Secretary of Veterans Affairs Denis McDonough was not notified that VA leaders planned to give big bonuses to more than 180 senior executives in Washington until they were awarded.

Secretary of Veterans Affairs Denis McDonough was not notified that VA leaders planned to give big bonuses to more than 180 senior executives in Washington until they were awarded. (Craig Hudson for The Washington Post)

Veterans Affairs leaders improperly handed out almost $11 million in bonuses to more than 180 senior executives last year, with several taking home more than $100,000, a new investigation has found.

The bonuses came from funds that Congress earmarked to recruit and keep staff needed to process billions of dollars in new veterans benefits — not to reward top officials in Washington.

When Secretary Denis McDonough learned of the payments in September, he ordered all of the executives to repay VA. But the bonuses still are being recouped eight months later because many who received the money had already spent the checks, and some are challenging the order, according to a 92-page report by Inspector General Michael Missal’s office, obtained by The Washington Post ahead of its public release on Thursday.

The episode exposes a litany of blunders and missing safeguards within VA as its top leaders disregarded rules to hand payouts to all career senior leaders in the D.C. headquarters of the health and benefits systems — then failed to keep McDonough and others informed about the plan, Missal’s office found.

“The missteps … clearly had the potential to damage the confidence placed in VA by veterans, employees, taxpayers and members of Congress,” the report said.

In his response to a draft of the report, McDonough concurred with numerous recommendations, including the need for better assessments of future bonuses, a new review of previous awards and more oversight from VA’s legal office. McDonough also pledged to decide whether the leaders who approved the improper payments should face discipline.

“VA intends to learn from [the] findings to execute on these important authorities to better effect for Veterans, and consistent with congressional intent, VA policy, and best management practices,” the secretary wrote.

The vast majority of the payouts investigated by the inspector general went to senior executives inside the massive veterans health system, led by Shereef Elnahal, undersecretary for health. Elnahal signed off on 148 bonuses to headquarters executives averaging $61,666 — but repeatedly did not notify McDonough, investigators found.

The report also concludes that Joshua Jacobs, Elnahal’s counterpart leading another arm of VA, the Veterans Benefits Administration, approved 34 bonuses at an average of $50,000. He told McDonough that he was awarding bonuses to some headquarters executives but did not make clear that all of them would receive the money, investigators found.

The highest bonus was $106,473, and seven executives took home over $100,000.

Neither Biden administration appointee, both of whom were confirmed by the Senate last year, conducted an analysis of whether bonuses were justified for any of the 182 senior leaders in Washington who received them, and provided no data to document that any of the executives were at risk of quitting and should be paid extra to keep them at VA, the report found — a process that ran contrary to VA policy and lawmakers’ intent for the funds.

Multiple offices — from human resources to the legal department — that should have flagged the bonuses did not, causing what investigators described as a “breakdown in leadership and controls and missed opportunities at multiple levels.” The report also cites “insufficient transparency” by top health system officials, “excessive deference” by personnel officials who showed an “apparent reluctance to question whether the awards were proper even when their subordinate staff raised concerns” and “missed opportunities” by VA’s legal office.

Before the bonuses were approved over two pay periods in August and September, “there had been various opportunities in the preceding months for review and discussion” among the secretary and his top staff, the report found, “as well as multiple layers of review from senior officials” outside the health and benefits systems.

When he canceled the headquarters bonuses in September, McDonough told members of Congress that his agency had made a “policy error” and “was overly broad in the way [it] implemented and executed this authority.”

Bipartisan leaders of the House and Senate committees that oversee VA told McDonough soon after that disclosure that the bonuses went against their plans. The use of “incentives … to boost pay of senior executives at VA rather than bolster staffing for critical shortage positions requiring highly skilled individuals” was “contrary to congressional intent,” the lawmakers wrote.

McDonough asked the inspector general to investigate in September, and Missal launched a probe of how the bonuses were awarded. His office, however, did not look at similar bonuses awarded last year to 187 senior executives working outside of D.C. in hospitals and regional health and benefits offices. McDonough did not move to cancel those awards, which came to an average of $50,000 and added another $10 million expense; the inspector general found they were outside the scope of this investigation. McDonough did not comment in the report about why he left these bonuses in place.

