Shortly after the terrorist attacks of September 11, 2001, Congress passed the Air Transportation Safety and Stabilization Act, Public Law No. 107-42 (the Act). Among other things, this legislation established the September 11 Victim Compensation Fund of 2001 (VCF or the Fund). The Fund was designed to compensate individuals who were injured or relatives of individuals who were killed in the attacks. For fiscal years (FY) 2002, 2003, and 2004, a total of $5.12 billion was budgeted to compensate the victims and their families. According to the Act, the VCF is scheduled to sunset on December 22, 2003; no claims may be filed after that date.

The Act specified that the Attorney General, acting through a Special Master, would administer the program, promulgate procedures and substantive rules, and employ and supervise personnel to perform the duties of the Special Master. The Attorney General appointed a Special Master, Kenneth Feinberg, who, in conjunction with the Department of Justice (Department) Civil Division, developed the VCF regulations and the procedures for processing claims.¹ Mr. Feinberg is a Washington, D.C. attorney who has specialized in mediation, arbitration, and negotiation, and was the Special Settlement Master for Agent Orange litigation. He and two employees of his private mediation firm who are involved in the VCF are providing their services without compensation; the Department is paying for their expenses.²

According to the Department, as of August 14, 2003, a total of 2,205 (1,177 death and 1,028 personal injury) claims had been filed, and of these claims, 451 death and 155 personal injury awards had been accepted or finalized. The remaining 726 death and 873 personal injury claims were denied, temporarily suspended, withdrawn, or were in some stage of processing.

The number of claims that actually will be filed before the sunset date of December 22, 2003, is unknown. During the time of our fieldwork, Fund officials estimated that the total number of paid claims could reach 3,000 death claims and 300 injury claims. However, in their response to the draft report dated September 15, 2003, Department officials indicated that the Special Master is now predicting 3,000 death claims and between 2,500 and 3,000 personal injury claims. If these revised estimates prove accurate, the Special Master and his staff may see an influx of over 3,700 death and personal injury claims in the final four months of the program.

We reviewed various aspects of the Fund to determine how claims were being processed, including the number of claims filed, the amounts paid, the consistency and timeliness of the processing, the adherence of the VCF personnel to the regulations developed in accordance with the Act and procedures for processing claims developed by PwC and the Special Master's office, and the controls in place to identify fraud. We also reviewed the adequacy of the funds budgeted to pay victims and the preparations for the deadline for filing a claim on December 22, 2003.

The Award Process

Each claim begins at the Department's contractor, PwC, where the claim form and supporting documents submitted by the claimant are reviewed against eligibility criteria. The Special Master or his representative reviews each claim and determines the eligibility status. Claimants who meet specific criteria may receive Advanced Benefits that are credited against their final award.

Once a claimant has been determined to be eligible and the information needed to calculate a presumptive award has been gathered, the claim is classified as "substantially complete" and the claim is considered "filed." After the claim is substantially complete, the Special Master has 45 days to present the claimant with a presumed award and 120 days to issue a final award. Also, when the claim is substantially complete, the claimant is barred from pursuing certain lawsuits such as those against the City of New York, the airlines, the airports, the Port Authority of New York and New Jersey, and the security companies involved in the events of September 11.

PwC personnel compute a presumptive award using six automated calculation models prepared for different categories of death claimants: (1) military personnel, (2) employees of the New York City Fire Department and the New York City Police Department, (3) federal employees under the Federal Employees Retirement System (FERS), (4) federal employees under Civil Service Retirement System (CSRS), (5) federal employees covered by both CSRS and FERS, and (6) everyone else.³ Generally, the amount to which a claimant is entitled is computed by calculating the claimant's economic damages, adding non-economic damages, and then subtracting qualified collateral sources such as life insurance.

The economic portion of the award is calculated by determining the victim's post-tax income and then, adding in the victim's employer-provided benefits, such as bonuses and 401K matches. This figure is then increased based on the victim's work?life expectancy and an applicable wage?growth rate. A percentage representing the victim's share of household expenditures and consumption is subtracted, and the final amount is reduced to present value.

