Financial Management: DOD and VA Need to Improve Operation of the Montgomery GI Bill Reserve Program

Published by the Government Accountability Office on 1990-08-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


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                                                            DOD and VA Need to
                                                            Improve Operation of
                                                            the Montgomery GI
                                                            Bill Reserve Program



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                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Accounting and Financial
                   Management Division


                   August 81990

                   The Honorable Beverly B. Byron
                   Chairman, Subcommittee on Military Personnel
                     and Compensation
                   Committee on Armed Services
                   House of Representatives

                   Dear Madam Chairman:

                   This letter is in response to your request for us to review the Mont-
                   gomery GI Bill Reserve Program, which is intended to provide education
                   benefits to eligible military reservists. The Program is administered by
                   the Department of Defense (DOD) and the Department of Veterans
                   Affairs (VA). In establishing the Program, the Congress also established
                   the DOD Education Benefits Fund, which VA uses to pay the monthly ben-
                   efits. The military services fund all education benefits through their mil-
                   itary pay appropriations by making monthly contributions to the Fund.

                   Because of concerns about the operation of the Program, you asked us to
                   assess (1) the timeliness and accuracy of the eligibility data that DOD
                   submits to VA, (2) the plans DOD has underway or planned for improving
                   the timeliness and accuracy of eligibility data, (3) the accuracy of DOD'S
                   contributions to the Fund, and (4) efforts to collect amounts owed the
                   government by Program participants.

                   As of September 30, 1989, about 117,000 reservists were receiving bene-
                   fits through the Program. In fiscal year 1989, about $82 million was
                   obligated for the Program.

                   From the beginning of the Program, DOD has had problems reporting
Results in Brief   timely and accurate eligibility data to VA. For the period September 1988
                   through March 1989, DOD records indicated that it was taking an
                   average of 91 to 351 days to submit eligibility data to VA. DoD was also
                   submitting inaccurate and incomplete data to VA. The personnel respon-
                   sible for processing and reporting the data to VA lacked adequate knowl-
                   edge of the eligibility criteria and the data codes used to report changes
                   in eligibility. DOD has acknowledged these problems, and the reserve
                   components have initiated efforts to resolve them. However, these
                   efforts will not fully correct the problems.

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                                                                                   -*,    .-

             In addition, because the reserve components did not determine their
             monthly contributions to the Fund in accordance with the prescribed
             definition, inaccurate contributions have been made to the Fund. Fur-
             ther, debts owed by reservists to the government were not being col-
             lected. DOD and VA have not agreed on who is responsible for collecting
             amounts owed by reservists who breach their 6-year contractual agree-
             ments, and VA has not pursued the collection of $10 million in overpay-
             ments to reservists.

             Benefits from the Program are available to reservists who, after
Background   June 30, 1986, (1) enlisted, reenlisted, or extended an enlistment for a
             commitment of at least 6 years or (2) were appointed as, or were serving
             as, reserve officers and agreed to serve in the reserves for an additional
             6 years, Reservists are eligible to receive benefits provided they have a
             high school diploma or equivalent; are pursuing, but have not yet
             received, an undergraduate degree; and have completed initial active
             duty training.

             When a reservist meets these eligibility requirements, a notice of basic
             eligibility is issued which shows the (1) date the reservist became eli-
             gible for benefits, (2) requirements for basic eligibility as well as for con-
             tinuing benefits, and (3) amount of monthly entitlement. To receive
             initial benefits, a reservist must present to the local VA regional office
             the notice of basic eligibility, an application for VA benefits, and a certifi-
             cation of enrollment from the college or university the reservist plans to
             attend. Simultaneously, the eligibility information should be submitted
             to the Defense Manpower Data Center by the reserve units, through the
             military services personnel centers using the various DOD systems. The
             Center is responsible for submitting the eligibility data to VA.

             In addition to meeting initial eligibility requirements, reservists must
             maintain their eligibility by (1) satisfactorily participating in unit drills
             and other required training and (2) meeting the academic requirements
             of the college or university they are attending. Reserve units are
             required to notify the Defense Manpower Data Center of reservists who
             fail to participate satisfactorily in required drills. Participating colleges
             and universities are also required to notify VA when a reservist’s enroll-
             ment status changes. Based on information provided by the military ser-
             vices and the participating colleges and universities, VA initiates,
             changes, and terminates education benefits. Reservists have up to 10
             years from the date they first become eligible to receive benefits.

