BNUMBER:  B-266193
DATE:  February 23, 1996
TITLE:  Isaac L. Tillman-Separation Pay-Waiver Request

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Matter of:Isaac L. Tillman-Separation Pay-Waiver Request

File:     B-266193

Date:February 23, 1996

DIGEST

An Army member separating from the service properly was paid 
separation pay upon separation.  Subsequently, he was granted monthly 
disability compensation by the Department of Veterans Affairs 
retroactive to his separation from the Army.  In this situation, the 
separation pay statute (10 U.S.C.  sec.  1174) requires that there be 
deducted from the disability compensation an amount equal to the 
separation pay the former member received.  A subsequent disability 
award does not render the separation pay payment "erroneous" and 
subject to waiver under 10 U.S.C.  sec.  2774.  Therefore, action by the 
General Accounting Office Claims Group waiving the separation pay was 
incorrect, and it is rescinded.

DECISION

This decision is in response to a request from the Department of 
Veterans Affairs (VA) that we reconsider the action of our Claims 
Group in waiving collection of separation pay Mr. Isaac L. Tillman 
received upon separation from the Army, which subsequently became 
collectible when VA awarded him disability compensation.[1]  We 
rescind the Claims Group's waiver action because the separation pay 
Mr. Tillman received was not an "erroneous" payment to which our 
waiver authority (10 U.S.C.  sec.  2774) applies.

BACKGROUND

In January 1993, Mr. Tillman, then a Warrant Officer with insufficient 
service to qualify for retirement, was involuntarily separated from 
the Army, pursuant to which he was properly determined to be entitled 
to separation pay under 10 U.S.C.  sec.  1174, which the Army paid him in 
the amount of $52,822.80.  In September 1993, the VA awarded Mr. 
Tillman monthly disability compensation payments effective February 1, 
1993.  Upon doing so, VA notified Mr. Tillman that his disability 
compensation payments were subject to withholding until the amount 
withheld equaled the amount of separation pay he had received from the 
Army, as required by 10 U.S.C.  sec.  1174(h)(2).  VA accordingly began 
withholding payment of the disability compensation payments.  
Subsequently, apparently upon Mr. Tillman's inquiry, the Defense 
Finance and Accounting Service (DFAS) referred the matter to our 
Claims Group, recommending that collection of Mr. Tillman's separation 
pay be waived pursuant to our authority under 10 U.S.C.  sec.  2774.  In 
support of this request, DFAS cited our decision Henry B. Jenkins, 64 
Comp. Gen. 15 (1994), in which we had waived an erroneous payment of 
severance pay made to a civilian employee upon his separation from 
federal service.  Our Claims Group accepted the DFAS request and 
granted the waiver.

VA, however, disagrees with the waiver action and continues to 
withhold the disability compensation.  VA states that it is aware of 
our authority under 10 U.S.C.  sec.  2774 to waive a claim of the United 
States "arising out of an erroneous payment" of any pay or allowances 
to or on behalf of a member or former member of the uniformed 
services, if collection would be against equity and good conscience 
and not in the best interest of the United States.  It is VA's 
position, however, that collection of the severance pay in this case 
by withholding the disability compensation is not subject to our 
waiver authority under 10 U.S.C.  sec.  2774 because the amount subject to 
collection does not arise out of an "erroneous payment."

VA notes that the separation pay statute, 10 U.S.C.  sec.  1174, does not 
condition payment of separation pay upon VA compensation not being 
awarded.  Instead, the statute recognizes that VA compensation may be 
awarded subsequent to payment of separation pay and requires that in 
such a case, payment of the compensation is to be withheld in an 
amount equal to the separation pay received by the former member.  In 
VA's view, this does not render the payment of the separation pay 
"erroneous."

VA distinguishes 64 Comp. Gen. 15, supra, the decision cited by DFAS, 
from the current case.  VA notes that the former case involved a 
civilian employee who was paid severance pay incident to his 
involuntary separation and who was later determined by the Merit 
Systems Protection Board to have been erroneously denied retirement 
for disability.  The retroactive correction to disability retirement 
status rendered the severance pay he had received an "erroneous 
payment" because the severance pay statute (5 U.S.C.  sec.  5595(a)(2)) 
specifically precludes payment of severance pay to an employee 
eligible for a retirement annuity.  Thus, in that case we could 
properly exercise our authority to waive the debt as one arising out 
of an "erroneous payment."