The non-economic portion of the award (pain-and-suffering) has been presumptively set at $250,000. For a death claim, $250,000 is awarded for the decedent, $100,000 for the spouse, and $100,000 for each dependent. For physical injury claims, the $250,000 presumptive award can be increased or decreased by the Special Master based on the individual's circumstances.

Once economic and non-economic damages are calculated, qualified collateral sources must be deducted from this total. Qualified collateral sources are the benefits the family of the victim has received as a result of the victim's death or physical injury. Examples of collateral source benefits include: life insurance, survivor pensions, Social Security Death Benefits, past Social Security Survivor Benefits paid to spouses, past and future Social Security Survivor Benefits paid to children and dependent adults, and past and future non-contingent Workers' Compensation Benefits. PwC personnel review the collateral source benefit information provided by the claimants. Ideally, the claimant provides on the claim form all of the information needed to complete the identification and valuation of collateral sources. However, PwC personnel often need to augment the claim through other sources, including the Social Security Administration, the victim's employer, and third-party payors of the benefits.

There is no maximum payout established by the Act or the regulations. However, the regulations establish a minimum award for a single deceased person, before collateral income sources are deducted, of $300,000, and for a married deceased person or a deceased person with a dependent of $500,000. As of June 16, 2003, the average award for a death claim was $1.44 million, and personal injury awards ranged from $500 to $6.8 million.

Fraud Controls

VCF personnel also review claims for fraud as they process the claims. Specifically, fraud detection begins when the PwC staff at the CPC reviews the claims against eligibility criteria. CPC personnel ensure that the names of the victim, claimant, and award recipients, are not on the list of terrorists. They also check the claimants' names against individuals who have already been flagged in the VCF's claim processing system because of suspicious behavior, either with the VCF or with September 11 charities. For death claims, PwC staff request that the claimant submit an original death certificate and at least one other document to corroborate the reported death. They also check that those original documents, including original death certificates and original letters of administration appointing the personal representative, are submitted with claims. VCF personnel stated that "the single greatest fraud protection in place" is the requirement that the claimant be appointed the victim's personal representative because courts usually appoint personal representatives. Moreover, the individuals named as distributees of the award under the claimant's distribution plan must undergo a Federal Bureau of Investigation (FBI) background check before being approved to receive their shares of awards. In addition, physical injury claims require proof of injury through medical records, which are verified through doctors and hospitals.

Fund personnel also require proof of collateral source benefits, usually from employers and the Social Security Administration. They also document the value of airline death benefits that have been paid to the victims. VCF personnel also stated that they are trained to ask probing questions of claimants to determine whether other collateral sources are available.

Audit Testing and Results

We reviewed various aspects of the Fund to determine how claims were processed, including the number of claims filed, the amounts awarded, the consistency and timeliness of the processing, the adherence of the Special Master to the rules and procedures, and the controls in place to deter fraud. We limited our review to the 792 claims that had been filed as of November 13, 2002, the beginning of our audit, and chose samples from these claims for detailed testing. We reviewed claim files for documentation of eligibility, economic loss, and collateral sources, and documents in claim files suspected as fraudulent. For claims included in our samples, we reviewed data from the Victim Claims Management System, a customized database specifically developed to track VCF claims, to determine the status and the timeliness of claim processing. In addition, we interviewed officials from the Civil Division, PwC, and the Special Master's office.

A total of 792 claims had been submitted for payment by the VCF as of November 13, 2002. The status of these claims follows:

Our testing revealed that the number of claims paid as of November 13, 2002, was relatively low. Of the 792 claims that were filed as of that date, only 92 had been issued presumed awards.⁴ For the remaining claims, the largest category (610 claims) was awaiting award calculations, and 585 of those lacked sufficient information from the claimant to calculate a presumptive award. In our judgment, these delays occurred despite efforts by the Special Master and his staff to inform potential claimants of the Fund and to provide them with assistance in the filing of claims.