             Page 2                          GAO/AFMD-90-30Montgomery GI Bill ReserveProgram
                        The objectives of our review were to assess (1) the timeliness and accu-
Objectives, Scope,and   racy of the eligibility data that DOD submits to VA, (2) the plans DOD has
Methodology             underway or planned for improving the timeliness and accuracy of eligi-
                        bility data, (3) the accuracy of DOD'S contributions to the Fund, and
                        (4) efforts to collect amounts owed the government by Program

                        To assess the timeliness and accuracy of eligibility data submitted to VA,
                        we reviewed DOD'S policies, procedures, and processes used to submit eli-
                        gibility data to VA. We also reviewed reports that DUD uses to monitor the
                        Program. The reports identified the processing time for transactions by
                        the various services and the accuracy of eligibility data reported to VA.
                        We did not verify the accuracy of this data. We also reviewed reports
                        submitted by DOD to the Congress and interviewed DOD officials
                        regarding problems that they had encountered in submitting timely and
                        accurate data. We discussed with DOD officials the various efforts
                        underway or planned to improve the timeliness and accuracy of the eli-
                        gibility data.

                        To assess the accuracy of DOD'S contributions to the Education Benefits
                        Fund, we reviewed DOD'S criteria and procedures for computing and
                        making the contributions to the Fund. We also discussed with DOD offi-
                        cials efforts underway to develop better criteria for computing the con-
                        tributions to the Fund.

                        To assess efforts to collect amounts owed the government by Program
                        participants, we reviewed VA'S accounting policies and practices for
                        recording and collecting overpayments. By matching data obtained from
                        DOD and VA, we determined the number of individuals who had breached
                        their 6-year contractual agreements to serve in the reserves and the
                        amount these individuals may owe the government. In addition, at VA'S
                        St. Louis Regional Office, which has primary responsibility for collecting
                        these overpayments, we discussed with VA officials the procedures they
                        follow in attempting to collect amounts owed by Program participants.

                        We performed work at the headquarters of DOD, the Army, the Navy, the
                        Air Force, and VA, in Washington, DC., and at the reserve units and VA
                        regional offices listed in appendix I. We judgmentally selected at least
                        one unit from each of the following six reserve components-Army
                        Reserve, Army Guard, Air Force Reserve, Air Guard, Navy Reserve, and
                        Marine Reserve. The units selected had at least 10 VA outstanding receiv-
                        ables totaling at least $4,500. Since the eligibility information for all

                        Page 3                        GAO/AF’MD-90-30Montgomery GI Bill ReserveProgram

                             units in each component flows through the same systems en route to VA,
                             we limited our review to one unit per component.

                             Our review was performed in accordance with generally accepted gov-
                             ernment auditing standards. The views of responsible DOD and VA offi-
                             cials were sought during the course of our work and are incorporated
                             where appropriate.

                             Since the beginning of the Program in July 1985, DOD has not submitted
DOD Has Not Provided         timely and accurate eligibility data to VA. VA depends on DOD to provide
Timely and Accurate          eligibility data to initiate payments, to make changes and corrections,
Eligibility Data to VA       and to terminate benefits. However, according to DOD, its has been taking
                             an average of 91 to 351 days to submit eligibility data to VA. Part of the
                             problem can be attributed to incompatibility between DOD and VA sys-
                             tems. Because the systems are not compatible, the eligibility data must
                             be transferred between various systems, which is a time-consuming pro-
                             cess. Another contributing factor has been that individuals responsible
                             for submitting the eligibility data to VA have not been properly trained.

                             DOD has acknowledged these problems, and the reserve components have
                             initiated actions to resolve them. While most of these actions will help
                             improve the data accuracy, the timeliness of the data submitted to VA
                             will continue to be a problem because of system incompatibility.

Eligibility Data Not Being   DOD has long recognized the need for a financial management system
Reported i n a Timely        capable of providing VA eligibility data by the time reservists apply for
                             benefits. DOD directed the Defense Manpower Data Center, which is
Manner                       responsible for maintaining a data base that contains the records of all
                             reservists and submitting to VA eligibility data provided by the military
                             services, to develop and implement a system that would more readily
                             provide such data. In its fiscal years 1987 and 1988 reports to the Con-
                             gress on the status of the Program, DOD stated that it needed a system
                             capable of more readily conveying eligibility data to VA. Moreover, in
                             responding to a February 1988 congressional inquiry regarding the
                             administration of the Program, DOD’S Acting Deputy Assistant Secretary
                             (Guard/Reserve Manpower and Personnel) stated that an improved
                             system was necessary to satisfy the Program’s reporting requirements.