ANALYSIS

Separation pay under 10 U.S.C.  sec.  1174 is a contingency payment to ease 
the re-entry into civilian life of members of the armed services 
involuntarily separated from active duty prior to becoming entitled to 
retired pay.  See 62 Comp. Gen. 174 (1983).  The statute requires 
"coordination" when a member who has received a separation pay payment 
later qualifies for retired or retainer pay or VA disability 
compensation.  10 U.S.C.  sec.  1174(h).  Regarding coordination with 
disability compensation, the statute provides in pertinent part as 
follows:

     A member who has received separation pay . . . based on service 
     in the armed forces shall not be deprived, by reason of his 
     receipt of such separation pay . . . of any disability 
     compensation to which he is entitled under the laws administered 
     by the Department of Veterans Affairs, but there shall be 
     deducted from that disability compensation an amount equal to the 
     total amount of separation pay . . . received.  10 U.S.C.  sec.  
     1174(h)(2).  [Emphasis added.]

Clearly the statute contemplates the not uncommon situation found in 
Mr. Tillman's case where a member is paid separation pay upon release 
from the service and is later determined by VA to be entitled to 
disability compensation.  Congress did not intend that the member 
receive both separation pay and disability compensation, so it 
provided that an amount equal to the separation pay would be withheld 
from the disability compensation.[2]  In such a case, the member's 
separation was not erroneous and the payment to him of separation pay 
was not erroneous when it was made.  Thus, we agree with VA that this 
situation substantially differs from the situation in 64 Comp. Gen. 
15, described above, where it was determined that the employee's 
separation was erroneous and the severance pay thus should not have 
been paid.  As noted, in Mr. Tillman's case, the fact that 
subsequently VA determined him to be entitled to disability 
compensation did not convert the separation pay to an erroneous 
payment.  That payment was proper when made and it does not become 
improper because the statute requires that an amount equal to it be 
deducted from the disability compensation.[3]  In such a situation, 
there is no debt "arising out of an erroneous payment" and, therefore, 
the waiver statute, 10 U.S.C.  sec.  2774, is inapplicable.  See Eugene M. 
Edynak, B-200113, Feb. 13, 1981; and Charles E. Raiford, Jr., 
B-254196, Dec. 23, 1993.[4]

In view of the above, the waiver should not have been granted and it 
is of no effect.  Accordingly, the Claims Group's waiver action is 
rescinded.

/s/Seymour Efros
for Robert P. Murphy
General Counsel

1. The request for reconsideration was presented on behalf of VA by 
their Assistant General Counsel and concerns the Claims Group's 
Settlement Z-2927061, June 7, 1994.  We have also received a 
submission from James W. Stanley, Jr., of the law firm of Pierce, 
Stanley & Robinson, on behalf of Mr. Tillman.

2. We lack jurisdiction over the issues of the correctness of the 
amount of VA's award of disability compensation and the timing of its 
commencement.  See 38 U.S.C.  sec.  511(a), and 56 Comp. Gen. 591 (1977).

3. Compare 56 Comp. Gen. 587, 592 (1977), where the opposite 
conclusion was reached concerning officers who received readjustment 
pay (similar to severance pay) upon separation, were later determined 
by a correction board to have been improperly separated, and the 
separations were retroactively expunged.  The correction action was 
deemed to have rendered the readjustment payments erroneous, making 
them subject to waiver under 10 U.S.C.  sec.  2774.

4. These cases concerned requests for waiver by two former members who 
had received variable incentive pay or a selective reenlistment bonus, 
respectively, for committing themselves to specified terms of service, 
but who did not complete the terms of service and, therefore, were 
required, under the statutes applicable to the payments, to refund a 
portion of the amounts received.  The waiver statute was determined to 
be inapplicable to the debts because the payments were proper when 
made.