The Department of Veterans Affairs mismanages its program for rating disabled veterans as “unemployable,” according to a new report by congressional auditors.

Because of weak oversight of Individual Unemployability (IU) benefits, some veterans get more compensation than warranted, and the VA is ineffective in moving seriously disabled veterans toward productive working lives, the Government Accountability Office has found.

Overall, the process VA uses to determine whether veterans are unemployable lacks integrity, GAO decided after 15 months of study. Its May 30 report says VA criteria, guidance and procedures for awarding such benefits “do not ensure that IU decisions are well-supported.”

The number of disabled veterans rated IU and the cost of their benefits have risen sharply in recent years. From fiscal 1996 through 2005, veterans rated unemployable tripled from 71,000 to 220,000. In the same period, IU payments jumped from $857 million a year to $3.1 billion.

The “marked increase” is troublesome, GAO said, because it has occurred “at a time when advances in medicine and technology, along with labor market changes, have provided greater opportunity for people with disabilities to seek and maintain employment.”

The 54-page report has been much anticipated by members of the Veterans’ Disability Benefits Commission, which is conducting the first major review of veterans’ disability benefits in 50 years. The commission, which will deliver a final report to Congress by October 2007, has listed among its priorities a finding on whether IU benefits need reform.

Veterans with injuries or ailments tied to time in service can receive tax-free VA compensation. Amounts vary based on the severity of disabilities, which are rated on a scale of 0 to 100 percent in increments of 10.

Veterans rated 60 percent to 90 percent disabled still can qualify for compensation at the 100 percent level if they are deemed to be unemployable and therefore qualify for the IU designation.

Almost half of all veterans with 60 percent to 90 percent currently receive the IU benefits. It means a significant pop in payments. Based on VA disability compensation rates effective for most of 2006, 100 percent disabled veterans and those with the IU designations with no dependents draw $2,393 a month. By contrast, veterans rated 60 percent receive $873 a month and the scale slides to $1,436 a month for 90 percent disabled.

So a 60-percent disabled veterans designated IU will receive an additional $18,240 a year. The disparity widens even more if veterans have spouses or dependent children.

GAO estimates that the added lifetime value of IU designation for a 20-year-old, 60-percent disabled veteran is more than $460,000, in 2005 dollars. If a veteran doesn’t gain IU status until age 75, says GAO, the lifetime compensation still would jump by $89,000 to $142,000, depending on disability rating and life expectancy.

Why the spike in IU determinations? Appearing before the benefits commission last year, VA officials blamed a 1999 decision to stop requiring IU veterans to complete a form each year to verify that they remain unemployed or earning incomes below the poverty level. VA began asking IU veterans to complete the forms again last September.

One senior VA official also told the commission that awarding IU status was a way for rating specialists to help clear a rising backlog of claims.

The GAO report, however, points to more systemic problems with how IU benefits are administered. It suggests the VA is less conscientious than either the Social Security Administration or private sector disability plans in monitoring employability and encouraging beneficiaries to return to work.

Here are some IU issues raised in the report:

Age is no factor: There is no age ceiling on eligibility for IU benefits. Though IU is compensation for being unable to work, benefits continue or even begin at ages when many Americans are retired. GAO said 79 percent of new IU beneficiaries are 60 or older and 19 percent are 75 or older.Tools are weak: VA rating specialists are tasked with determining whether IU claimants can work, but VA regulations don’t provide criteria or guidelines to make such assessments. In 2001, VA officials proposed new IU guidelines. Veterans groups so strongly opposed the changes that the proposed regulation finally was withdrawn last December.Skills not accessed: GAO in 1987 recommended that VA vocational counselors assess how disabilities of IU applicants affect job skills and work potential. The recommendation has been ignored. Some rating specialists said that without vocational assessments to consult, they must base IU awards solely on medical reports. Those reports are prepared by clinicians not trained to conduct examinations to support employability.Income is poorly tracked: The VA doesn’t aggressively use IRS, Social Security Administration or even more up-to-date records to verify whether veterans are still unemployed or have earnings modest enough to remain eligible for IU. The VA’s “income matching process” relies on old data and time-consuming manual reviews of files of information.Decisions are shaky: Some rating specialists told GAO they “may have awarded IU benefits to some veterans who appeared to be employable.” They did so expecting benefits to be stopped once income matching occurs and earnings pop above the IU threshold ($9,570 for individuals in 2005).VA officials concurred with the report, but steps to improve IU management don’t go far enough, GAO suggested. It urged more steps to ensure that IU decisions are well-founded, that earnings are effectively tracked, and that veterans are helped and encouraged to return to work. GAO is expected to brief its report to the disability benefits commission.

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