                             The Acting Deputy Assistant Secretary also pointed out that delays in
                             developing an improved system had caused DOD and VA to institute tem-
                             porary measures to ensure that reservists’ benefits were paid. DOD and

                             Page 4                         GAO/AF’MD-90-30Montgomery GI Bill ReserveProgram

                            VA agreed in late 1986 to a 6-month “grace period” in which benefits
                            were paid to all individuals who had been issued a notice of basic eligi-
                            bility, regardless of whether DOD'S data base reported these individuals
                            as eligible. This measure resulted in overpayments because ineligible
                            individuals were receiving benefit payments. To reduce the overpay-
                            ment problem, the grace period was reduced from 180 to 120 days in
                            September 1987. In its fiscal year 1987 report to the Congress, DOD
                            stated that the grace period was only a temporary measure and might be
                            discontinued by the end of fiscal year 1988 or soon thereafter. This pro-
                            cedure is still being used.

                            Since DOD and VA systems are not compatible, eligibility data must be
                            transferred to and from each system-a time-consuming effort.
                            According to the Defense Manpower Data Center, the processing and
                            reporting of eligibility data to VA through these various systems took
                            from 91 to 361 days, depending on the service. From September 1988
                            through March 1989, only one of the six DOD reserve components-the
                            Army Guard-consistently       reported eligibility data within the 120-day
                            grace period. The Army Guard reporting time ranged from 91 to 119
                            days; the Army Reserve, reporting time ranged from 223 to 296 days;
                            the Navy Reserve, from 212 to 351 days; the Marine Reserve, from 160
                            to 249 days; the Air Guard, from 105 to 209 days; and the Air Reserve,
                            from 96 to 145 days.

                            In April 1989, after more than 3 years of effort, the Defense Manpower
                            Data Center terminated the system development project. According to
                            DOD and VA officials, the effort was discontinued because the develop-
                            ment of such a system would not have been cost-effective.

Inaccurate and Incomplete   DOD has also experienced problems in submitting accurate and complete
Data Submitted to VA        eligibility data to VA. Due to inaccurate reporting, benefit payments to
                            many eligible reservists have been delayed. For example, a September
                            1988 Defense Manpower Data Center report showed that benefit pay-
                            ments to 4,756 (5 percent) of the 91,568 eligible reservists had been
                            delayed because DOD had inappropriately reported them as ineligible.
                            Further, a March 1989 report showed that while a slight improvement
                            had been made, inaccurate reporting was still a problem. The March
                            report showed that payments to 4,843 (4.6 percent) of the 106,196 eli-
                            gible reservists had been delayed due to inaccurate eligibility reporting.

                            The reporting of incomplete data by the services has also been a
                            problem. When the data are not sufficient to determine whether a

                            Page 5                         GAO/AFMD-90-30Montgomery GI Bill ReserveProgram

                                       person is eligible to receive benefits, the individual is classified as
                                       “unknown.” As shown in table 1, based upon information obtained from
                                       the Defense Manpower Data Center, three reserve components had
                                       problems in reporting complete eligibility data in March 1988. The other
                                       three components -Army Guard, Air Force Guard, and Air Force
                                       Reserves-had an incomplete data rate of 2 percent or less for t,he
                                       March 1988 and February 1989 time periods.

Table 1: Incomplete Eliglbllity Data
Reported to VA in March 1988                                                                       Cases with
                                                                                Number of __    incomplete data
                                       Components                               applicants      Number        Percent
                                       Navy Reserve                                149,095       46,685            31
                                       Marine Reserve                               42,070        8,975            21
                                       Army Reserve                                315,129       49,380            16
                                       Total                                      506,294       105,040            23

                                       Eligibility data for February 1989 showed that the Marine Reserve had
                                       made significant improvements in submitting complete data. The Marine
                                       Reserve’s incomplete data rate decreased from 21 percent in March 1988
                                       to less than 1 percent. According to the Marine Reserve’s program man-
                                       ager, this improvement was related to DOD’S April 1988 mandate that
                                       reserve components eliminate all incomplete data from financial man-
                                       agement systems by December 1988. The Army and Navy Reserves,
                                       although somewhat improved, were still experiencing difficulty. The
                                       Army Reserve rate decreased from 16 percent to 11 percent, and the
                                       Navy Reserve rate decreased from 31 percent to 20 percent.

                                       Accurate reporting of eligibility data primarily depends on having per-
                                       sonnel knowledgeable of the Program’s requirements and the procedures
                                       for collecting, processing, and reporting the data. DOD and service offi-
                                       cials have acknowledged that inadequately trained personnel have con-
                                       tributed to the inaccurate reporting of eligibility data. For example, in
                                       its fiscal year 1988 report to the Congress on the Program, DOD reported
                                       that unreliable data resulted from (1) misunderstanding of eligibility cri-
                                       teria and (2) data coding errors by personnel responsible for collecting,
                                       processing, and reporting the data. In addition, in an April 1990 letter to
                                       the Chairman, Subcommittee on Education, Training and Employment,
                                       House Committee on Veterans’ Affairs, the Assistant Secretary of
                                       Defense acknowledged that all responsible personnel in the field have
                                       not received adequate training on program administration and on data
                                       reporting procedures. As a result, erroneous and incomplete data are
                                       entered into the system.

