the people who need
    these services; older, younger, men, women? Anything that
    stands out?
        Mr. McLenachen. We are actually putting that data together
    right now, and we would be happy to provide it to the committee
    after the hearing once we get that completed. That is not data
    that we routinely track in the program, but we are working on
    pulling that data and putting the report together.
        Ms. Titus. I think that would be interesting. I appreciate
    that.
        And I would just ask you, Ms. Hempy, if you could address
    the comment I made earlier about how you oversee your field
    examiners when you are located in Salt Lake City they are in
    Hawaii or Nevada, wherever. I realize your district isn't that
    large, but the one in the west is.
        Do you have proper oversight? Do you go out and visit in
    the field occasionally yourself? Do you follow up on their
    cases? How do you do that?
        Ms. Hempy. Thank you for that question. Currently, we touch
    base with our field examiners daily to make sure that their
    needs are met and we know their schedule. We have weekly
    meetings with the entire group to discuss policy and procedures
    and any changes in the program that we need to implement, or
    any problems that they may be having out in the field that we
    could address as a leadership team.
        We also have an open communication line that they can call
    the leadership or email the leadership at any time if they need
    assistance. We do make periodic visits out into the field and
    do supervisory visits and ride-alongs with each of our field
    examiners to ensure that they are properly doing their job and
    holding them accountable for those things. And I personally do
    go out and do spot checks of those types of supervisory visits
    and ride-alongs.
        Ms. Titus. So do you think that seeing only one or maybe
    slightly over one a day is an efficient use of time? Is there
    something we can do to increase those numbers? Is it a function
    of geography? Would you address that issue?
        Ms. Hempy. Yes, ma'am. Currently, we are working with a
    standard, and we hold our employees accountable for that
    standard. What we do is we encourage our employees to work
    above that standard, and many of them do. And we address those
    that are not working to that standard.
        Ms. Titus. How do you address them?
        Ms. Hempy. We would evaluate their performance, and we put
    them on a performance improvement plan, and try to make them
    successful, address what needs they have, whether it be
    training or more oversight. And if they are not successful in
    that plan, then we take action to either remove that employee
    or find a more suitable job for them.
        Ms. Titus. I would ask the Secretary, do you think you have
    the resources you need to put in place the recommendations made
    by the inspector general? President's fiscal year 2016 budget
    we requested 85 additional FTE. I think that is critical to us
    making progress on the IG's recommendations. We are taking them
    very seriously.
        Ms. Titus. Thank you. Mr. Chairman.
        Mr. Abraham. Mr. Lamborn.
        Mr. Lamborn. Thank you, Mr. Chairman. Thank you for having
    this hearing.
        Mr. McLenachen.
        Mr. McLenachen. Yes, sir.
        Mr. Lamborn. Okay. If--as you told the chairman, one-tenth
    of 1 percent of cases have problems. That is one out of a
    thousand. Do you stand by that number?
        Mr. McLenachen. Based on the data that I have available to
    me, yes.
        Mr. Lamborn. Okay. Now, there was a disturbing Houston news
    expose in June of 2012, which alleged that the VA had appointed
    gambling addicts, psychiatric cases, and convicted criminals as
    fiduciaries. Has that problem been cleaned up? Was that
    accurate to start with? And are any current fiduciaries in one
    of those categories?
        Mr. McLenachen. Based on what I know, that was not
    accurate. Let me explain.
        In 2004, Congress amended the law to require us to do a
    specific investigation to qualify a fiduciary. We follow that
    law. It requires us to do a criminal background check, a credit
    check, and do a complete investigation to determine whether
    appointing a specific individual is in the best interest of a
    particular beneficiary.
        Regarding, for example, criminal convictions, we can still
    appoint somebody under that law if they have a criminal
    conviction, if we think it is in the best interest of that
    beneficiary to appoint that person. But as a general rule, that
    is not our policy. And we clarified those policies in the
    proposed rules that we published and that we hope to finalize
    soon.
        It is not my belief that this is the case; however, this
    program has been around for a long time, and it is possible
    that there is a fiduciary out there that was appointed before
    Congress changed the law.
        Mr. Lamborn. Okay. Thank you.
        Now, Mr.--is it Abe?
        Mr. Abe. Abe.
        Mr. Lamborn. Aucoin.
        Mr. Aucoin. Yes, sir.
        Mr. Lamborn. And Mr. Crowe, do any of you have reason to
    doubt the one out of 1,000 number that the Deputy Secretary
    thought was the current situation of bad cases?
        Mr. Abe. Well, I think the assumption is misleading in a
    sense that they are basing their that rate on the misuse that
    they have identified. So they are assuming that they have
    identified all the misuse, which is probably not the case. And
    so the number is higher and I think that they would agree.
        Mr. Lamborn. Then how can they do a better job of
    identifying those additional problems? Do any of the three of
    you have suggestions for the VA on how to do a better job of
    rooting those out?
        Mr. McLenachen asked for additional FTE, but is that all
    there is to it, or are the processes in some way lacking?
        Mr. Aucoin. No, sir that is not all there is to it. When I
    looked at our statistics on our referreds of allegations of
    fraud, they either come from VBA or come from some outside
    source I looked at the data starting in fiscal year 2010 to
    present date, there is an over 91 percent increase in those
    allegations of fiduciary fraud that have come to us for
    investigation.
        The referrals that we converted to full investigations
    during the same time frame have gone up 48 percent. The numbers
    are increasing. Whether it is a good scrubbing, as has been
    mentioned, or we are just getting more fraud brought to our
    attention, I can't say.
        But what I can say is when we look at these things, there
    are certain weaknesses that seem to occur time and time again
    in the fraud cases. The accountings are being falsified a
    number of times. The funds that are supposed to be certified as
    being on deposit in the banks are not accurate. There are times
    where the certificates are presented to the bank, by the
    fiduciary the bank stamps it and say, yes, this is, in fact
    what is on deposit, but it is then given back to the fiduciary.
    The fiduciary takes it and then brings it in with their
    accounting. But while they have that form in their possession,
    they alter the form and add additional funds that they have
    stolen, and they add it to the form to pretend that the funds
    are still on deposit. And that showed up time and time and time
    again in our fraud cases.
        Mr. Lamborn. Then how can we do a better job of making sure
    that doesn't continue to happen?
        Mr. Aucoin. I think getting the field exams done in a
    timely fashion, spending more time on-site with the actual
    fiduciaries would do that. You have got to look at the
    documentation and make sure that it adds up.
        The bank statements that are turned in to VA in today's
    time frame, a bank statement that looks official because it
    looks like it came from the bank, can be altered by the
    fiduciary and turned in as if it is the official bank
    statement.
        We also found that with multiple fiduciaries--multiple
    beneficiaries under one fiduciary, if the money is taken out of
    one account and the accountings are turned in on an annual
    basis, which is when the fiduciary took that beneficiary on,
    you have multiple accounts, you can shift money from one
    account to another. So if I go to look at that one account and
    if everything looks fine, that is because the money was shifted
    from another account to hide fraud. We found that scheme more
    than once.
        Mr. Lamborn. Thank you all for the work that you are doing
    in trying to protect our veterans.
        Mr. Abraham. Mr. Costello.
        Mr. Costello. The hub model and whether it is been
    successful, and if it is not been entirely successful, what
    reforms need to be made in order to button up some of the
    management criticisms that were made in the June 1st, 2015, OIG
    report? Can you comment on that?
        Mr. McLenachen. Yes. I am glad to have the opportunity to
    address that, because I know there have been some concerns
    about our consolidation in the hub model. I will tell you it is
    very, very successful in our view because of the things that
    you are hearing about today, which is doing a better job of
    having control of the work that we have. We went from 56
    offices that had a fiduciary activity to 6, not counting the
    Manila regional office, that now we have a complete and, I
    guess, transparent view of what the workload is in this
    program. And that is why you see those allegations going up,
    because we are doing a better job of tracking those and making
    sure that there is no misuse to the best of our ability. And I
    don't dispute that there might be some other misuse out there.
        However, the hub model has really been a significant change
    for us and it has improved the program. And if I could, I would
    like to let--one of the best, probably, examples is in the
    Indianapolis hub. Mr. Stephens experienced that prehub and
    posthub, and he can tell you what impact it has had on the
    program in his area.
        Mr. Costello. Okay. Yes.
        Mr. Stephens. Good afternoon. Thank you for the opportunity
    to respond.
        I have worked as a director or in leadership in regional
    offices, both preconsolidation and postconsolidation of
    fiduciary operations. I can tell you that, my experience, when
    it was decentralized, is that it was very difficult to show the
    proper amount of oversight to that operation. It was a very
    small part of what 56 different regional offices do. Once we
    consolidated, we were able to--we are able to recognize and
    realize efficiencies, and also we have improved consistency in
    operations through consistent training and consistent
    management through our region.
        The amount of progress we have been able to make, I will
    give you an example. We have improved--or reduced, rather, the
    number and the amount of over 45-day-old initial exams, which
    is our standard for timeliness. Over 45-day initial
    appointments we have reduced by 98 percent since their peak. We
    have reduced the number of follow-up, old follow-up field
    exams, by 38 percent in Indianapolis. You would see similar
    results across the other hubs.
        Mr. Costello. So the OIG report 2013 relative to the
    timeliness standards, you are saying that in the past 2 years
    with the hub, you have seen marked improvement on the
    percentages related to timeliness?
        Mr. Stephens. Absolutely. Like I said, 98 percent reduction
    in the number of old initial appointments.
        Mr. Costello. And, Mr. McLenachen--I apologize if I
    butchered that.
        Mr. McLenachen. Sure.
        Mr. Costello. The definition of success, or when I ask has
    it been successful, you had indicated that the ability to
    identify the absconding of funds, or the misuse of funds has
    gone up. So, in other words, you are able to identify more
    misappropriation for lack of a better term?
        Mr. McLenachen. We are doing a much better job of that now.
    And that is due to a number of factors. The consolidation is
    one piece, but we have a new IT system. We have done--we have
    misuse training that we deployed. And so, really, it is a
    matter of having control of the work, and doing a better job of
    identifying that type of conduct. There is a number of ways we
    do that. It is through accounting, and follow-up field
