By Stephen Spotswood

WASHINGTON — Recent investigations conducted by oversight committees have revealed serious flaws in VA’s fiduciary system, which, according to legislators and many veterans’ advocates, is plagued by fraud and lack of oversight.

The fiduciary system is the process through which an individual is put in charge of a veterans benefit payments when veterans are unable, due to injury or incompetence, to handle their money themselves. Usually, the fiduciary is a family member, but, VA, in some cases, looks for a paid fiduciary or, when the process goes through state court, a court-appointed fiduciary.

Evidence shows that the current system has little oversight of these paid fiduciaries, allowing for numerous cases of fraud. Testimony from family members and veterans advocates also suggest that the system can be cold and impersonal, creating great strain and stress on families already dealing with an injured or ill loved one.

Lack of Oversight Leads to Fraud

VA’s fiduciary program currently oversees 95,000 paid and unpaid fiduciaries managing the affairs of 121,000 beneficiaries. Last year, VA awarded $53.5 billion in compensation to veterans, of which $171 million was overseen by fiduciaries.

 It was only in April 2011 that VA established an office to specifically oversee the program, the Pension and Fiduciary Service and that was in response to GAO recommendations that VA needed to strengthen oversight of paid fiduciaries.

According to VA, the agency always looks for the least-restrictive fiduciary method for a beneficiary. First, veterans are asked who they want appointed. If that person cannot qualify, VA looks to family members or other family members. If that fails, only as a last resort does VA seek a paid fiduciary.

To qualify, a person must be willing to perform the service and have no criminal history or bad credit. They are paid a maximum of 4% of the benefits they oversee. According to VA, only 8% of the 121,000 veterans who have fiduciaries pay such a commission.

Most of the problems, however, lie with paid fiduciaries. These are not VA employees but professional fiduciaries who make part of their living by overseeing the finances of others.

In December, a fiduciary and a VA field examiner were convicted in Tennessee of embezzling almost $900,000 from 10 veterans’ accounts that they oversaw. Staff of the House VA Oversight Committee also found a case where VA arbitrarily removed a veteran’s wife as his fiduciary after what VA categorized as 10 years of excellent service, replacing her with a paid fiduciary.

The committee also found evidence of fiduciaries taking 5% of a veteran’s entire income, not only funds received for disability compensation.

Also, hired fiduciaries have no minimum education requirement. According to the House investigators, in one case, a single mother who had only one semester of community college and works full-time was made fiduciary for 43 veterans.

During a recent hearing on the subject, legislators asked Tom McLenachen, director of VA’s Pension and Fiduciary Service, whether he felt this woman was qualified to serve in that role. 

McLenachen would not give his personal opinion but said, “Currently there is nothing that would prohibit her from serving in a fiduciary role.”

He also admitted that VA needs to more strongly identify the responsibilities of the fiduciaries as well as the rights of the veterans.

“The fiduciary system is a challenge,” McLenachen said. “It’s a stovepipe system that exists outside of VA’s database.”

According to McLenachen, one of the first things he did upon taking his job six months ago was to initiate a complete review of the current regulations. “I think there’s a need to update all of those regulations,” he said.

Under McLenachen’s direction, VA has initiated a complete review and revision of the regulations and procedure manuals.