                                       Page 6                         GAO/AJ?MD-90-30
                                                                                    Montgomery GI Bill ReserveProgram

                            We were told of the following problems at four of the reserve units we

                          . Army Reserve officials at the unit we visited stated that eligibility data
                            are processed by reservists-on weekends-who           have had no formal
                            training. According to the Personnel Officer, these individuals received
                            about 30 minutes of on-the-job training. The Army Reserve program
                            manager attributed the Reserve’s overall eligibility data problem to
                            poorly trained personnel who were responsible for processing eligibility
                          . At the Army Guard unit we visited, data processing responsibilities had
                            been taken from the unit clerks and given to trained personnel at a
                            higher level because the unit clerks had been submitting inaccurate data
                            to VA. The clerical specialist responsible for processing eligibility data
                            for Army Guard members in Ohio stated that prior to our visit in April
                            1989, she had processed 2,000 to 3,000 transactions correcting inaccu-
                            rate data previously reported to VA. She further stated that during 1
                            week in March 1989, she processed about 400 transactions correcting
                            errors that were previously reported.
                          . At the Air Guard unit we visited, we were informed by unit personnel
                            that responsible individuals were not fully cognizant of how the pro-
                            gram functioned or how to make accurate eligibility determinations.
                            They had inaccurately reported some reservists as eligible based on esti-
                            mated future eligibility dates. Specifically, they had computed eligibility
                            dates as the estimated date the reservists completed either their 180
                            days in the reserves or their initial active duty training, instead of using
                            the date the reservists actually completed their initial active duty
                          . The Navy Reserve Command we visited had administrative responsi-
                            bility for 43 reserve units. The individuals responsible for processing
                            and reporting eligibility data said that in determining initial eligibility,
                            they had erroneously substituted completion of the reservists’ 2 weeks
                            of required annual training to qualify them for benefits.

Efforts to Improve          To their credit, the reserve components have efforts underway aimed at
Timeliness and Accuracy     improving the timeliness and accuracy of the eligibility data submitted
                            to VA. Their efforts are summarized below.
of Eligibility Data
Army ReserveandGuard        In March 1988, the Army Guard centralized certification of the notice of
                            basic eligibility at the State Guard level under more experienced and
                            knowledgeable personnel to improve the quality of the eligibility data.

                            Page 7                          GAO/AFMD-90-30Montgomery GI Bill ReserveProgram

                       In addition, the Army Reserve and Guard are planning to develop a new
                       automated system, referred to as the Reserve Component Automation
                       System. Implementation of this system, in which critical management
                       information will be entered at the unit level, is scheduled for 1996.

Air Reserveand Guard   The Air Force is planning a new automated system for the Air Reserve
                       and Guard. This system is referred to as the Personnel Computer Con-
                       cept, Third Generation. According to an Air Force official, when the
                       system is fully automated, eligibility data will be entered at each unit,
                       rather than at one of the Air Force’s 40 major personnel offices. Imple-
                       mentation of this system is scheduled for fiscal year 1990.

                       In September 1988, the Air Reserve started tracking its eligibility data
                       for timeliness. The Air Reserve upgraded its system to include the pro-
                       gram’s ineligible codes and 26 edit codes. According to an Air Force offi-
                       cial, each edit code is related to a data element so that the system can
                       highlight errors by data element, This official also stated that their
                       system’s software included on-line edits which highlight incorrect
                       entries and display screen notices when incorrect entries are entered in
                       the system.

Navy Reserve           In June 1989, the Navy implemented a new automated management
                       information system called R-STARS.This system is designed to provide
                       field locations the capability of reporting reserve data directly to the
                       Navy Reserve Personnel Center in New Orleans. According to Navy offi-
                       cials, the system is programmed to accumulate the data needed to gen-
                       erate the notice of basic eligibility. In addition, in April 1988, the Navy
                       Reserve began an extensive training program on the proper procedures
                       for processing and reporting eligibility data. The Reserve trained per-
                       sonnel at 114 of its 350 major field activities during fiscal years 1988
                       and 1989. The Navy plans to conduct training at 17 locations during
                       fiscal year 1990.