    examinations. We do on-site reviews of fiduciaries that handle
    multiple beneficiaries. I think my message is that the
    oversight is much better today than it was a few years ago.
        Mr. Costello. Another question. The proposed regulatory
    changes, can you share with me your observations. Are you
    welcoming them? What constructive comments do you have to make
    them better? It seems to me, most particularly, that the intent
    is to make sure that the fiduciary appointment process, as well
    as the training of fiduciaries, will weed out some of the bad
    actors before they have the ability to misappropriate.
        Mr. McLenachen. Yes. The regulations that we proposed
    address that aspect of the program to include bars to
    appointment. So we have a section that we proposed that would
    bar somebody from acting as a fiduciary for a variety of
    reasons, a long list of reasons.
        The regulations are a critical component of the
    transformation of this program. And we have a number of things
    that we need to get in place before we go final, such as
    training, procedures manual, guidance to the field, our IT
    system, which we put out last year. We are about at the point
    where we have all that stuff together where we can go final
    with those regulations. And it will kind of be the end piece of
    transforming the program. That doesn't mean the work's done,
    though.
        Mr. Abraham. Thank you. Mr. Johnson.
        Mr. Johnson. Well, thank you, Mr. Chairman. And thanks to
    the committee for allowing me to participate.
        And thank the panel for being here today.
        Mr. McLenachen, as you may recall, I chaired the Oversight
    Investigation Subcommittee in the 112th Congress, and we
    conducted an investigation and oversight hearing that revealed
    shocking behavior on the part of some of the VA's fiduciaries
    at that time and some gross misfeasance on the part of the VA
    in addressing the issues; things from egregious examples of
    appointing fiduciaries embezzling their veteran beneficiaries
    funds to examples of the VA arbitrarily removing a veteran's
    wife and replacing her with a paid fiduciary, unknown to the
    family without provocation.
        It was clear then that the VBA's fiduciary program was in
    dire need of reform. And I have to tell you, you know, it
    sounds like there might be an echo in the room, because here we
    are 3 years later, and we are still talking about some of the
    same issues.
        And that is concerning to me, Mr. Chairman, that after 3
    years, that we are still dealing with some of the basics.
        Mr. Stephens, I acknowledge you. You say there have been
    some improvement. And I am not going to say that there hasn't
    been some improvement in some areas, but these are very, very
    serious problems for our Nation's heroes that need to be taken
    care of.
        So let me ask just a few very specific questions.
        Mr. McLenachen, how quickly is a fiduciary, who has been
    found to have misused a beneficiary's funds, removed from their
    role as a fiduciary?
        Mr. McLenachen. Our policy is once a misuse determination
    has been made, they will be removed and they will not be
    appointed to any another----
        Mr. Johnson. How quickly? The question was, how quickly is
    a fiduciary that has been found to have misused a beneficiary's
    funds removed? Is it the same day? Same week? A month later?
    What is it?
        Mr. McLenachen. Immediately upon an allegation of misuse
    that is substantiated, they are removed and a successor
    fiduciary is appointed.
        Mr. Johnson. Okay. Great.
        Can you tell me in the last 12 months how many fiduciaries
    have been removed?
        Mr. McLenachen. I do not have that data with me, but I can
    certainly provide that to you.
        Mr. Johnson. Please. I would like to see that.
        If a fiduciary is handling--let's say a fiduciary is
    identified to have misused funds and they are removed from
    that--their role as a fiduciary, if they are handling more than
    one beneficiary, is he or she removed from their role in all
    cases or just one?
        Mr. McLenachen. Our policy is that they would be removed
    from all cases.
        Mr. Johnson. Great. I love that.
        Are there any criminal pursuits, charges, against
    fiduciaries that do this kind of thing?
        Mr. McLenachen. I will defer to the inspector general for
    that, but what we do and our procedures are that when we make a
    misuse determination, we refer those matters to the IG for
    evaluation. So that is the next step in the process.
        Mr. Johnson. Mr. Abe, one of you, are there criminal
    charges and pursuits of criminal investigations against these
    folks?
        Mr. Aucoin. Absolutely. If misuse referral is sent over to
    the Office of Inspector General, we will look at it, and we
    will investigate it.
        Mr. Johnson. Okay.
        Mr. Aucoin. The VBA is certainly briefed on our findings,
    and in some cases, the fiduciaries may have a surety bond and
    we have assisted the Department to go after and get some of the
    funds back. Not every fiduciary has a surety bond, but
    especially in one of the examples that we listed, we worked
    hand in hand with regional counsel once the case was done to
    recoup the money, and get it back to the Department.
        Mr. Johnson. That leads me to the next question, and you
    answered a little bit of it there. If they have a security
    bond, then you are able to get some of the money back?
        Mr. Aucoin. Yes, sir.
        Mr. Johnson. But what, in a broader scope, Mr. McLenachen,
    is done for that veteran who has had his or her funds abused or
    misused, what is done to help them recover that?
        Mr. McLenachen. So there is a number of things, a number of
    tools. The biggest issue is that in 2004, Congress changed the
    law to allow us to re-issue benefits. So in the cases where we
    have been authorized to re-issue benefits, that is the first
    thing that we will do.
        Mr. Johnson. And one final question, and then you can
    respond to all of it, if they will give us the time, how is the
    veteran taken care of during that time that the investigation
    is going on? Let's say there is a fiduciary that has been
    accused and you are doing the investigation, what happens in
    that interim time while that investigation----
        Mr. McLenachen. So we remove the fiduciary that misused--
    has been alleged to have misused the benefits--and appoint a
    successor fiduciary. The goal is to try to do that quickly
    enough that there is no interruption of benefits. So the
    monthly benefits will continue to flow. The fiduciary that has
    been removed has to transfer funds to the successor fiduciary,
    so it should be a seamless process for the beneficiary. That is
    the way the program is supposed to run.
        Mr. Johnson. Okay. Well, I certainly sense a desire to fix
    these problems. I really do. It is the slow moving wheels of a
    massive bureaucracy that I know you are dealing with that makes
    it awfully frustrating for me as a veteran and someone who is
    concerned, as I know you are, about our Nation's heroes.
        Mr. McLenachen. I assure we have made a lot of changes
    since you and I last spoke in this setting.
        Mr. Johnson. Well, this one was a much better conversation,
    I think. Thank you.
        Mr. Abraham. Thank you, Mr. Johnson.
        Ms. Brownley.
        Ms. Brownley. Thank you, Mr. Chairman and Ranking Member.
    And I apologize to all of you for being late.
        But Mr. McLenachen, I wanted to--in your testimony you
    talked a little bit about current law in the VA and their, sort
    of, inability to re-issue benefits to veterans in cases of
    fiduciary misuse when the fiduciary in question manages
    benefits for nine--I think nine or fewer veterans.
        Mr. McLenachen. Yes.
        Ms. Brownley. So veterans are out, if they have a family
    matter--member, excuse me, that has misused the funds, the
    veteran just loses his or her benefits, correct? That is
    current law?
        Mr. McLenachen. So that was another--Representative Johnson
    brought up the point of what can we do. And we have a
    legislative proposal that was in the President's budget to
    address this concern. There is essentially an inequity within
    the law for re-issuance of benefits. A fiduciary that is
    handling 10 or more beneficiaries, or that is a corporate
    entity, we can re-issue benefits automatically. If it is a
    beneficiary, though, that has a fiduciary that handles nine or
    less, the only way that we can recoup their benefits and make
    them whole is, one, if VA was neglect. If the VA was neglect,
    and I make that determination, we can re-issue benefits.
        Otherwise, we are talking about collecting on a surety
    bond, restitution from a criminal case, our options are very
    limited. And I see no reason at all why we should treat two
    beneficiaries that are situated exactly the same way as far as
    their disability differently just because there is an arbitrary
    cutoff between nine and 10 individuals that are handled. So I
    would appreciate any support we could get for that particular
    legislative proposal.
        Ms. Brownley. Well, thank you for that. And I really do
    thank the administration for the proposal in the budget. And I
    have discussed with my staff and the staff here and plan to
    introduce legislation, as you suggested, that will ensure that
    every veteran who is the victim----
        Mr. McLenachen. Thank you.
        Ms. Brownley [continuing]. Would receive the benefits that
    they have earned and deserve. And certainly, would love the
    help and support from the committee and all the committee
    members to join me in that legislation.
        It seems, though, it is your judgment, then, if the VA
    has--is negligent, then the veteran has recourse. But if the VA
    is not doing its appropriate oversight and making sure that the
    fiduciaries are fulfilling their duties and doing so
    appropriately, isn't that--wouldn't that fall into the category
    of the VA being negligent?
        Mr. McLenachen. Those decisions are centralized in my
    office, and I assure you that I use the most liberal possible
    negligent standards I can possibly use----
        Ms. Brownley. I am sure you do.
        Mr. McLenachen [continuing]. To make sure that we re-issue
    whatever benefits we can. That is the guidance in my office,
    and that is what we do.
        Because in those cases, there may not be that many
    opportunities for recouping the benefits. And so, just so you
    all know, in our program, about 90 percent of the beneficiary
    fiduciary relationships are one-on-one relationships with a
    family member or a caregiver or friend that volunteers their
    services. Most of those people are not covered by re-issuance
    of benefits, because we are not going to be negligent in every
    case, thankfully.
        Ms. Brownley. So in terms of the number of the cases that
    you review, can you give us a sense of how many are----
        Mr. McLenachen. We provided----
        Ms. Brownley [continuing]. Successful.
        Mr. McLenachen. We provided some information in some
    prehearing data. As far as negligence determinations, if you
    can refer to that in fiscal year 2013--and this is where we
    really started trying to clean up this work as I mentioned--
    having a million dollars we re-issued due to negligence. And,
    by the way, negligence--for example, by statute, if we do not
    act on a misuse allegation within 60 days, it is negligence.
    But also, the statute contains a general negligence provision,
    which we apply, like I say, very liberally to try to re-issue
    as much as we can.
        Fiscal year 2014, we re-issued approximately $3 million in
    benefits, and so far this fiscal year, $1.4 million in benefits
    due to negligence.
        Ms. Brownley. Very good.
        My time is done, but I look forward to working with you to
    come up with an appropriate solution.
        And I yield back.
        Mr. Abraham. All right, ladies and gentlemen, thank you,
    again, for your testimony on behalf of the subcommittee. Thank
    you for your time. We certainly realize that time is a rare
    commodity in this part of the world, so thank you, again.
        You are now excused. And we will pause for just a minute to
    seat the second panel.

