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4.0 Audit Results

4.1 Process for Actioning Overpayments

Overpayments can be identified by various VAC units, be system-generated, or be reported to the Department by the recipient. Once an overpayment is identified, it is recorded in the Client Service Delivery Network, the primary system used for processing overpayments. Recovery is the first course of action in the overpayment process. There may be instances where a recovery is not desirable (e.g., recovery may create undue financial hardship). Overpayments can otherwise be remitted or written-off.

Aged overpayments must be recovered, remitted, or written-off.

A detailed review of the 155 overpayment transactions from 2012-2013 was conducted to investigate the timeliness of processing. At the time of the file review in July 2013, 75% of the overpayment amounts that formed the audit sample had been recovered. Furthermore, outstanding program overpayments for all programs, declined from $22.3 million in 2011-2012 to $20.9 million in 2012-2013.

Although most of the overpayments created in 2012-2013 were collected, there are uncollected overpayments in aged receivables. Treasury Board policy requires that receivables are promptly recognized and vigorously pursued for collectionFootnote 7. Table 2 below shows, by relative age and program, the overpayments reported where no monies have been recovered. The analysis of overpayments in aged receivables did not include investigations into the reasons for the delay in actioning these aged receivables.

Table 2 – Overpayments with no recoveries in aged receivables (as of March 31, 2013)
Disability Award Disability Pension War Veterans Allowance Earnings Loss Total
Up to 1 year $440,895 $698,597 $21,770 $643,619 $1,804,881
1 to 2 years $252,201 $1,090,124 $12,282 $254,468 $1,609,075
2 to 3 years $946,649 $810,088 $10,644 $165,101 $1,932,483
3 to 4 years $2,141 $142,096 $38,584 $3,860 $186,681
4 to 5 years $2,002 $86,871 $54,054 $45,418 $188,345
6 - 10 years $25,000 $496,937 $38,405 $33,816 $594,158
11 - 15 years - $206,350 $3,268,589 - $3,474,939
+15 years - - - - -
Total $1,668,888 $3,531,062 $3,444,329 $1,146,282 $9,790,561

Source: VAC Statistics Directorate

Recommendation 1

It is recommended that the Director General, Finance Division, actions outstanding overpayments in aged receivables. (Critical)

Management Response

Management agrees to review aged accounts receivable with the aim of clearing long outstanding receivables as either - recoveries, remissions and/or write-offs.

4.2 Business Processes

Business processes support the achievement of departmental objectives. Processes may be communicated informally or documented formally. In some cases, documentation may not be required as the processes are well understood, relatively simple, or involve only a few people. In other cases, documentation is necessary to ensure consistency within the organization. Documented processes also provide a method/tool to transfer corporate knowledge.

Documented, updated and integrated business processes should exist.

There are multiple units within VAC that are involved in the processing of overpayments. The audit team noted that there is good communication between the teams processing overpayments, and that there is sufficient segregation of duties between processing, collecting, maintaining, reconciling and reporting accounts. However, there is limited documentation outlining the complete overpayment process, and there are inconsistencies in the existing documentation. For example, key financial controls identified specific dollar limits for which each work unit was authorized to process, whereas the program policies did not. Also, there is no evidence of integration among the units.

A pilot project was initiated in 2009, and is still ongoing, for the Disability Pension and Disability Award Programs. The objective of the pilot is to investigate overpayments to determine if they are based on administrative errors, and recommend a course of action before a letter is sent to the program recipient, to prevent any undue stress or anxiety for the recipient. Currently, the pilot is implemented only for the two Disability Programs. The audit team noted that an evaluation of the pilot project should be completed and that consideration should be given to implementing the process for the other two Programs in this audit to further prevent undue stress or anxiety on program recipients.

Recommendation 2

It is recommended that the Director General, Service Delivery and Program Management Division, in collaboration with the Director General, Finance Division, and the Director General, Centralized Operations Division, ensures documented, updated and integrated business processes exist for the actioning of overpayments. (Essential)

Management Response

Management agrees with this recommendation. The development of integrated business processes reflecting the current organizational environment and processing steps conducted across work units supports the consistent and efficient resolution of overpayments.

4.3 Oversight and Reporting

Oversight is important to ensure that departmental direction, plans, and actions are appropriate. Management should be provided with timely and accurate financial and operational information in order to fulfill the oversight function.

Oversight, monitoring, and reporting require improvements.