                       Although the reserve components have efforts underway or planned to
                       improve the quality of data submitted to VA, DOD has not developed a
                       comprehensive plan to oversee these efforts. In an April 1988 memo-
                       randum, WD directed each reserve component to improve the quality of
                       eligibility data. However, DOD'S oversight to ensure that appropriate
                       action was taken was limited. For example, between the April 1988
                       memorandum and November 1988, the DOD action officer for these
                       improvements changed, and the current action officer was not aware of
                       the memorandum until we brought it to his attention. He also was not

                       Page 8                         GAO/AFMD-90-30Montgomery GI BilI ReserveProgram
                       aware of the improvements being made by some of the reserve

                       In April 1990, following a congressional inquiry and based on our
                       briefing of DOD officials on the results of our review of the Program, the
                       Assistant Secretary of Defense issued a memorandum to the assistant
                       secretaries of the military services. The memorandum stated that the
                       preliminary results of our review indicated that the training programs
                       for those individuals who administer the Program at the reserve units
                       are often deficient. The Assistant Secretary directed a review of the con-
                       trols in place to ensure that personnel thoroughly understand the eligi-
                       bility requirements and that eligibility data are properly entered into
                       the system.

                       DOD has established two elements for computing contributions  to the DOD
Contributions to the   Education Benefits Fund: the manpower population count and the per
DOD Education          capita normal cost.’ The DOD Board of Actuaries, which was established
Benefits Fund Are      by the Montgomery GI Bill Reserve Program legislation, is responsible
                       for defining how the reserve components determine the manpower pop-
Inaccurate             ulation count and for determining the per capita normal cost.

                       The DOD Comptroller is responsible for issuing guidance to the military
                       services to implement the Board’s determination. We found that the mil-
                       itary services have not applied the manpower population count as pre-
                       scribed, and the DOD Board of Actuaries has been unable to develop a
                       reliable per capita normal cost. As a result, the monthly contributions to
                       the Fund have been inaccurate.

Manpower Population    Since the Program’s inception, DOD has encountered problems in cor-
Count Not Applied      rectly computing the contributions to the DOD Benefits Education Fund.

                       ‘The manpowerpopulation count consistsof (1) individuals who asof July 1, 1996,enlisted,reen-
                       listed, or extendedan enlistmentln the reservefor a period of not lessthan 6 years and (2) individ-
                       uals who are appointedas,or serving as,reserveofficers and agreedto servein the reservesfor a
                       period of not lessthan 6 years,in addition to any other period of obligatedservice.The per capita
                       normal costis deflled asthe presentvalue of future benefitspayableto memberswho becomeenti-
                       tled to benefitsduring the current year. In establishingthe annual per capita normal cost,four ele-
                       mentsmust be considered:(1) the numberof reservistsexpectedto usethe benefits,(2) time and
                       frequencyof benefit payments,(3) estimateof the percentageof total available benefitsthat will be
                       usedby eachreservist,and (4) interest that is expectedto accrueto the Fund.

                       Page 9                                   GAO/AFMD-90-99Montgomery GI Bii ReserveProgram

. In February 1986, the DOD Office of the Actuary identified and reported
  that incorrect contributions had been made to the Fund.
. In a March 1986 memorandum to the Assistant Secretaries of the Mili-
  tary Departments (Financial Management), the Washington Headquar-
  ters Service Director of Budget and Finance stated that (1) adjustments
  to the Fund could not always be traced back to the specific month to
  which they applied and (2) the fiscal year 1985 per capita normal cost
  had been used to make contributions for fiscal year 1986.
. In an August 1986 memorandum to the Assistant Secretary of Defense
  for Force Management and Personnel, the Deputy Assistant Secretary of
  Defense (Resource Management and Support) pointed out problems
  involving the use of incorrect per capita normal cost and numerous
  arithmetic errors. As a result, the military services were required to
  deposit an additional $4 million into the Fund. Also, the memorandum
  noted that in June 1986, the DOD Comptroller discovered that the mili-
  tary services had used an incorrect population count. As a result, addi-
  tional deposits of about $62 million were required. In addition, because
  these funds were not deposited when required, the Fund lost an esti-
  mated $2.5 million in interest.

  We found that some problems still exist. The reserve components were
  not determining the manpower population count in accordance with the
  prescribed definition, resulting in inaccurate contributions to the Fund.
  The program managers responsible for making the monthly contribu-
  tions for the Marine Reserve and Army Guard stated that they were not
  aware of DOD'S manpower population count guidance and thus had
  applied their own procedures in determining the manpower population
  count. We reviewed the calculations made by the Air Guard, Air
  Reserve, and Army Reserve and found that they were not determining
  the manpower population count correctly.

  The Air Guard did not include accurate data in its manpower population
  count. For example, instead of entering the date reservists signed their
  contracts, the date the information was entered into the system was
  used to compute the 6-year commitment. As a result, the system would
  show that the individuals had not met their 6-year commitment, and
  they were excluded from the manpower population count.
  The Air Reserve used the first day of the month that contract data were
  entered into its system, instead of the actual contract date, as the basis
  for calculating who met the 6-year commitment requirement. Conse-
  quently, contract data not entered into the system during the same

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                                month the contract was signed were excluded from the manpower popu-
                                lation count as the system would show that the reservists had not met
                                their 6-year commitment.
                            l   The Army Reserve did not count some prior-service contracts or any
                                extensions or reenlistments that brought reservists’ contractual agree-
                                ments up to the 6-year requirement.