        [The prepared statements of Mr. McLenachen and Mr. Abe
    appear in the Appendix]

        Mr. Abraham. Thank you for coming again. We have got a vote
    coming up in just a bit, so in the interest of time, we are
    going to forgo the spoken testimony. We have the written
    testimony, and I have actually read it. So we are going to go
    straight to questions.

       STATEMENTS OF ZACHARY HEARN, DEPUTY DIRECTOR FOR CLAIMS,
      VETERANS AFFAIRS AND REHABILITATION DIVISION, THE AMERICAN
       LEGION; SAM J. ALBRITTON, III, EXECUTIVE VICE PRESIDENT,
       REGIONS BANK; AND DOUGLAS J. ROSINSKI, ATTORNEY, VETERANS
                           JUSTICE GROUP, LLC

        Mr. Abraham. Mr. Hearn, I am going to start with you, sir.
    In your written testimony you described a situation in which
    the VA denied a veteran's request that his wife serve as a
    fiduciary because VA says his spouse was unable to properly
    take care of the veteran. Instead, the VA appointed an unknown
    individual to serve as fiduciary at a cost of up to 4 percent
    of the veteran's benefit.
        Do you think the VA handled that case appropriately?
        Mr. Hearn. Thank you, Chairman.
        That situation came out of--our experience has been that
    these issues have been centralized with certain fiduciary hubs.
    This dealt, in particular, with the Lincoln fiduciary hub.
        In this situation, speaking with the service officer, it
    was kind of silly. The veteran's wife just paid the bills. My
    wife pays the bills. I mean, so it was just a question. The way
    it was asked was that the--who handles the financial
    responsibilities of the household, and the veteran and the
    veteran's wife just answered honestly; well, she does.
        So things were a little bit misconstrued there. In that
    situation, obviously, we don't believe that the VA handled that
    properly.
        Mr. Abraham. Okay. And I will stay with you for this next
    one. In your written testimony you also note that delays in
    appointing fiduciaries can create serious challenges for
    veterans and their families. Expound on that a little bit for
    me.
        Mr. Hearn. Okay. And we have a seasoned service officer,
    and he was explaining the situation where it was a World War II
    veteran that was in a nursing home. Alzheimer's requires a
    fiduciary. Thankfully, the veteran's nursing home recognized
    the situation, and they weren't going to kick the veteran out
    of the nursing home and lose that care. But there have been
    situations where there has been a significant concern.
        Now, the problem with this is, that the veterans can't get
    involved--or the veteran's family can't get involved in
    commingling of funds, and at that point, the family members, do
    they inherit an additional responsibility that they are biting
    off more than they can chew? That, really, this should be
    falling upon--that deal with the retroactive payment. And so
    that is where that problem lies.
        And, actually, that deals with--that situation dealt more
    with the Salt Lake City fiduciary hub.
        Mr. Abraham. All right, sir. What would you tell the VA do
    to improve those situations?
        Mr. Hearn. One of the most common things we have heard, and
    I know Mr. Stephens is here from Indianapolis. And we heard
    glowing remarks of that fiduciary hub from service officers
    from that region of the country.
        Other regions of the country, just like the regional
    officers, you have good ones and you have bad ones. One of the
    biggest concerns that the American Legion has had is that
    through the decentralization of programs, theoretically, it
    would work. Specialization of skills tends to increase
    efficiency. However, that hasn't proven to be the case in a lot
    of places such as Lincoln, such as Salt Lake City. And so what
    we would like to have is our service officers do not have
    access to those adjudicators, so those people out in the field,
    at the level that they had in the past, and we would like for
    them to return those responsibilities back to the local
    regional offices.
        Mr. Abraham. Mr. Albritton, in your written testimony you
    note that the VA does not currently have clearly defined
    standards to guide regional hub manager's decisions with
    respect to determining how many beneficiaries a single trust
    entity is able to serve. What factors do you think the VA
    should consider when determining how many beneficiaries a
    single trust entity should manage?
        Mr. Albritton. Well, thank you, Mr. Chairman. It is a
    pleasure to be here today.
        First off, I just want to point out that Regions Bank has
    been in this business for 25 years serving veterans. We have
    never had any case of misuse. We enjoy this business serving
    our veterans, and it is a core policy of our organization.
        Mr. Abraham. We appreciate it.
        Mr. Albritton. We feel that there should be a designation
    made between professional third-party fiduciary that has
    standards with internal controls that has been in this business
    that has bonding to cover any instances of any misuse, and
    there should be a distinction in terms of appointing those
    types of fiduciaries versus fiduciaries that maybe provide
    services for smaller amount of beneficiaries.
        I believe the OIG report pointed out there were several
    instances in which there were 2 to 50 beneficiaries under a
    provider, and unfortunately, in those type of situations, there
    were situations in which illness, someone went on vacation,
    bills weren't paid, and the process broke down. So there, we
    would suggest that there is some standards set to govern a
    professional-type fiduciary, and that type of orientation would
    be beneficial for the VA.
        Mr. Abraham. Okay. Thank you.
        Ms. Titus.
        Ms. Titus. Thank you. I want to ask you, Mr. Hearn, what is
    your general impression of the hub reorganization system. Do
    you think there is enough oversight? Do you think that having a
    centralized office and a large area to cover is working out for
    this program?
        Mr. Hearn. Thank you, Ranking Member.
        This was something that I specifically addressed with
    service officers as they came back to me, because this is how
    important it is. These service officers, it is hard for us to
    advocate for policy unless we listen and listen intently.
        And for the overwhelming majority of them, especially the
    ones living in the western part of the country, those living in
    the southwest part of the country, that are dealing with a
    handful of fiduciary hubs, they are saying it is not working,
    they are not noticing any sort of measurable uptick. And the
    quality of service as far as the relationship dealing with the
    adjudicators is down. And so while you may have picked up a day
    or two here or a day or two there, everybody that I have spoken
    to, especially in those parts of the country, are asking for it
    to be returned back to the regional office.
        Ms. Titus. Is there any difference in terms of the veterans
    that you serve that you have noticed in different ages,
    different circumstances of the impressions that they have of
    this program?
        Mr. Hearn. Was that to me?
        Ms. Titus. Yes.
        Mr. Hearn. Sorry. I can check on that for you and get back
    to you, for the record. That wasn't an issue that was brought
    up, but I will certainly ask that on your behalf.
        Ms. Titus. Thank you.
        Mr. Hearn. You are welcome.
        Ms. Titus. Mr. Albritton, I just--I think we heard earlier
    that 90 percent of the veterans who need this service have a
    family member or close friend. That would leave 10 percent to
    either be assigned to a bank or a lawyer or some kind of
    official professional fiduciary.
        I just wondered, how do you generate revenue from--this is
    part of your business? Is there a service charge? How much does
    that cut into the benefit that the veteran receives? What kind
    of services do they get that a person doesn't get by having
    their wife take care of the books? Would you just kind of
    describe what you do?
        Mr. Albritton. Certainly. Thank you.
        There is the 10 percent that is available for third-party
    professional beneficiary, and the standard fee is 4 percent
    that is paid to that third-party professional fiduciary.
        In our instance, our unit is based in Kingsport, Tennessee.
    The employees that man this unit have, on average, 16 years of
    experience working with veterans. They have developed a
    personal relationship with the veterans that they serve. A lot
    of different examples of where they built homes for our
    veterans and bought furniture, arranged that furniture, set
    them up completely, or assisted them in escaping a situation
    where family members were using the funds intended for the
    veteran for their own sake.
        So we assist hands-on and have personalized service with
    those veterans. But for that 4 percent, we are looking at--we
    are looking at--we have internal audits that we perform. We
    look at investment reviews. We have the monthly account
    administration reviews of the accounts, and then we have
    dedicated phone lines that the veterans can call into 24-hour
    response. And so any or--or all of those accounting and other
    procedures that would be necessary to show that there is huge
    amount of accountability that we are able to provide for that 4
    percent.
        In addition to that, we have investment officers, trust
    officers, real estate professionals, others that can probate
    accounts, if there is no one there to probate the estate. So
    for that 4 percent, there are a lot of services that are
    performed for the veteran, and they seem to be very
    appreciative of that.
        Ms. Titus. I would imagine. I know there are caps on a
    certain number that you can serve. And I think that is to keep
    it more personal and more closely supervised. Do you have any
    comment on those caps?
        Mr. Albritton. I do. I am not aware that there is any
    formalized cap. It is interesting, since 2012, we have been
    frozen out of any new accounts. In 2012, we had 530 accounts,
    veterans that we worked with. We are down now to 298. We were
    not told officially any sort of limitation that was in place.
    We were not pointed to any written policy that was in place,
    and yet we have been frozen out for 2 years. Our standard right
    now is one associate in our VA beneficiary hub per 100
    veterans. And I think if you look at that and you compare it to
    the number of field officers that the VA has assigned, which I
    believe is one in 350, 375, there is a lot of personalized
    service. In fact, our team goes out and visits with the
    veterans, they visit with the field service officers.
        So there is a lot of one-on-one interaction. But as far as
    I understand, there is no written policy for a limitation,
    although it has been quoted to us and we have been frozen out
    of any new accounts. And we would like to build this business
    and serve our veterans more.
        Ms. Titus. Thank you, Mr. Chairman.
        Mr. Abraham. Thank you, Ms. Titus. Mr. Costello.
        Mr. Costello. Thank you, Mr. Chairman. Mr. Rosinski, I have
    two questions for you. In your written testimony, you describe
    cases in which the VA inappropriately sought to appoint a
    fiduciary for veterans who were able to manage their own
    affairs without VA's help. Can you elaborate on the standards
    you think the VA should adopt to ensure that the due process
    rights of veterans are protected and that the VA's decision to
    appoint a fiduciary is proper?
        Mr. Rosinski. Yes, sir. First of all, I have seen actual
    cases that I have represented people where they have said
    something about their wife signing the checks or handling their
    finances, which were placed in the VA fiduciary program, one
    being a man who suffered from ALS, who really wanted to try
    explain, but was cut off that he could not write and that it
    caused him great pain to write his name, so he had his wife
    sign the checks. And it took us over a year to get him out of
    the program.
        Other cases where lives have been completely overlooked. A
    61-year marriage, the spouse was not even considered, and was
    given to a third-party, which was a bank, which was not as
    qualified as this gentleman's bank. And that case has been in
    Veterans court, has been in local court, has been in State
    court, has been in Federal court. But the issue is the
    standards, yes. The standards are the State standards for
    appointing a person of these capacities. I think we are all
    missing that the statute that Congress passed here is solely
    limited to the ability to handle their finances. It has nothing
    to do with the legal definition of incompetency. And what is
    happening more and more is that if you are adjudicated a high
    mental health rating, PTSD being the largest one, you are
    automatically considered incompetent unless you can prove
    otherwise. And that is coming from many parts of the country
    through the legal clinic people that I speak with. And it is at
    an increasing rate. And the second thing is because of those
    standards, the field examiners are wandering far outside the
    boundaries of that and demanding, again, my clients and sworn