VAC is required to establish and monitor results-based measurement mechanisms, and prepare and distribute periodic reports to management.Footnote 8

The VAC Financial Policies and Procedures Manual (FPPM) is a departmental manual that outlines responsibilities for oversight and reporting, including the requirement to distribute receivables reports to management on a quarterly basis. The review of the FPPM and interviews with staff indicate that the FPPM no longer reflects the operating environment and, as a result, there are gaps in the assignment of responsibility for oversight and monitoring of the processing of overpayments. According to the Treasury Board Directive on Receivables Management, the departmental Chief Financial Officer (CFO) is responsible for overseeing the monitoring of receivables and identifying any significant difficulties, gaps, or compliance issues. The audit team determined that the Portfolio Aged Analysis of Accounts Receivable Report was last provided to the CFO in September 2011. Resuming regular distribution of this report to the CFO is required to maintain policy compliance.

There are systemic issues causing overpayments.

Systemic issues are common, inherent, and recurring situations that give rise to overpayments. This is in contrast to overpayments that are generated by case-specific or isolated factors. The systemic issues identified in the file review are presented in Table 3 below.

Table 3 – Systemic Issues
VAC Program Number of Overpayments Reviewed Systemic Issue Overpayments Reviewed with Systemic Issue
Disability Award 48 Incorrect legislation used in adjudication 40%
Untimely disclosure of other benefits 33%
Disability Pension 67 Delay in receipt of death notification 91%
War Veterans Allowance (WVA) 10 Delay in receipt of death notification 70%
Earnings Loss 30 Untimely disclosure of earning 90%

Source: Audit and Evaluation Division

The first systemic issue, overpayments resulting from VAC staff using incorrect legislation when adjudicating, is preventable as the decision making is within VAC's control. This type of systemic issue accounted for 40% (19/48) of the sampled Disability Award overpayments. Some incorrect decisions originated from inexperience with the program when it began in 2006; whereas, others were recent errors indicating a need for training in the legislation and/or changes to the quality control process.

The remaining systemic issues are more difficult to prevent as the Department relies on the timeliness of disclosure of information from the recipient or family. For example, the recipient's untimely disclosure of other benefits such as workers' compensation benefits accounted for 33% (16/48) of the systemic issues for the Disability Award program. Another example is with regard to the Earnings Loss Program which requires the recipient to report earnings to the Department. The majority (90%) (27/30) of the sampled Earnings Loss overpayments were caused by untimely disclosure of earningsFootnote 9. Finally, overpayments occur when the Department receives notification of a Veteran's death long after the date of death. Delays in death notification were prevalent in 70% (7/10) of the War Veterans Allowance overpayments and 91% (61/67) of the Disability Pension Program overpayments.

Monitoring and reporting systemic causes of overpayments would allow management to determine the most appropriate corrective action and reduce the number of overpayments in the future.

Exception reportingFootnote 10 is required.

Risk is mitigated when people have relevant information to make decisions. Information should flow to managers in various areas of the Department to enable them to identify and highlight pervasive issues. Exception reporting is a control element that ensures transactions are correctly identified, handled, and reported allowing managers to identify and manage risk. Assuring reliable data can be difficult without exception reporting of issues and errors.

Although the audit trail for processed overpayments was sufficient, there is limited reporting of the causes of overpayments (systemic or otherwise). Generic reasons for overpayments such as "administration error" are captured in the Client Service Delivery Network but adequate detail (i.e., cause of overpayment) is not captured and the underlying causes are not investigated. Exception reporting would ensure that the causes are identified and addressed.

As a final observation, Veterans' accounts are adjusted for a variety of reasons (to correct errors, issue urgent payments, etc.). Some are actual adjustments, some are overpayments. The method used in the Client Service Delivery Network to process overpayments is also used to process recipients' account adjustments. Both are reported as overpayments, making differentiating between overpayments and account adjustments difficult. Developing an exception report of the account adjustments would distinguish between the overpayment and account adjustments.

Recommendation 3

It is recommended that the Director General, Finance Division, in collaboration with the Director General, Service Delivery and Program Management Division, and the Director General, Centralized Operations Division, improves the reporting, monitoring, and oversight of overpayments. (Critical)

Management Response

Management agrees to implement a risk-based approach to ensuring corporate oversight, reporting and management of aged accounts receivable in compliance with the TB Directive on Receivables Management. This will improve the timeliness and accuracy of the financial reporting for accounts receivable.

A consultative approach will be used to engage key departmental staff in the review of the reporting, monitoring and oversight of overpayments.

4.4 Audit Opinion

In the opinion of the audit team, departmental activities related to the processing of overpayments were "Generally Acceptable".

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