3.0 About the Audit

3.1 Objectives

The objectives of the audit were to:

1. Determine if VAC is in compliance with policies, regulations and procedures for actioning overpayments;
2. Identify systemic issues that cause overpayments; and
3. Determine if overpayments are properly reported.

The audit criteria relevant to each objective are outlined in Appendix A.

3.2 Scope

The scope included overpayments created in the 2012-2013 fiscal year for the Disability Award, Disability Pension, War Veterans Allowance, and Earnings Loss programs.

Program overpayments not in scope for this audit include:

• Health Care Benefits, Veterans Independence Program, Long Term Care, and Vocational Rehabilitation Programs;
• Transactions that should have been recorded as overpayments but were not; and Overpayments incurred at Ste. Anne’s Hospital.
• The audit team also analyzed the status of, and systemic issues causing, overpayments within the Department’s aged receivables. Aged receivables reflect the length of time receivables have been outstanding as of March 31, 2013.

The audit team also analyzed the status of, and systemic issues causing, overpayments within the Department’s aged receivables. Aged receivables reflect the length of time receivables have been outstanding as of March 31, 2013.

3.3 Methodology

This audit was conducted in conformance with the Institute for Internal Auditors (IIA) Standards and the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

Interviews and Direct Observation

Interviews were conducted in person, or by telephone, with VAC staff responsible for the identification, processing, and reporting of overpayments. Through the interviews, the audit team obtained an understanding of the roles and responsibilities, key activities and adequacy of internal controls; and, gathered documentation to support findings.

On-site visits were conducted with the Service Delivery Branch and VAC Finance Division allowing the audit team to interview staff responsible for processing overpayments and observe the systems used to process overpayments.

Documentation Review

Government of Canada, Treasury Board (TB), and departmental documentation related to the management of receivables was reviewed to determine compliance with the applicable policies, procedures and regulations. Some key documents reviewed include:

• Financial Administration Act,
• Debt Write-off Regulations, 1994,
• Treasury Board Directive on Receivables Management,
• Pension Act,
• Canadian Forces Members and Veterans Re-establishment and Compensation Act,
• VAC Financial Policy and Procedures Manual, and
• VAC Accounting Policy and Procedures Manual.

File Review

The audit team conducted a file review to determine whether VAC is complying with policies, regulations and procedures, and identify systemic issues that cause overpayments. During 2012-2013, 8,007 transactions totaling $20.6 million were established as overpayments for four programs (see Table 1 below). Total 2012-13 expenditures for these programs were $2.6 billion, with 2,000,000 payment transactions. A statistically valid sample of 155 overpayments created in 2012-2013 for these programs was selected based on volume of transactions, materiality of the overpayment, and associated risk.

Table 1 – Overpayments created in Client Service Delivery Network in 2012-2013
(for year ending March 31, 2013)

Program	Overpayments	Total Amount
Disability Award	135	$4,896,307
Disability Pension	6,456	$12,112,189
War Veterans Allowance	238	$98,859
Earnings Loss	1,178	$3,459,732
Total	8,007	$20,567,087

Source: VAC Statistics Directorate

Also, the status of overpayments in aged receivables was analyzed in the audit. Aged receivables are a financial management tool used to reflect the length of time receivables have been outstanding. VAC is required^{Footnote 6} to pursue and collect any outstanding amounts.