    testimony, they are wandering outside of that into personal
    finances of the family's, using up their time, using up the
    field examiner's time on areas they should not be in.
        Mr. Costello. So to clarify, since we are talking about due
    process rights, it seems like you are getting into burden of
    proof here, and you are saying with PTSD, the burden of proof
    sort of automatically shifts for a VA beneficiary to have to
    prove they are competent and not----
        Mr. Rosinski. Absolutely. All it takes to get into the
    fiduciary program, or be proposed into the program is a check
    box, yes or no, on a VA medical form, usually DBQ for a mental
    health condition. There are some that come through that are
    just checked ``yes,'' no explanation. The proposal comes out.
    If it says ``check,'' wife handles the funds, they are into the
    program and then the burden shifts to them to find someone who
    can convince the VA that they have had sufficient tests or
    mental health tests or whatever, which varies from office to
    office, how to get out.
        Mr. Costello. I want to get to my next question, but it
    appears to me that you are saying that we are painting with too
    broad of a brush.
        Mr. Rosinski. Absolutely.
        Mr. Costello. So what kind of standards do you incorporate
    in order to sort of make that a little bit more precise?
        Mr. Rosinski. If VA would define the standards, instead of
    just a check box by some VA health care manager, one, we could
    reduce the number that get into the proposal stage, that need
    field examinations, that get into the program and get the
    problems caused, even if it is 1 percent or 10 percent. The
    broad brush brings in a lot of people that don't need to be in
    the program, don't need to take up the resources of VA.
        Mr. Costello. You also indicated you think it is important
    for VA to conduct criminal background and credit checks when
    assigning new beneficiaries to known fiduciaries. Is that a
    good use of VA resources for fiduciaries that have already been
    approved by VA? And maybe even an added question, why do you
    think that we should be doing that?
        Mr. Rosinski. I think it would be a wonderful requirement,
    because right now the law is the requirement that when a
    fiduciary is appointed, they are supposed to do a credit check
    and a criminal background check. Every single case of which I
    am aware, and I admit I only see very few, they have waived
    both of those for fiduciaries who already have one case. So the
    people, most of the people that are being caught have multiple
    cases. They have never gone back and done a credit check to see
    if the guy suddenly has bought a million dollar boat, or opened
    up any other bank accounts. To me, that is exactly what is
    required every time you give them another case.
        Mr. Costello. I can see it on the credit check, because
    obviously, if there has been a lot of consumer activity
    incommensurate to the type of salary that one might be drawing.
    But how about the criminal check?
        Mr. Rosinski. That one would be my second choice. But also,
    as we found out, and I was asked information on those previous
    media reports, that is how they found those people. Some had
    criminal activity after they were appointed their first or
    second or third case. And I think it is very relevant that if
    they know they are going to do checks maybe every fifth one, I
    don't know, to go back and see if someone who has got in the
    gate has turned on their beneficiaries.
        Mr. Costello. I appreciate your work and your testimony
    here today.
        Mr. Abraham. Ms. Brownley.
        Ms. Brownley. Thank you, Mr. Chairman. Mr. Hearn, I just
    wanted to ask you if--I talked a little bit in the first panel
    about trying to put forward some legislation that would ensure
    veterans who are misguided by their fiduciary, that they would
    indeed--we figure out a way in which to make sure that they are
    in receipt of their benefits that they earned and deserved. I
    am sure you have a process by which you go through, but just
    wanted to get an idea from you if that is something that you
    feel like the American Legion could support?
        Mr. Hearn. Yes, Congresswoman. Thank you. The American
    Legion would be happy to work with you and your office on this.
    This is a program, when I was preparing the testimony, it
    becomes increasingly clear--I mean, it smacks you in the face
    that these are some of the most vulnerable veterans in our
    Nation. And we need to ensure that we put these protections in
    place because we don't want there to be a situation where it
    just spirals out of control. So we would be more than thrilled
    to work with you on trying to get something together.
        Ms. Brownley. Thank you for that. And, you know, I was also
    just sort of curious, I mean, clearly, we have aging population
    with our veterans. And with that aging population it is going
    to be more Alzheimer's, other kinds of things where this seems
    at least we are going to go through, I would imagine, a bubble
    where we are going to have the growth there. And certainly the
    numbers that were given by the OIG, if you just look at the
    fiscal year 2015 quarter one, it looks as though there is a
    trajectory here that is trend-lined as, you know, could take a
    real leap, because in other full years, they have already had
    at least almost the amount of requests in just the first
    quarter, of allegations, I should say, than--they have more
    than they did in all of fiscal year 2012.
        So it seems as though that trajectory is definitely going
    in a direction where it is clear that we need to set up some
    better procedures to make sure that it doesn't happen, but if
    it does happen, that we treat our veterans and take care of our
    veterans appropriately. So thank you for that. And I would look
    forward to working with you. You know, from your vantage point,
    if there are some particular stories that you have or
    particular members who have struggled with this, if you could
    share any of that, I would certainly appreciate it.
        Mr. Hearn. This is one of those programs where it is
    imperative to have a strong relationship with VA. That if a
    veteran is being injured by his or her fiduciary, it is kind of
    difficult for the veteran to oftentimes get in contact with the
    Veterans Service Officer. So we don't hear about it usually
    firsthand. We have heard anecdotal stories. But as far as--we
    are almost solely relying upon IG or VA to do the
    investigation. Unfortunately, a lot of times we don't hear
    about it until it is later, just because of the reporting
    structure and everything along those lines. The veterans don't
    really have necessarily the ability to pick up the phone and
    call, because if they have a fiduciary, they generally don't
    have access to the funds. That is the whole purpose of the
    program.
        But getting back to the point of the age, back in 2010 the
    average male veteran was 64.9 years old. I think in 1967 was
    the biggest year of the draft during the Vietnam War. You can
    do the math and figure out where we are the baby boomers, the
    Vietnam War was no longer your father's war, it was your
    grandfather's war. And it is something that we definitely need
    to get hold of before it spirals out of control.
        Ms. Brownley. Thank you, sir, and I yield back.
        Mr. Abraham. Mr. Johnson.
        Mr. Johnson. Thank you, Mr. Chairman. Mr. Rosinski, in your
    experience, have background checks been waived, and have felons
    been able to serve or appointed to serve as fiduciaries? And if
    so, can you explain?
        Mr. Rosinski. I am not aware of a felon in any of my
    clients' cases. I believe, though, that if you look at the
    people who are in jail, they have multiple dozens, a hundred in
    some cases, I believe, veterans under their charge, and they
    stole from most, if not all of them, over a period of years.
    And that is what has stimulated the thought to me--and that
    they were waived. I know that some of those were waived. I
    don't know if every single one was. But everything when I have
    seen they have waived it because they are inside the door
    already, inside the program. They are trusted. So the harm is
    even worse when someone you trusted turns around not to have
    that trust. And here we are trying to verify that trust.
        Mr. Johnson. What do you think about the periodic--what if
    the VA were to do periodic background checks, especially on
    situations like you just described where you have hundreds of
    veterans in a particular fiduciary pool? Maybe you think we
    should have a policy that requires periodically that they go
    through a background investigation just to make sure they are
    still clean?
        Mr. Rosinski. Yes, sir, I do. And a credit check and a
    background check is push a button on a computer, as far as I
    know, and make a request. And the costs are very, very trivial.
    And certainly a lot easier to do that from a service that
    provides that type of information than have a field examiner
    run around a community to see if somebody knows something bad
    about a person.
        Mr. Johnson. Right. Okay. For the entire panel, I know it
    is the VA's current policy to appoint fiduciaries by first
    considering the individual entity, whether it is a family
    member or whoever, that the beneficiary requests. In your
    experience, and I will give each of you a chance to answer, in
    your experience is this policy widely practiced?
        Mr. Albritton. If they are appointing an individual, is it
    widely practiced that they are appointing an individual first
    and foremost? Yes, I believe that policy is widely practiced. I
    think from our standpoint, when you do work down the process
    and get to where you need a third-party professional fiduciary,
    you need to be careful about who you appoint, because you could
    have the same misuse even with that fiduciary as you would
    possibly an individual misusing funds.
        And that is one of the many reasons we believe that a
    consolidated fiduciary program like what we have seen with HUD
    in section 8 housing vouchers for a statewide contract, putting
    together a 2- to 3-year contract so that not only the agency
    knows that the entity will be there to provide those services,
    but also the entity that is providing those services has a
    clear roadmap to know how much they need to staff up, and are
    committed to that. And so there is that relationship.
        But to directly answer your question, yes, I do believe
    they are, from my perspective, going through that process
    effectively.
        Mr. Rosinski. Congressman, in my experience, and maybe it
    is because of the nature of my cases I have seen, that is not
    the case. And actually, I would submit also the first choice by
    statute is the veteran himself. Even if they have been found
    to, quote-unquote, ``be incompetent,'' the first choice is
    still the veteran himself unless there is some reason that that
    would not be to his benefit. That is completely missed. And
    indeed, my mantra that I have here for the opening statement
    was, first, do no harm. Most of these veterans that have
    anybody in their life have successfully navigated--usually they
    are 70 or 80 or 90 now--a long time without any about VA
    benefits, or with minimal VA benefits, and they have managed
    their money and they are not in debt. And they are scraping
    along.
        But VA completely overlooks that and goes down the list.
    And like I said, my experience has been has overlooked spouses
    or has specifically excluded spouses or sisters or brothers
    that have had 20, 30 years of dealing with this veteran through
    all stages.
        And also we are going to see another bubble, because as I
    said before, it is the TBI people who are now getting sucked
    into this program. And there is a lot of that coming up where
    they are being found incompetent because they have some
    residuals of TBI. And in that case again, they are not looking
    at how those people have negotiated their finances while
    suffering from whatever condition they have, and have jumped
    right into fiduciaries much less qualified than the bank that
    we have described here. And that is compounding the problem.
        Mr. Johnson. Right. Sir.
        Mr. Hearn. Thank you, Congressman. From what we have seen,
    if you want to paint with a broad brush, VA is taking the
    necessary efforts to make sure that the family members are
    being given an opportunity. The times that we have noticed that
    fiduciaries have been appointed that fall outside of that
    realm, you have family members that may not qualify for one
    reason or the other. And so we understand that that is there as
    a protection for the veteran. And we want to make sure that
    that continues. The biggest problem that we have noticed is,
    there is confusion that goes on when that examination is
    occurring between, perhaps, an elderly couple that really
    aren't understanding where the examiner is going with the
    questions, as was given by the chairman's question about the
    veteran's wife paid the bills, so the veteran was financially
    irresponsible, I guess. So with a broad brush, yes, VA is
    meeting its requirements.