Shortly before the issuance of the draft report, we requested updated claim statistics from the Civil Division. These figures were received after the draft report was issued, and, while not audited, demonstrate that participation in the fund is still quite low approximately four months prior to the sunset date. The Civil Division reported the following claim status as of August 14, 2003:

The data indicated that of the 1,228 claims waiting presumptive award calculation, fully 1,048 claims lacked sufficient information to calculate a presumptive award.

Our testing to assess the timeliness of claims processing found that once a claim was substantially complete, the Special Master presented a final award amount to the claimant in substantially less than the statutory time frame of 120 days. This was the case for nine of the ten claims in our sample. The remaining claim was still in process during our fieldwork. According to our sampled cases, the average number of days to process substantially complete claims was 35 days.

With respect to our testing for consistency of treatment, in all of the cases that we examined, VCF personnel appeared to process claims in a manner that would maximize award payments. In the cases where discretion was used, we found justification for the amount of the award in the claimant files. For example, we found that although the procedures state that VCF personnel should attempt to calculate representative income from an average of 1998-2001 annual income figures, in some cases VCF personnel eliminated one or more years of income from the average because they were atypically low. The reasons underlying the judgments were documented in the file.

Our testing of fraud controls determined that the controls implemented by VCF personnel appeared adequate to deter fraud. Essentially, fraud controls include, among others: (1) requirements that certain essential documents be certified such as death certificates, wills, and court appointments of personal representatives; (2) submission of third party documentation such as employer verifications, W-2s and Social Security determinations; (3) independent verification by VCF personnel of family structure, medical expenses, and collateral sources; (4) attestation by the claimant that the information provided is true, complete, and accurate; and (5) background investigations of all distributees by the FBI. We believe that these procedures are reasonable and, while time consuming, are necessary to minimize the payment of a fraudulent claim.

In addition, Fund personnel forward any claim that is suspected of being fraudulent to the Department's Office of the Inspector General (OIG) for investigation. As of November 2002, VCF personnel had referred eight cases to the Fraud Detection Office (FDO) within the OIG's Investigations Division.⁷ As of July 2003, the FDO reported the following dispositions:

• two individuals pleaded guilty to making false statements and mail fraud, respectively, and were sentenced;
• one individual was acquitted on all counts but is currently being held by the Bureau of Immigration and Customs Enforcement pending immigration court proceedings;
• judicial proceedings continue against four other individuals; and
• one individual is still under investigation.

We also identified two issues during our review that require continued monitoring and oversight. These issues involve: (1) the large number of claims that could be filed at the last minute just prior to the VCF's sunset date, and (2) whether the $5.12 billion in budgeted funds will be sufficient to pay all claims.

Last Minute Claims: The VCF may experience an influx of claims immediately prior to December 22, 2003, the sunset date for the Fund. According to the Department, the number of claims submitted as of August 14, 2003, was 2,205 (1,177 death and 1,028 personal injury), and the number of awards that had been finalized (track B) and accepted (track A) was 606 (451 death and 155 personal injury). The number of claims that actually will be filed before the deadline is unknown, but Fund officials are now estimating the total number of claims at 3,000 death claims and 2,500 to 3,000 injury claims. Several VCF officials noted that programs such as the VCF usually experience a surge in the number of claim submissions as the filing deadline approaches. VCF officials explained that in anticipation of this surge, they are making efforts now to increase the number of personnel at PwC and at the Special Master's office. In addition, the Special Master has arranged for administrative law judges to be assigned, if necessary, to assist him with additional hearings. In our judgment, these are reasonable, proactive measures to address what may be a very large surge in claim submissions. However, because of the potential volume of claims that could be filed at the last minute, we believe Fund personnel must continually monitor the status of claims processing to be able to respond to a potential surge in claims.

