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3.0 Audit Results

3.1 Observations, Recommendations and Management Action Plans

3.1.1 Policy Direction

Each of VAC’s main programs, have provisions clearly defining the conditions that must be met in order for a remission to occur. These policies for remissions are consistent with the Debt Write off Regulations, Treasury Board Directive on Receivables Management and the Financial Administration Act (FAA). The information was up-to-date, readily available on the intranet, and staff were following these policies.

The delegated authorities manual, clearly defines who has the authority to approve remissions based on the dollar amount. During the file review the audit team verified that the application of the delegated authorities was adhered to in all cases. For 2010/2011, the following remissions were approved at the various levels of delegated authority.

Table 2 – Remissions Approved by Position (2010/2011)
Position Delegated Authority Number of Remissions
Deputy Minister * Full -
Assistant Deputy Minister * Full 4
Director General, Finance Division * Up to $25,000 20
Chief, Corporate Accounting Up to $10,000 41
Regional Director, Finance Up to $5,000 6
Director Finance Ste. Anne’s Hospital Up to $5,000 4
Director, Financial Services Up to $5,000 3
Chief, Program Payments Up to $2,500 9
Head, Financial Benefits and Program Overpayments Up to $1,000 47
Total 134

* Note: Requires a review and recommendation by the Coordinator, Fraud Control and Debt Recovery.

One of the provisions for the remission of an overpayment is that the administrative costs of recovering the overpayment are likely to equal or exceed the amount to be recovered. In 2010/2011, there were 42 low dollar remissions (30% of the total remissions processed) where the administrative cost of recovering the overpayment would exceed the amount to be recovered. For these low dollar value amounts it would be more cost effective to streamline the remission process.

The audit team identified inconsistencies in program policies relating to when Finance should consult with program staff. For example, the Canadian Forces Members and Veterans Reestablishment and Compensation Act (CFMVRC) requires a recommendation from the Director, Program Delivery in order for a remission of $10,000 or higher to be processed. Whereas, the VIP Overpayments guidelines require consultation between the regional office Financial Accounting Officer for recoveries, but not for remissions. Clarity and consistency is required in reference to the variations in program policy above. For higher dollar amounts, consistent consultation with the program area would validate the facts contributing to the remission decision by Finance Division and ensure a quality control feature was in place.

Recommendation 1

It is recommended that the Director General, Finance Division, streamline the remission process for low dollar overpayments. (Essential)

Management Response

Management agrees with the recommendation.

Management Action Plan
Corrective action to be taken Office of Primary Interest Target date
The Finance Directorate in Kirkland Lake will use VAC 515 form instead of VS 1004 form. This will allow the Finance Directorate in Kirkland Lake to close out the year with the existing procedures and complete the work in progress with the same form. Payments and Collection Management April 2012
Remissions of a similar nature under $1,000 will be grouped together when there are several to be processed in the same time period. These remissions will be approved on one form. Payments and Collection Management May 2012

Recommendation 2

It is recommended that the Director General, Finance Division, provide direction regarding when to consult with program staff for all high dollar remissions. (Essential)

Management Response

Management agrees with the recommendation.

Management Action Plan
Corrective action to be taken Office of Primary Interest Target date
Corporate Accounting will provide, on behalf of the Director General Finance, direction as to when consultation with program staff is required. Corporate Accounting April 2012

3.1.2 Supporting Documentation

Proper supporting documentation is necessary for remission transactions in order to trace the cause of the overpayment, how the decision came to result in a remission, and to ensure proper communication is maintained with the Veteran.

The primary cause for the lack of supporting documentation was the absence of clear direction to staff regarding what information is to be retained on the file. In the absence of such direction, staff in the Kirkland Lake Regional Financial Office were following VAC’s Policy on Content of Regional Office Paper Client File (2010) which states "The RO Client File is intended to contain records of transactions related to treatment benefits and services, rehabilitation activities, Veteran’s Independence Program activities, and general inquiries related to benefits, all of which are administered in VAC’s regional and district offices." This policy does not identify remissions so staff were not retaining the information. However, the Treasury Board Policy on Information Management requires that decisions are documented and are available for independent audit and review.

In addition, two different forms were being used to process remissions. In Head Office a VAC 515 form was being used, whereas in Kirkland Lake a VS 1004 form was used. On the VS 1004 form the reason for the remission was not clearly stated in 67% of the forms reviewed. The VS1004 form is now being phased out for remissions and screen shots from CSDN with the overpayment reasons are being used as the supporting documentation along with a batch letter to allow for delegated authority approval. The reason for each remission should be clearly stated on the batch letter.

Another inconsistency is that in Head Office remissions over $5,000 are recorded in the CSDN Withholds tab. However, the CSDN Withholds tab was not originally intended to track overpayments, recoveries, write offs and remissions for Federal Health Claims Processing System (FHCPS) transactions. Overpayments/remissions originating from programs processed via FHCPS are entered as information only in a client note in CSDN. However, remissions originating from FHCPS may be overlooked when not recorded in the withhold tab in CSDN. Tracking remissions separately makes it difficult to have a complete picture of remissions for a Veteran and for the department as a whole.

Kirkland Lake uses two different methods for filing the approval documents for a remission. For remissions $1,000 and higher the approval documentation is filed on the Veterans' file. For remissions below $1,000 the approval documentation is filed separately. For HO files, all approval documents are on the Veterans' file.

Communication with the Veteran regarding the overpayment and remission was sufficient. Seventy per cent of the remission transactions had a letter to the Veteran on file regarding the existence of the overpayment/remission. The balance without letters mainly consisted of remissions for small amounts, with no letter being sent to the Veteran in these cases.