        [The prepared statements of Mr. Hearn, Mr. Albritton, and
    Mr. Rosinski appear in the Appendix]

        Mr. Johnson. Okay. Mr. Chairman, I yield back.
        Mr. Abraham. Thank you, Mr. Johnson. Again, on behalf of
    this subcommittee, we thank you so much for being here. Thank
    you for your patience. The testimony here today has raised
    serious concerns about how VBA is managing the fiduciary
    program and serving our most vulnerable veterans. I look
    forward to working through these issues with the Department, my
    colleagues on the committee, and the stakeholders who took time
    to present those concerns today, and those who work to assist
    veterans who need help managing their financial affairs. Again,
    thanks to everyone for being here. And as initially noted, the
    complete written statements of today's witnesses will be
    entered into the hearing record. I ask unanimous consent that
    all members have 5 legislative days to revise and extend their
    remarks and include extraneous material. Hearing no objection,
    so ordered. I thank the members and the witnesses for their
    attendance and participation. This hearing is now adjourned.
        [Whereupon, at 4:27 p.m., the subcommittee was adjourned.]

                                    APPENDIX

                        STATEMENT OF DAVID R. McLENACHEN

        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 http://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.) Sec.  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. Sec.  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. Sec.  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.

                            STATEMENT OF GARY K. ABE

        Mr. Chairman and Members of the Subcommittee, thank you for the
    opportunity to discuss the work of the Office of Inspector General
    (OIG) related to the Department of Veterans Affairs (VA) Fiduciary
    Program and how the Veterans Benefits Administration (VBA) can better
    protect veterans, who, because of injury, disease, or the infirmities
    of age, are in need of assistance managing their financial affairs. I
    am accompanied today by Mr. Quentin Aucoin, Assistant Inspector General
    for Investigations, and Mr. Timothy Crowe, Director, OIG Bay Pines
    Audit Operations Division.
    Background

        VBA can determine a veteran or other beneficiary is unable to
    manage his or her financial affairs based on receipt of medical
    documentation or if a court of competent jurisdiction has already made
    this determination. VA will then appoint a fiduciary, either an
    individual or entity, and with the authority contained in Section
    5502(a)(1) of Title 38, United States Code, Payments to and Supervision
    of Fiduciaries, will disburse VA benefits on behalf of the beneficiary
    for the use and benefit of the beneficiary.
        Fiduciaries appointed by VBA may be the spouse of a veteran; the
    chief officer of an institution in which a veteran is receiving care; a
    legal custodian who is the person or entity caring for the beneficiary
    and his or her estate; or another responsible person. Payments may also
    be made to a state court-appointed fiduciary, to a fiduciary whose
    duties and authority are established by Federal statute, or by means of
    supervised direct payment to an adult beneficiary. In all cases, VBA
    maintains oversight responsibility to ensure that the VA-derived income
    and estates of incompetent beneficiaries are used solely for the care,
    support, welfare, and needs of those beneficiaries. The Fiduciary
    Program reported overseeing more than 147,000 beneficiaries who
    received approximately $2.6 billion in VA benefit payments in fiscal
    year (FY) 2013, which represents the most recent program data reported
    by VBA. In response to a recent OIG report, VBA stated that the program
    supervised almost 173,000 beneficiaries in FY 2014.
        Since our 2010 report, Audit of the Fiduciary Program's
    Effectiveness in Addressing Potential Misuse of Beneficiary Funds
    (March 31, 2010), VBA has made significant changes to the structure of
    the Fiduciary Program. In April 2011, VBA established the Pension and
    Fiduciary Service, in part, to strengthen oversight of VA-appointed
    fiduciaries. In March 2012, VBA completed consolidation of Fiduciary
    Program operations from 56 VA Regional Offices (VAROs) to 6 Fiduciary
    Hubs and the Fiduciary Activity at the VARO in Manila, Philippines.
    VA's FY 2014 Budget Submission stated the consolidation was intended to
    improve operational efficiencies. The Hubs are located in Indianapolis,
    Indiana; Louisville, Kentucky; Lincoln, Nebraska; Columbia, South
    Carolina; Salt Lake City, Utah; and Milwaukee, Wisconsin.

    OIG Oversight of the Fiduciary Program

        The OIG has an aggressive and comprehensive program in place to
    provide oversight of VBA's Fiduciary Program through a combination of
    audits, recurring inspections of VARO operations, review of allegations
    received by the OIG Hotline, and criminal investigations. OIG audit and
    evaluation reports, Hotline reviews, and inspection reports conducted
    by our Benefits Inspection Division since FY 2009 have consistently
    identified the vulnerability of VA-derived beneficiary estates to
    fraud, as well as opportunities for VBA to provide more consistent and
    effective oversight of the Fiduciary Program.