Sufficiency of Budgeted Funds: The Act established a permanent and indefinite appropriation for the VCF. Through 2004, $5.12 billion was budgeted for the VCF to compensate victims and their families, which appears adequate for anticipated claims at the current average award levels and should be sufficient to pay all of the potential claims against the Fund. The expected amount for physical injury claims is difficult to quantify because awards vary considerably depending on the specific conditions of each case. However, based on the final awards as of August 14, 2003, as provided by the Department, the average personal injury award was $159,072.⁸ If we apply this average to the 3,000 claims estimated by the Special Master, and account for the one awarded and three anticipated high-dollar awards, personal injury awards would total approximately $504 million. If the anticipated 3,000 death claims are awarded at the average death award experienced by the VCF through August 2003, as calculated from the figures supplied to us by the Civil Division, the Fund will show a surplus of about $27 million, as follows:

On January 25, 2003, several potential claimants filed a lawsuit against the DOJ, the Attorney General, and the Special Master. Similar lawsuits were filed on February 14, 2003, and February 20, 2003. Among other issues, the plaintiffs expressed concern about the use of after-tax income to compute economic loss and alleged that the $231,000 limitation on income creates an unlawful cap. The court heard oral arguments for all three lawsuits on April 14, 2003, and ruled against the plaintiffs on all issues on May 8, 2003. Colaio et al. v. Feinberg et al., No. 03-CV-558, (S.D.N.Y. May 8, 2003). If the District Court's ruling is appealed and overturned, the above computation would require adjustment, and the Fund might require a significant increase in funding. However, if the Court's ruling is not overturned and the above estimates hold true, the Fund may have a surplus of approximately $27 million.

The details of our work are contained in the Results of Review section of this report. Our audit scope and methodology are detailed in Appendix I.

1. The regulations for the September 11 Victim Compensation Fund of 2001 are codified at 28 CFR Part 104 at 11233 (March 13, 2002).
2. The Department contracted with the accounting firm of PricewaterhouseCoopers (PwC) in January 2002 to assist the Special Master and his staff with the administration of the Fund. PwC operates the Claims Processing Center (CPC) in Arlington, Virginia.
3. At the time of our fieldwork, PwC was using six calculation models. In their response to the draft report, Department officials indicated that a seventh model was now in use designed for Employee Retirement System (ERS) Port Authority civilians.
4. Of these 92 claims, 7 claimants had been paid, 60 awards had been accepted by the claimants but not yet paid, 8 claimants had requested a hearing with the Special Master, and 17 claimants had not yet responded.
5. In order to calculate a presumptive award in a death claim, the Special Master requires, among other documents, copies of all tax returns filed by the victim for 1998-2000; written proof of salary/wages for 1998-2001 and all other compensation received during those years (bonuses, commissions, overtime); evidence of employer-provided benefits during 2000 and 2001, including health benefits, pensions, transportation/club/housing allowances, and 401k; life insurance policies and payments; Social Security and Workman's Compensation applications and determinations; and a certified copy of the will, if applicable. In addition, VCF personnel independently collect other documentation, such as obituaries, that support the number of the claimant's asserted dependents.
6. The number of potentially fraudulent cases is still reported at 17; however, the Civil Division did not indicate the categories of these 17 claims in the statistics supplied to us.
7. The FDO is a centralized, specialized investigative office in Washington, D.C. that pro-actively uncovers instances of fraud in connection with Department programs and operations. Staffed by special agents and forensic auditors, it reviews and investigates allegations of payment irregularities in contracts, grants, medical services, the management and sale of seized assets, and the falsification of applications for benefits that fall under the Department's statutory authority.
8. The Civil Division provided us with unaudited claim statistics current as of August 14, 2003 for 155 personal injury awards. In order to calculate the average personal injury award, we omitted the highest personal injury award to date, $6.77 million, as it exceeded the next highest award by over $5.5 million. We projected the average of the remaining 154 awards to the anticipated 3,000 claims. The Special Master's office indicated that there might be three additional awards that are similar in amount to the $6.77 million award. Therefore, in order to account for these claims, we projected $27 million for the four awards.