The bonuses were all awarded thanks to an unusual incentive program Congress included last year in the Pact Act, which provides billions of dollars for veterans exposed to toxic burn pits and other health hazards. Anticipating an increase in veterans enrolling in VA’s health care system and a surge in disability claims, lawmakers wanted to help the agency recruit new hires and retain employees with “high-demand skills” — including in human resources, information technology, housekeeping or medical care — or in occupations facing labor shortages “and whose employment serves a critical need.”

Senior executives were not explicitly excluded by the legislation. But those who work in Washington are relatively removed from implementing the Pact Act and generally responsible for setting policy as opposed to working on the ground.

By October, VA had extended these incentives to more than 29,000 new hires and those at risk of leaving in various fields totaling approximately $255 million. About 92 percent of this money went to employees in 35 occupations essential to the day-to-day operation of VA facilities, according to the report.

In March 2023, Elnahal announced at a conference that senior executives stationed outside of Washington would receive bonuses of 25 percent of their annual base pay under the program. He and his team then decided to extend the awards to executives working in the D.C. headquarters. In contrast, standard bonuses for the highest-performing senior executives at VA do not exceed 10 to 12 percent of base pay. Jacobs then concluded that his senior leaders should get them too, the report says.

Some other top officials reached an opposite conclusion, though. Leaders of the National Cemetery Administration declined to pursue any bonuses “because they did not believe they had a justifiable reason to do so,” the report found.

Elnahal told investigators that when he later signed off on awards for headquarters staff, he was not aware that the health system had so many senior executives. “I had no idea that we had upwards of 150 of them,” he said, according to the report. “I think if I had known that, my management instinct would be to get the same level of justifications together and the costs [as for the field executives].”

In the report, investigators disputed his recollection, citing an emailed spreadsheet Elnahal received that listed each leader who was due to receive a bonus. Elnahal explained in a follow-up interview that he was traveling and viewed the email on his phone, but had not opened each tab of the spreadsheet to see the full list.

Elnahal also told them that shortly before the bonuses were scheduled to go out, he was out of the office and asked his staff to confirm “that the Secretary was aware and that they had been cleared to proceed.” Elnahal said that due to miscommunication, he mistakenly believed the secretary was aware of the bonuses.

The justification for the headquarters awards was thin, the report found, with no details about the executives’ skill sets and whether they were in high demand. The approach focused instead on the outcome VA leaders wanted, a generous pay bump, “and then compiled generic justifications for the additional pay that cited the importance of these executives in leading their administrations or offices.”

Since the executives already had been hired by VA, retention, not recruitment, appeared to be the goal. But Jacobs told investigators that senior executives on the benefits staff had a turnover rate of just 2.4 percent and that “retention numbers are better than the six-year average” even though workloads had been increasing.

“There did not appear to be a valid retention concern supporting these incentives,” the report found. It further noted that as a result, “the blanket award of [bonuses] to all … central office executives at the highest allowable percentage without sufficient justification was inconsistent with both the PACT Act and VA policy.”

McDonough told investigators that he was mindful of the cost of incentives and had tried to slow the process for several months by seeking answers. He said he was told that a only small number of Washington executives would receive bonuses. But he and his acting deputy were caught off guard when the agency’s chief financial officer notified them in mid-September that a total of 367 senior leaders — a figure that includes the group outside of D.C. headquarters as well — had already been paid $19.7 million, with another 21 in the queue, the report said.

All but a handful of the headquarters bonuses had gone through without the secretary’s knowledge, the report found. The bonuses were unnerving to a number of officials who learned about them at the time.

“I can’t even give a GS employee a special contribution award for $250 without writing an entire page about how great they are and forms and process,” a senior human resources executive told investigators. “And this, with a stroke of a pen and three sentences, they’re saying these folks are critical because they’re critical, giving all these people this huge amount of money.”

Similarly, Deputy Counsel for Legal Operations Brent Pope said that when he reviewed the health system’s justification after the awards were questioned by the secretary, it was thin. “I honestly couldn’t believe it. I said, ‘Is that all that was there?’” Pope told investigators that he was incredulous that senior executives in the health system “were all given 25 percent and the justification was … two sentences.”

Yet the awards went through VA’s massive bureaucracy - noticed but not stopped.

VA is now in the midst of a legal review of the effort to recoup the bonuses. McDonough told the inspector general’s office that he will ask VA’s Office of Accountability and Whistleblower Protection to determine, based on Thursday’s report, whether any disciplinary action is warranted against the leaders involved in the bonuses.

Among the inspector general’s recommendations is that McDonough also thoroughly investigate whether the bonuses to staff outside D.C. were also properly awarded.

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