    Investigative Work

        The OIG Office of Investigations through its criminal investigation
    activities, aggressively combats fiduciary fraud by pursing prosecution
    and court-ordered restitution against those individuals diverting funds
    intended for VA beneficiaries and highlights Fiduciary Program
    vulnerabilities that are exploited by unscrupulous individuals at the
    expense of VA beneficiaries. From April 1, 2010, to March 31, 2015, the
    OIG conducted 216 investigations involving fiduciary fraud and arrested
    94 fiduciaries and/or associates. For example:

             In Houston, Texas, an attorney and his wife, who
            served as his legal assistant, were sentenced to 46 months'
            incarceration, 3 years' supervised release, and ordered to pay
            restitution of $2,352,107 to VA and $282,112 to the Internal
            Revenue Service. The OIG investigation revealed that the
            attorney, who served as a court-appointed guardian and Federal
            fiduciary for 54 veterans, and his wife conspired to steal
            $2,352,107 from veterans' fiduciary bank accounts and failed to
            report the stolen income on their Federal tax returns. Prior to
            becoming a guardian for veteran clients, the attorney was
            employed by the VA's Regional Counsel in Houston, Texas. His
            duties were consistent with duties now performed by VBA Field
            Examiners. After a reorganization of VA legal services, he was
            assigned to the Fiduciary Section of VARO Houston. He retired
            from his position and opened a private law practice.
             In Memphis, Tennessee, a former VBA Field Examiner and
            a former court-appointed fiduciary were sentenced to 3 and 2
            years in prison, respectively. They were also ordered to pay
            $889,626.87 in restitution to VA. An OIG and FBI investigation
            revealed that from 1999 until October 2008, both individuals
            conspired to alter annual accountings to conceal the theft of
            $889,626.87 from 13 veterans. The investigation also revealed
            that the former Field Examiner suggested to the fiduciary that
            they take money from the guardianship accounts.
             In Tuskegee, Alabama, an administrative assistant for
            an attorney appointed as a fiduciary for several VA
            beneficiaries was sentenced to imprisonment for 33 months
            followed by 60 months of supervised probation. She was ordered
            to make restitution in the amount of $681,965. The OIG
            investigation revealed that the administrative assistant
            devised a scheme to embezzle $681,965 from 25 beneficiary
            accounts.
             In Lexington, Kentucky, an attorney serving as a VA
            fiduciary for a VA beneficiary was sentenced to 41 months'
            imprisonment, 36 months' supervised release, ordered to pay
            $460,679 in restitution to VA, as well as $176,246 restitution
            to the Social Security Administration. The investigation
            revealed that the fiduciary embezzled VA and Social Security
            benefits from a veteran. Following the conviction in this case,
            in April 2013, the OIG issued a management implication notice
            to the former VBA Deputy Undersecretary for Field Operations,
            detailing Fiduciary Program weaknesses exploited by this
            defendant.
             In Newfields, New Hampshire, the daughter of an
            incompetent veteran serving as the fiduciary was sentenced to
            366 days' incarceration, followed by 24 months' supervised
            release. Prior to sentencing the defendant paid full
            restitution to VA in the amount of $251,534. The OIG
            investigation revealed that the daughter admitted to taking her
            father's VA benefits and falsifying the annual accountings and
            supporting bank records to conceal her illegal activities from
            VA.
             In Pearl, Mississippi, a former local prosecutor was
            sentenced to 120 months of incarceration followed by 60 months
            of supervised probation. The sentence also included a
            restitution order of $198,669. The OIG investigation revealed
            that while serving as the appointed fiduciary for five
            veterans, the fiduciary embezzled funds from accounts under his
            care as legal custodian.
             In Mansfield, Massachusetts, an attorney who was the
            VA-appointed fiduciary for his disabled veteran brother-in-law
            was sentenced to 6 months' home confinement, 5 years of
            supervised probation, and ordered to pay restitution to VA in
            the amount of $137,493. The OIG investigation revealed that the
            fiduciary embezzled the VA funds from his disabled brother-in-
            law while serving as a VA-appointed fiduciary.
             In Manchester, New Hampshire, the daughter who was the
            VA-appointed fiduciary of a disabled veteran was sentenced to
            18 months' imprisonment and 24 months' supervised probation.
            She was also ordered to pay restitution of $221,905 to VA and
            $22,768 to the Social Security Administration. The
            investigation revealed that the fiduciary depleted her father's
            savings and continued diverting VA benefit payments for her own
            personal use.
             In Greenville, Mississippi, a former VA-appointed
            fiduciary was sentenced to 5 years' supervised probation and
            ordered to pay VA restitution of $30,240 after pleading guilty
            to embezzlement. An OIG investigation revealed that the
            fiduciary failed to notify VA that a widow beneficiary had
            died. The fiduciary subsequently received and negotiated VA
            benefit checks issued after the beneficiary's death and used
            the funds for personal expenses.

    Audit Work

        The OIG last testified about the Fiduciary Program in April 2010
    shortly after releasing our audit report, Audit of the Fiduciary
    Program's Effectiveness in Addressing Potential Misuse of Beneficiary
    Funds. In that report, we concluded the Fiduciary Program was
    inconsistent in taking timely actions to ensure VA-derived funds and
    estates of beneficiaries determined to be unable to manage their
    financial affairs were used solely for the care, support, welfare, and
    needs of those beneficiaries or adequately protected from diversion or
    misuse. Specifically, the Fiduciary Program was not consistently:

             Taking effective action to obtain the fiduciary's
            written accounting of his/her management of a beneficiary's
            income and estate which had become seriously delinquent
             Verifying questionable beneficiary expenditures
            reported by fiduciaries
             Replacing fiduciaries when appropriate
             Reviewing and investigating allegations of misuse of
            beneficiary funds by fiduciaries

        We concluded that this occurred because the Fiduciary Program
    lacked the elements of an effective management infrastructure to guide
    the program. Specifically, we determined that the program's case
    management system had severe functional and data limitations that
    negatively affected management's ability to support program operations.
    The program also lacked a staffing and workload model to guide resource
    allocation decisions and other elements necessary to effectively
    monitor the program. In response to our report, the then Acting Under
    Secretary for Benefits indicated that VBA would undertake a series of
    measures in response to our report's findings.
        VBA took steps to address our concerns to improve Fiduciary Program
    operations. For example, in 2014, VBA replaced the program's inadequate
    case management system, implemented policy requiring receipts for some
    unbudgeted and budgeted expenses meeting specified thresholds, now
    includes misuse allegations processing data in the Fiduciary Program
    section of VBA's Annual Benefits Report, developed a program staffing
    model for the Fiduciary Hubs, and launched a web-based portal providing
    resources to assist fiduciaries. However, work the OIG conducted
    recently concerning some of the Fiduciary Program's most important
    functions indicates that VBA still faces challenges in meeting its
    mission of protecting some of VA's most vulnerable constituencies.

    Review of Alleged Mismanagement at VBA's Eastern Area Fiduciary Hub

        In May 2013, the OIG Hotline received allegations of mismanagement
    at the Eastern Area Fiduciary Hub (EAFH) located in Indianapolis,
    Indiana. This Hub is responsible for all beneficiaries in VBA's Eastern
    Area, which spans 14 states and encompasses fiduciary activities of 16
    VA Regional Offices. We substantiated the three allegations in our
    report, Review of Alleged Mismanagement at VBA's Eastern Area Fiduciary
    Hub (May 28, 2014), which concerned processing allegations of misuse of
    beneficiary funds, processing in-coming correspondence, and completing
    field examinations timely.
        Hub staff did not timely complete various steps required by VBA
    policy after receipt of allegations of misuse of beneficiary funds. We
    analyzed 214 merit reviews and 23 investigations to determine
    compliance with VBA timeliness standards and policies. Additionally, in
    those cases where VBA determined that misuse of beneficiary funds had
    occurred, we followed up with EAFH and Pension and Fiduciary Service to
    determine whether misused funds had been repaid by the fiduciary and
    reissued to the beneficiary. We found the following:

             The Hub did not timely review and investigate misuse
            of beneficiary fund allegations. Of the 214 merit reviews of
            allegations of fiduciary misuse of funds initiated by the Hub,
            190 (89 percent) were not completed within 14 days of receipt,
            as required by program policy. It took Hub staff an average of
            162 days to review the 190 allegations for merit, which
            includes 87 reviews that were not completed as of July 2013,
            the time we completed onsite field work at the Hub. We also
            found the Hub EAFH had not processed and completed 17 of 23
            fiduciary misuse of funds investigations (74 percent) within 45
            days of the completed merit review, as required. The average
            time to complete the 17 investigations was 174 days, which
            included 5 investigations that were not completed as of July
            2013.
             We also determined the Hub made 12 determinations
            concluding fiduciaries misused approximately $944,000 of
            beneficiary funds. However, required actions in response to
            identifying misuse of funds, such as replacing the fiduciary or
            requesting repayment from former fiduciaries, were not
            completed or completed timely by EAFH. For example, it took the
            Hub an average of 98 days from the date the misuse allegation
            was received to replace 5 of the 12 fiduciaries, ranging from
            72-175 days. For the remaining seven determinations, three
            fiduciaries were replaced timely, three beneficiaries passed
            away prior to the Hub receiving the allegation, and one was an
            allegation against a previously replaced fiduciary.
             Internal reviews by Pension and Fiduciary Service
            staff to determine if VBA was negligent in its oversight of the
            fiduciaries in instances where misuse of funds occurred were
            not consistently conducted as required.