Reliability of Per Capita       In determining the per capita normal cost, the DOD Board of Actuaries
Normal Cost Is                  relies on various information such as (1) the assumed yield on invest-
                                ments, (2) actual usage rates, and (3) expected number of participants.
Questionable                    However, at the beginning of the Program, no historical data were avail-
                                able to determine a reliable per capita normal cost. This resulted in unre-
                                liable monthly contributions being calculated. DOD was aware that the
                                per capita normal cost has been unreliable and, starting in fiscal year
                                1990, DOD began using a new model-developed by the DOD Office of
                                Actuary-for     determining the per capita normal cost.

                                According to a DOD Office of Actuary official, the new model used infor-
                                mation maintained in the DOD Reserve Components Common Personnel
                                Data System to determine the per capita normal cost. However, this
                                system is the same system that receives and maintains the inaccurate
                                and incomplete eligibility data previously discussed. An Office of
                                Actuary official acknowledged the problem with accuracy of the data in
                                the system. However, the official stated he believed that the portion of
                                the data that they used for fiscal year 1990 is accurate, but did not pro-
                                vide any information to substantiate his position. Further, the official
                                stated that the Office of Actuary had not tested the data prior to using
                                them in determining the fiscal year 1990 per capita normal cost.

                                The Defense Manpower Data Center file manager-custodian       of the
                                Reserve Components Common Personnel Data System-stated that con-
                                cerns had been raised to DOD about the accuracy of the data being used
                                in the new model. She stated that there have always been concerns
                                about the overall accuracy of the data contained in the system because
                                the data provided by the military services are generally bad and the
                                system serves only as a conduit for the services’ systems.

                                Page11                         GAO/AFMD-90-30MontgomeryGIBillReserveProgram

                            DOD and VA have not ensured that all debts owed by Program partici-
Amounts Owed by             pants are properly recorded and pursued for collection. DOD and VA have
Program Participants        not reached agreement on who is responsible for collecting amounts
Are Not Collected           owed by participants who breach their 6-year contract. By matching
                            information obtained from DOD and VA, we identified over 8,200 individ-
                            uals that may owe the government about $6 million. This amount has
                            not been recorded in DOD'S or VA'S accounting records. In addition, VA has
                            not pursued collection of another $10 million owed by Program

                            Title 2 of GAO'S Policy and Procedures Manual for Guidance of Federal
                            Agencies and 4 C.F.R. Section 102 (1985) outline the procedures to be
                            followed in attempting to collect amounts owed to the government. Title
                            2 requires that federal agencies record receivables to maintain account-
                            ability over assets. It also requires that agencies record amounts due
                            from others as an asset when the event giving rise to such claim is com-
                            pleted. Further, 4 C.F.R. Section 102.1 stipulates that federal agencies’
                            collection efforts be aggressive, timely, and comprehensive and lead to
                            the earliest practical collection from the debtor.

                            Also, Office of Management and Budget Circular A-129, “Managing Fed-
                            eral Credit Programs,” prescribes policies and procedures for managing
                            federal credit programs and for collecting loans and other receivables. It
                            also establishes certain accounting and reporting requirements and pro-
                            vides management guidance on extending credit, servicing accounts, col-
                            lecting delinquent receivables, and writing off uncollectible accounts.

Lack of Agreement on        As of June 1990, DOD and VA had not reached agreement on who is
Collection of Amounts Due   responsible for collecting amounts owed by individuals who breach their
                            6-year contractual agreements. DOD has acknowledged that at least $1.4
From Breach of Contracts    million was due the government from these individuals. We believe that
                            as much as $6 million may be owed the government by these individuals.

                            A key requirement for education benefits is that enlisted reservists
                            agree, by contract, to stay in the reserves for at least 6 years. This com-
                            mitment may consist of a reenlistment or an extension to an existing
                            enlistment that adds up to 6 years. For example, an enlisted member
                            who has 4 years remaining on an existing enlistment may extend that
                            enlistment for 2 years and meet the 6-year requirement. For reserve
                            officers, however, the 6-year contract must be in addition to any
                            existing contractual obligation. Individuals who leave the reserves

                            Page 12                        GAO/AFMD-90-30Montgomery GI Bill ReserveProgram

                         before completing their contractual agreement may be required to repay
                         a prorated portion of the benefits they received.