Recommendation 3

It is recommended that the Director General, Finance Division, ensure sufficient documentation exists with the document approving the remission placed on the Veteran’s file. (Critical)

Management Response

Management agrees with the recommendation.

Management Action Plan
Corrective action to be taken Office of Primary Interest Target date
Financial Administration Act and Treasury Board guidelines. Corporate Accounting May 2012

3.1.3 Timeliness

From the sample, only 14 remissions resulted from overpayments established in the 2010/2011 fiscal year. As presented in the table below, the majority of remissions were from overpayments identified over five years earlier. The significant number of outdated remissions from previous fiscal years is contrary to the intent of TB Policy and results in understating the number of remissions in departmental reports on remissions.

Table 3 – Remissions by Age
Timeframe Number of Remissions Dollar Value
Yr 1 14 $32,874
Yr 2 – 5 21 $104,138
Greater than 5 yrs 32 $341,327
Total 67 $478,339

Source: Statistical sample of VAC remissions for 2010/2011

Twenty percent (14 out of 67) of the remissions in the audit sample were WVA transactions resulting from a system error from 1999-2003. The system error was corrected in 2004; however there is still an outstanding backlog of potential remission files. Unfortunately the source of remissions is not tracked so there was no information available regarding how many more outstanding overpayments will result in remissions that relate to this WVA system error.

At the time of the audit, there was a backlog of over 200 remissions waiting to be processed. This backlog of remissions relates to WVA overpayments, likely primarily relating to the WVA system error, and VIP. Staff interviewed indicated that the goal is to bring the VIP remission backlog up to date by end of fiscal 2011/2012. Outstanding WVA remissions are also being processed and the hope is to maintain the progress on clearing the WVA backlog although no target date has been identified.

Annually VAC estimates the amount of outstanding receivables which will not be collected. This estimate is recorded as an allowance for doubtful accounts on receivables. In VAC’s 2010/2011 financial statements $12.99M was recorded as the allowance for doubtful accounts on receivables. This allowance includes the outstanding overpayments which may be written off or remitted in the future. Processed remissions are subtracted from the allowance for doubtful accounts and credited to accounts receivable. For this reason while it is important to manage the processing of remissions, the backlog has not resulted in misrepresented financial statements.

Recommendation 4

It is recommended that the Director General, Finance Division, process the backlog of remissions in a timely manner. (Essential)

Management Response

Management agrees with the recommendation. Priority will be given to process the backlog of remissions by the Regional Director of Finance in Kirkland Lake. Charlottetown will continue to ensure new remissions are processed on a timely basis.

Management Action Plan
Corrective action to be taken Office of Primary Interest Target date
Backlog of remissions will be reviewed to identify the remissions by program and age and reason for the remission. Priority will be given to processing the older files in order to ensure backlog is addressed within the upcoming fiscal year. Payments and Collection Management May 2012
Charlottetown will continue to ensure remissions are processed on a timely basis. Payments and Collection Management and

Corporate Accounting

3.1.4 Reporting

One of the main goals of governance is to ensure sufficient, complete, timely and accurate information is provided to senior management for decision making purposes. Currently, the information on remissions does not distinguish them down between current year remissions and previous year’s remissions. This makes it difficult to tell what the current status is for remissions in the Department for the current year. For example the audit sample identified only 30% of the remissions processed were for the current year. In addition, the backlog of over 200 remissions had not been reported to by program and by year. This information would be useful in determining which programs are generating the most remissions. With better information senior management could take action to deal with problems occurring on a timely basis as well as allocate resources to keep remissions up to date.

One of the biggest concerns with overpayments is that a systemic error will occur and if not corrected on a timely basis will lead to a large number of remissions. This was the case with the WVA system error. For remissions greater than $5,000 there was regular reporting and monitoring but there was no evidence of monitoring for remissions less than $5,000. It is important to note that the sample file review did not identify any new types of systemic errors; however, continued monitoring the reasons for all overpayments would ensure that systemic errors are identified and corrected in a timely manner.

Recommendation 5

It is recommended that the Director General, Finance Division, monitor all remissions for systemic errors so that timely corrective action can be taken. (Essential)

Management Response

Management agrees with the recommendation.

Management Action Plan
Corrective action to be taken Office of Primary Interest Target date
Systemic errors will be brought to the attention of the responsible program managers and staff with count by root cause. Corporate Accounting April 2012

3.1.5 Other opportunities for improved efficiency

The following are some identified opportunities for management consideration:

  • A pilot project, running at head office since September 2008, introduced the use of one letter to the Veteran, informing him/her of overpayment and remission action. For remissions which do not require Veteran involvement, issuing a single letter is more efficient both from the department’s and Veteran’s perspective. This one letter approach should be permanently implemented at head office and Kirkland Lake.
  • The pilot project also introduced the use of an overpayment control sheet to track consultation and approvals. This control sheet provides a good audit trail supporting decisions and should be utilized for all remissions.
  • Currently the PEN 95 OPe (Benefit overpayment action form) is utilized for any remissions relating to pensions but could be utilized for all programs. This form is an efficient way to request overpayment action (recovery or remission) and provides an audit trail requesting the action on the overpayment. In addition, this form contains useful information that helps Finance Division to process the overpayment.
  • Consider integration of information between departments and levels of government to help reduce occurrence of overpayments (information sharing re: Date of Death, Marital status change, etc.). Interviews with VAC staff indicated that there are existing agreements in place with other departments that could provide opportunities for information sharing.

3.2 Audit Opinion

In the opinion of the audit team the internal controls, governance and risk management framework relating to the Audit of Remissions were determined to require improvement. The audit results identified that all remissions reviewed were appropriate; however, the majority of remissions were not supported with sufficient documentation on file or processed in a timely manner.

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