        We also substantiated the allegation that the Hub had a large
    backlog of pending field examinations by identifying more than 11,000
    (69 percent) of 16,000 pending field examinations that exceeded VBA
    timeliness standards. Field examinations, which consist of in-person
    visits by program staff, are a critical tool for VBA to assess the
    competency and welfare of beneficiaries who are unable to manage their
    financial affairs. Initial Appointment (IA) field examinations assess
    the competency and welfare of the beneficiary and, if needed, the
    appointment of a fiduciary to receive VA benefits. Subsequent to an IA
    field examination, program staff conduct Fiduciary-Beneficiary
        Fiduciary-Beneficiary field examinations to periodically reassess
    the welfare of the beneficiary and the continued suitability of the
    fiduciary. As a result of a large backlog of field examinations not
    being completed timely by VBA, the general health and well-being of
    beneficiaries are placed at increased and unnecessary risk.
        We also identified more than 3,200 pieces of mail that had yet to
    be processed and exceeded EAFH's timeliness standards, some of which
    were time-critical. VBA policy requires Fiduciary Program staff to
    review all correspondence in conjunction with the fiduciary folder and
    provide a response, if necessary, generally within 10 workdays of
    receipt. The Hub had a local goal of processing incoming mail within 5
    days of receipt. Delays in processing the 3,200 pieces of mail ranged
    from 11 to 486 workdays, with an average delay of 30 workdays. Mail not
    processed timely included allegations of misuse of beneficiary funds,
    competency restoration requests, and retroactive payment requests. By
    not effectively managing incoming mail, those receiving VA benefits may
    be affected.
        In response to our report, VBA stated that the conditions we
    identified concerning processing allegations of misuse, field
    examination backlogs, and unprocessed incoming correspondence occurred
    primarily due to an increased workload and insufficient staff when
    consolidation of VA regional office Fiduciary Program operations into
    the EAFH were completed.
    Audit of the Fiduciary Program's Management of Field Examinations

        Following the results of our work at the Indianapolis Fiduciary
    Hub, we conducted work nationwide concerning the Fiduciary Program's
    field examination function. We issued our final report, Audit of the
    Fiduciary Program's Management of Field Examinations on June 1, 2015.
    Our work was conducted at four of the remaining five Fiduciary Hubs:
    Columbia, South Carolina; Salt Lake City, Utah; Louisville, Kentucky;
    and Lincoln, Nebraska.
        We concluded that VBA faces a large and growing backlog of field
    examinations. Specifically, we determined VBA did not meet timeliness
    standards for about 45,500 (42 percent) of approximately 109,000
    pending and completed field examinations during calendar year (CY)
    2013, of which 18,100 (40 percent) were still pending and not completed
    as of December 31, 2014. We followed-up by examining reported program
    performance for the first 9 months of CY 2014 and determined that field
    examinations not completed and already exceeding timeliness standards
    increased approximately 15 percent from about 19,000 in January 2014 to
    approximately 21,900 in September 2014.
        This occurred because Field Examiner staffing did not keep pace
    with the growth in the beneficiary population, VBA did not staff the
    Hubs according to their staffing plan developed in conjunction with
    Fiduciary Program consolidation to the six Hubs, and did not use all
    relevant performance measures for the field examination function. The
    2011 VBA staffing plan set a target of 1 Field Examiner for every 325
    beneficiaries. However, our analysis of VBA staffing reports for the
    period of January 2013 through December 2013 showed the Fiduciary
    Program had an average of 1 Field Examiner for every 363 beneficiaries.
    The situation did not improve during the first 9 months of 2014. As of
    September 30, 2014, VBA employed 1 Field Examiner for every 386
    beneficiaries supervised under the Fiduciary Program. While Field
    Examiner staffing has generally increased, the Fiduciary Program did
    not meet its staffing goal for Field Examiners in part due to the
    substantial growth in the beneficiary population. Specifically,
    although the beneficiary population increased by 10 percent from
    January 2013 through December 2013, the number of field examiners
    increased only 2 percent during this same period.
        As a result, untimely field examinations placed approximately
    $360.7 million in benefit payments and $487.6 million in estate values
    at increased risk. In addition, we determined that VBA did not schedule
    required field examinations for a projected 1,800 beneficiaries in CY
    2013. Lapses in field examination scheduling occurred because of
    inadequate management oversight to ensure required field examinations
    were scheduled. As a result, we project the Fiduciary Program did not
    schedule field examinations for about 1,800 beneficiaries, placing
    beneficiaries' well-being and approximately $36.1 million in benefit
    payments at increased risk in CY 2013.
        We recommended the Under Secretary for Benefits implement a plan to
    meet timeliness standards, expand program performance measures, improve
    controls to identify unscheduled field examinations and enhance case
    management system functionality. The Under Secretary concurred with our
    recommendations and provided acceptable plans to complete all
    corrective actions.

    Audit of the Fiduciary Program's Processing of Misuse Allegations

        We recently provided VBA with a draft report on the extent to which
    VBA protects the VA-derived income and estates of beneficiaries who are
    unable to manage their financial affairs when misuse of beneficiary
    funds is alleged. This work was a direct result of our work at the Hub
    located at Indianapolis, Indiana, and our follow-up work in the
    management of field examinations.
        Section 6106(b) of Title 38, United States Code, Misuse of Benefits
    by Fiduciaries, defines misuse as any case where a fiduciary receives
    payment under the laws administered by the VA Secretary, for the use
    and benefit of a beneficiary and uses any part of the payment for other
    than for the use and benefit of a beneficiary or the beneficiary's
    dependents. VBA is made aware of allegations or indications of misuse
    of funds by fiduciaries through multiple sources, such as the
    beneficiaries themselves, third parties, or VBA employees while
    performing duties. Once misuse is alleged or indicators of misuse
    exist, program policy requires staff take specific actions to review,
    investigate, and determine misuse within specified timeliness
    standards.
        If VBA does not timely complete misuse actions, beneficiary funds
    are at increased risk of misuse. We projected VBA did not timely
    complete required misuse actions to ensure the protection of 758
    beneficiaries' Vader estates valued at about $45.2 million. VBA also
    did not restore approximately $2.1 million of misused funds to
    beneficiaries. Additionally, unless VBA improves the timeliness of
    actions in response to allegations and indications of misuse, we
    project VBA may not adequately protect annual benefit payments to
    beneficiaries valued at approximately $16 million, or $80 million
    during Cyst 2014 through 2018.

    Conclusion

        Despite some of the significant changes to structure, oversight and
    operation of the Fiduciary Program since our 2010 audit, significant
    challenges remain. The OIG's most recent work demonstrates that
    conditions that put beneficiaries and their VA-derived estates at
    unnecessary risk persist. Past and recent cases have uncovered
    unscrupulous fiduciaries who have misappropriated tens of thousands to
    even millions of dollars from the accounts of unsuspecting VA
    beneficiaries under the supervision of the Fiduciary Program. This type
    of theft can only be stopped by aggressive and consistent oversight by
    the Fiduciary Program.
        As the veteran population ages, more VA beneficiaries will likely
    require the appointment of a fiduciary to assist them in managing the
    monetary benefits provided by VA. In order to meet these challenges,
    VBA needs to revisit its staffing model and resource allocation
    decisions for the Fiduciary Program, as well as the programs' work
    processes and tools. Without more effective controls, including more
    consistently and timely completion of some of the Program's most
    important functions, unacceptable risks to the general well-being and
    VA benefits of some of VA's most vulnerable beneficiaries will remain.
        Mr. Chairman, this concludes my statement and we would be happy to
    answer any questions that you or Members of the Committee may have.