                         We reviewed DOD records to identify those reservists who terminated
                         their service prior to completing their required commitment. As of
                         March 1989, we determined that 8,227 individuals had left the reserves
                         prior to completing their 6-year commitment. Based upon these records
                         and data received from VA, we determined that the individuals could owe
                         the government about $6 million. In performing our analysis, we
                         excluded those individuals that did not complete their 6-year commit-
                         ment but were excused from repaying any of the benefits received in
                         accordance with the criteria governing the Program.

                         DOD identified  1,876 individuals who had breached their contracts as of
                         March 1990 and owed the government approximately $1.4 million.
                         These individuals were identified as having breached their contracts
                         because their respective reserve units reported them as unsatisfactory
                         participants (those reservists who have nine or more unexcused
                         absences in a 12-month period). However, because DOD relies on the
                         reserve units’ reporting of unsatisfactory participants, it was not aware
                         of the additional cases that we identified by analyzing DOD'S records.

                         DOD'S Program instructions,   issued in June 1985, stated that responsi-
                         bility for collecting amounts due because of breached contracts would be
                         addressed in a memorandum of understanding with VA. However, at the
                         time of our review, almost 5 years later, no agreement had been reached,
                         In addition, these amounts have not been recorded as receivables in
                         either DOD'S or VA'S accounting records. In discussing the results of our
                         review with DoD and VA officials, they stated that a memorandum of
                         understanding was being developed to address the collection of these

VA Has Not Pursued the   VA'S procedures specify that debt collection efforts should be prompt
Collection of Program    and should include effective follow-up, using every reasonable means to
                         collect the amounts outstanding. However, we found that VA had not
Debts                    been pursuing amounts owed by terminated Program participants, as
                         stipulated in their debt collection procedures.

                         As of March 1989, VA'S outstanding receivables for inactive cases-
                         excluding the $6 million discussed above-totaled over $10 million. VA
                         classifies inactive cases as those in which the individual is no longer
                         receiving benefits. The $10 million included

                         Page 13                       GAO/AFMD-90-30Montgomery GI Bill ReserveProgram



              . about $4 million in receivables resulting from delays by educational
                institutions in reporting changes in reservists’ academic enrollment
                status, and
              . over $6 million in receivables resulting from inaccurate, incomplete, and
                delayed reporting of eligibility information by DOD.

                  VA'S “Collection Standards” stipulate that when a debtor’s whereabouts
                  are unknown, VA collection personnel should use telephone and city
                  directories, employers, Postal Service records, drivers license records,
                  and state and local government records, in attempting to locate the indi-
                  vidual. We were informed by VA'S St. Louis Regional Office-the office
                  responsible for collecting debts related to inactive cases-that these
                  resources had not been used to locate debtors.

                  VA'S collection efforts of the $4 million in outstanding receivables that
                  resulted from changes in academic enrollment consisted of issuing three
                  demand letters to the reservist’s latest address of record. After sending
                  the letters, VA generally referred receivables of $600 or more to the
                  appropriate VA District Counsel for collection action through the court
                  system. Until March 1989, overpayments of $200 or more were referred
                  to the District Counsel. Those receivables valued at $200 or less were
                  allowed to accumulate from July 1985 to August 1988, when VA for the
                  first time referred most of them to the Internal Revenue Service (IRS) for
                  offset against available tax refunds.

                  In attempting to collect the $6 million that resulted from inaccurate and
                  incomplete data reported by DOD, VA sent the three demand letters. VA
                  officials stated that they had not aggressively pursued these receivables
                  because a collection regulation for the Program had not been developed.
                  They felt a regulation was needed because (1) the amounts owed
                  involved DOD and a new program and (2) VA'S existing regulations did not
                  apply to the collection of these receivables. VA allowed these receivables
                  to accumulate from July 1985 to August 1988, when it referred most of
                  them to IRS for offset.

                  IHSregulations stipulate that an agency should refer the debtor to a
                  credit bureau prior to referring the debts to IRS for offset. However, we
                  found that for the Program debts discussed above, VA had not referred
                  the debtors to a credit bureau.

                  DOD's financial management systems do not provide VA the eligibility
Conclusions       information it needs to initiate benefit payments by the time reservists

                  Page14                         GAO/AFMD-90-30MontgomeryGIBlReserveProgram

                      apply for benefits. The data must be entered and processed by several
                      systems before being submitted to VA. Efforts are underway or planned
                      to improve the timeliness of the data being submitted. However, since
                      these system improvement efforts will not provide information directly
                      to VA, timeliness will continue to be a problem. DOD also has had
                      problems in providing VA accurate eligibility data. The reserve compo-
                      nents have efforts underway or planned to improve the quality of the
                      eligibility data submitted to VA. However, to date, only the Navy has
                      developed a program for training its personnel in the proper procedures
                      for processing the data.

