[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.
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    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.
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    \3\ http://www.usmedicine.com/agencies/department-of-veterans-
affairs/senator-pushes-for-expedited-reform-of-controversial-va-
fiduciary-program/.
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    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.
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    \4\ Resolution No. 120: Discontinue Department of Veterans Affairs 
Regional Pension Maintenance Centers - AUG 2003.
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    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.
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    \5\ http://www.benefits.va.gov/fiduciary/.
    \6\ http://www.benefits.va.gov/fiduciary/beneficiary.asp.
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    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\
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    \7\ Resolution No. 92: Second Amendment-AUG 2014.
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    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 
[email protected].
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