                           STATEMENT OF ZACHARY HEARN

        Chairman Abraham, Ranking Member Titus, and distinguished members
    of the subcommittee, on behalf of National Commander, Michael Helm, and
    the more than 2 million members of The American Legion, we thank you
    for the opportunity to testify regarding The American Legion's
    positions on the Department of Veterans Affairs Fiduciary programs.
        An unfortunate aspect of military service is that some service
    members and veterans develop mental health illnesses, and in some cases
    physical injuries that can diminish their capacity to manage financial
    affairs on a day to day basis. Whether a veteran suffers from
    posttraumatic stress disorder (PTSD) or develops depression secondarily
    to a previously service connected conditions, the nature of these
    disorders can impact multiple areas of their, and their family's daily
    life.
        With severe conditions such as TBI or PTSD, veterans can struggle,
    either temporarily or over a long term, to perform certain tasks
    associated with their personal finances, and sometimes suffer
    diminished mental health capacity as well. Due to this diminished
    capacity, veterans may be deemed incompetent in accordance with the
    Code Federal Regulations (C.F.R.), which defines mental incompetency as
    one who because of injury or disease lacks the mental capacity to
    contract or to manage their own affairs to include disbursement of
    funds without limitation.\1\ If a veteran is deemed incompetent to
    handle his/her financial affairs, the Department of Veterans Affairs
    (VA) appoints a fiduciary. A fiduciary is an individual or entity that
    has been appointed to receive funds on behalf of a beneficiary for the
    use and benefit of the beneficiary and their dependents. The appointed
    fiduciary is allowed to charge a fee up to four percent of the VA
    benefits that are paid to the beneficiary. If the beneficiary is
    married the spouse may receive payments on behalf of the veteran. A
    selection of a fiduciary involves an analysis of current credit
    reports, disclosure of criminal background, and consideration of the
    opinion of character witnesses.\2\
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        \1\ CFR Title 38, Chapter 1, Part 3, Subpart A, Section 3.353.
        \2\ The American Legion Testimony: ``VA Fiduciary Program'':
    February 9, 2012.
    ---------------------------------------------------------------------------
        VA's fiduciary program is designed to benefit the veteran and their
    family. The American Legion recognizes that veterans who are suffering
    from mentally debilitating injuries may need the assistance of
    fiduciaries to manage their VA benefits as well as their personal
    finances. Unfortunately, the program can lead to appointed fiduciaries
    who may take advantage of veterans and their benefits.
        In recent years, allegations of fraud within the fiduciary program
    have been reported. After conducting an investigation in June 2012, the
    Hearst News Service discovered the program had ``gambling addicts,
    psychiatric cases, and convicted criminals who were among the thieves
    who have been handed control of disabled veterans' finances''.\3\
    Reports of these allegations do little to breed confidence in a program
    designed to protect some of our nation's most vulnerable veterans.
    ---------------------------------------------------------------------------
        \3\ http://www.usmedicine.com/agencies/department-of-veterans-
    affairs/senator-pushes-for-expedited-reform-of-controversial-va-
    fiduciary-program/.
    ---------------------------------------------------------------------------
        Beginning in May 2014, VA switched from the Fiduciary-Beneficiary
    System (FBS) to the new Beneficiary and Fiduciary Field System (BFFS)
    which is a new computer-based processing system that enables fiduciary
    employees to work more effectively and efficiently. The new system
    maintains larger quantities of data, tracks fiduciary information,
    retains information on previous fiduciaries and is a substantially more
    robust and powerful tracking system.

    Recommendations for Improvement:

        A chief concern of The American Legion is the location of the
    fiduciary branches. These locations are often separate from the VA
    regional office (VARO). For instance, the fiduciary location for the
    Muskogee, Oklahoma VARO is located in Lincoln, Nebraska. For the Denver
    VARO, its fiduciary hub is in Salt Lake City, Utah. Similar to other VA
    administrative processes, there is a backlog in adjudicating
    competency. This backlog proves frustrating to veterans as they
    complete their portion of the process, submit the medical evidence to
    rebut the incompetency claims, and then it languishes awaiting
    adjudication.
        The centralization of these processes is not unique to the
    fiduciary program, and The American Legion has expressed concerns about
    the impact of centralization of Veterans Benefits Administration VBA)
    programs dating back to 2003 with opposition to the consolidation of
    pension operations into Regional Pension Maintenance Centers.\4\ While
    VBA has continued to justify the centralized locations as a way to
    reduce the backlog of benefits processes, backlogs in adjudication
    continue even at the central locations, and communication between
    service officer advocates and VBA employees that could resolve common
    sense problems and expedite service is severely hampered. The
    centralization of programs has not provided the benefit intended, and
    therefore The American Legion believes more programs should be brought
    back into VAROs where direct communication can help facilitate an
    environment where obstacles are more rapidly overcome.
    ---------------------------------------------------------------------------
        \4\ Resolution No. 120: Discontinue Department of Veterans Affairs
    Regional Pension Maintenance Centers - AUG 2003.
    ---------------------------------------------------------------------------
        The American Legion has over 2,500 accredited representatives
    located throughout the country who represented more than 716,000
    veterans in 2014 alone, and continues to advise and advocate for
    veterans across the United States. While providing advocacy to
    veterans, The American Legion is able to gather feedback regarding the
    implementation and effectiveness of VA programs.
        According to our research:

             The program has had problems that have needed to be
            addressed from its onset, our Service Offers reported an
            experience where a veteran was labeled incompetent because he
            indicated that he does not pay his bills; however, after
            further review, it was determined that in the division of
            household responsibilities, the veteran's spouse held that
            responsibility.
             Another incident included a veteran who indicated that
            he wanted his wife to serve as his fiduciary, and VA denied the
            request stating that she was unable to properly take care of
            the veteran. To find a veteran incompetent, VA needs a medical
            examination to support the finding; in the case of this
            veteran's wife, no medical examination was afforded, and a VA
            field examiner awarded the fiduciary to an individual unknown
            to the veteran or his wife which cost the veteran up to four
            percent of his benefits annually.
             Once an individual is determined to be incompetent a
            letter is sent to the vet proposing incompetency. This letter
            allows 60 days for due process which delays the awarding of the
            back pay amounts due the veteran. Unfortunately, because of the
            immediate financial needs of these vulnerable veterans, some
            representatives are waiving the due process to get the
            fiduciary appointment moving but these letters of waiver are
            frequently ignored, and the 60 day window remains. This delays
            approving the appointed representative and consequently, the
            back pay.
             In a number of cases, this money is needed to pay owed
            amounts to nursing homes and private caregivers. Delaying this
            decision to award the back pay is placing undue hardship on
            facilities and families and, if continued, will lead to
            situations where nursing facilities or care facilities do not
            want to take on veteran patients if they require fiduciaries
            because of the VA filing delays. There often can be a delay of
            up to six months to get awarded amounts.
             In a conversation with the Salt Lake City fiduciary
            hub last week, one representative heard that the assigning of
            the fiduciary is almost four months in duration. If we add four
            months to the claim adjudication, which can take four to six
            months at a minimum, we are now looking at least 10 months to
            get needed money to families. Nursing homes are attempting to
            have families pay for the care of their loved ones up front and
            this can cause a co-mingling of funds and can leave the family
            responsible for any owed money. The American Legion does not
            recommend that a family pay anything for the care up front, as
            this can become a potential legal issue for the family.
             The service officers of The American Legion have also
            seen a number of claims that are not being expedited as they
            should be, based on the age of the veteran. When a veteran is
            above a certain age or has qualifying severe medical
            conditions, or is suffering unique and imminent financial
            hardships, the veteran is eligible to have their claim
            processed under an expedited procedure. However, American
            Legion service officers routinely remind VA that the client is
            entitled to this expedited treatment because it doesn't happen
            automatically. With VA's advanced digital and electronic
            capabilities and the electronic claims process almost fully
            implemented, the age factor should be identified by an
            automated process, but in addition, there should be better
            procedures built into the process to identify these factors and
            help the veteran.

        Many of these concerns could be overcome with more direct contact
    between advocates such as service officers and the VBA employees who
    process the claims, the centralization process inhibits this
    communication and leads to a disjointed process that ultimately does
    not serve the veterans or their families.
        Beyond the implementation of the program throughout the nation, The
    American Legion has concerns regarding how being determined incompetent
    affects the veteran. According to VA's definition, veterans are defined
    as incompetent ``due to injury, disease, or due to age, are unable to
    manage their financial affairs''.\5\ Unfortunately, being deemed
    incompetent to manage financial affairs can have further consequences,
    as veterans deemed unable to manage finances are required to relinquish
    their weapons and are prohibited from purchasing weapons.\6\ Utilizing
    this logic, any American that files bankruptcy due to financial
    mismanagement should be subjected to the same recourse from the federal
    government. The fact that veterans are the only group in the United
    States subject to this scrutiny and can have their constitutional
    rights infringed without a more detailed and considered due process, is
    unfair and unjust.
    ---------------------------------------------------------------------------
        \5\ http://www.benefits.va.gov/fiduciary/.
        \6\ http://www.benefits.va.gov/fiduciary/beneficiary.asp.
    ---------------------------------------------------------------------------
        The American Legion is a strong supporter of the Second Amendment;
    by resolution adopted at our National Convention in August 2014, we
    urge ``our nation's lawmakers to recognize, as part of their oaths of
    office, that the Second Amendment guarantees law-abiding citizens the
    right to keep and bear the arms of their choice, as do the millions of
    American veterans who have fought, and continue to fight, to preserve
    those rights, hereby advise the Congress of the United States and the
    Executive Department to cease and desist any and all efforts to
    restrict these rights by any legislation or order.'' \7\
    ---------------------------------------------------------------------------
        \7\ Resolution No. 92: Second Amendment-AUG 2014.
    ---------------------------------------------------------------------------
        If veterans are made to fear that by asking for needed help they
    may see their rights taken away, it may prevent those who need help
    from seeking it, and place the veteran in a bad position. Reform of
    this policy that automatically places veterans requiring a fiduciary on
    a list to remove their Second Amendment rights is critical to ensuring
    veterans who have need of the fiduciary program need not fear seeking
    the help they require to properly manage their financial and family
    affairs.

    Conclusion

        The American Legion recognizes the importance of a successful
    fiduciary program. With an aging veteran population and veterans
    returning after serving years in combat where the signature wounds of
    TBI and PTSD can impact cognitive functioning, it is necessary to have
    a robust and effective fiduciary program. The American Legion believes,
    based on our research gathered from the experiences of thousands of
    service officers in the field, that the system can be improved by
    returning the fiduciary programs to direct contact in the VAROs, and by
    reforming the automatic reporting mechanism that can needlessly strip
    veterans of their constitutional right to bear arms for seeking help
    with financial matters.
        As always, The American Legion thanks this subcommittee for the
    opportunity to explain the position of the over 2 million veteran
    members of our organization. For additional information regarding this
    testimony, please contact Mr. Warren J. Goldstein at The American
    Legion's Legislative Division at (202) 861-2700 or
    wgoldstein@legion.org.
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