                      We also found that inaccurate contributions have been made to the DOD
                      Education Benefits Fund because the military services have not fol-
                      lowed established criteria. Specifically, the military services are not
                      applying the Board of Actuaries guidance for calculating the manpower
                      population count in a consistent manner. Also, DOD plans to use informa-
                      tion in the DOD Reserve Component Common Personnel Data System to
                      improve the per capita normal cost calculation. However, concerns have
                      been raised about the accuracy of the data contained in the system.

                      In addition, DOD and VA officials have not agreed on who is responsible
                      for recording and collecting debts that arise when individuals breach
                      their 6-year contracts. We estimated that as much its $6 million may be
                      owed by these individuals as of March 1989. In addition, neither M)D or
                      VA has recorded in their accounting records the amount outstanding
                      related to breached contracts. Also, another $10 million owed by Pro-
                      gram participants for other reasons has remained outstanding because
                      VA has not pursued collection of these amounts as required by its own
                      debt collection procedures and those of IRS.

                      To improve the efficiency of the Program, we recommend that the Secre-
Recommendations       tary of Defense establish controls to ensure the following:

                  . Accurate eligibility data should be submitted to VA. At a minimum, such
                    controls should include the training of individuals responsible for col-
                    lecting, processing, and reporting eligibility data.
                  l The military departments should compute the manpower population
                    count in accordance with DOD instructions.

                      Further, we recommend that the Secretaries of Veterans Affairs and
                      Defense establish who will be responsible for collecting amounts owed
                      by reservists who breach their contractual agreements.

                      Page15                        GAO/AFMD-90-30MontgomeryGIBiJlReserveProgrmn

We also recommend that the Secretary of Veterans Affairs direct VA’S
debt collection personnel to (1) pursue the collection of amounts owed
the government by program participants through the use of debt collec-
tion tools outlined in VA’S “Collection Standards” and (2) adhere to IRS
regulations by referring the debtor to a credit bureau prior to submitting
Program debts to IRS for offset.

-4s you requested, we did not obtain written agency comments on a draft
of this report. However, the results of our review were discussed with
responsible DOD and VA officials, and their comments were incorporated
where appropriate. We are sending copies of this report to the Secretary
of Defense; the Secretary of Veterans Affairs; and the Secretaries of the
Air Force, Army, and Navy. Copies will be made available to others
upon request.

Please contact me at (202) 2’769464 if you or your staff have any ques-
tions concerning the report. Major contributors to this report are listed
in appendix II.

Sincerely yours,

Jeffrey C. Steinhoff
Director, Financial Management
  Systems and Audit Oversight

Page 16                        GAO/AFMD-SO-30Montgomery GI Bill ReserveProgram
Page 17   GAO/AFMD-30-30Montgomery GI Bill ReserveProgram
Appendix I

Organizations and Locations Visited DWng
Our Review

               Army Reserve Personnel Center, St. Louis, MO

               97th Army Reserve Command, Ft. George Meade, MD

               Headquarters, First U.S. Army, Ft. George Meade, MD

               Sheridan U.S. Army Reserve Center, Baltimore, MD

               Ohio National Guard Headquarters, Columbus, OH

               Ohio National Guard Armory, Walbridge, OH

               Headquarters and Headquarters Company, 6 12th Engineer Battalion,
               Walbridge, OH

               Air National Guard Support Center, Andrews Air Force Base, Wash-
               ington, DC

               Headquarters 104th Tactical Fighter Group, Barnes Municipal Airport,
               Westfield, MA

               Naval Reserve Administration    Office, Andrews Air Force Base, Wash-
               ington, DC

               U.S. Marine Aircraft Group-49, Detachment, Fourth Marine Aircraft
               Wing, Naval Air Station, South Weymouth, MA

               VA Office of District Counsel, St. Louis, MO

               VA St. Louis Regional Office, St. Louis, MO

               VA Boston Regional Office, Boston, MA

               VA Cleveland Regional Office, Cleveland, OH

               VA Detroit Regional Office, Detroit, MI

               Page 18                        GAO/AFMD-90-30Montgomery GI Bill ReserveProgram
Major Contributors to This Report

                                 Darby Smith, Assistant Director (202) 696-6922
Accounting and                   Otto Williams, Project Manager
Financial Management             Christopher Chaplain, Accountant
Division,     Washington,        Michelle Malone, Accountant


                                 Michael Hosler, Evaluator-in-Charge
Detroit     Re@ona1     Office   Lynette Westfall , Evaluator

                                 Leslie Mahagan, Evaluator-in-Charge
Boston Regional Office

                                 Perry Datwyler, Evaluator-in-Charge
San Francisco
Regional Office

(00301)8)                        Page 19                       GAO/AFMD-90-30Montgomery GI Bii ReserveProgram
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