The September 11 Victim Compensation Fund of 2001
Report No. 04-01
Office of the Inspector General
Fund officials developed rules and procedures in accordance with the Act and are operating within that framework. The awards are being made in a consistent and timely manner. Established fraud controls also appear adequate to minimize the risk of a fraudulent payment. Current funding for the VCF for FYs 2002 through 2004 appears sufficient to pay all claimants. Fund personnel are planning appropriately for a potential surge of claims as the application deadline draws near by increasing the number of contract personnel and utilizing administrative law judges to conduct hearings with claimants.
Our review concentrated on three primary areas of claim processing: (1) determination of eligibility, (2) verification of the victim's income, and (3) confirmation of the proceeds from collateral sources. We compared VCF activities in these areas against a random sample of 10 claims from a universe of 92 claims that had been issued presumed award letters. Our sample contained nine death claims and one physical injury claim.
The VCF procedures require that each death claim establish eligibility through: (1) a death certificate, (2) at least one other document that confirms the victim's presence at one of the designated locations on September 11, (3) an original court document appointing a personal representative to represent the deceased, and (4) proof that all interested parties have been notified that the claim is being submitted. Physically injured claimants must substantiate their presence at one of the specified locations on September 11 and provide medical records establishing the nature of their injuries and the dates of treatment. For each of the nine death claims in our sample, we verified that the file contained an original death certificate and at least one other document that substantiated the victim's death on September 11, usually a statement from the victim's employer that the victim was at work on that date. Each death claim file also contained an original court document appointing a personal representative and proof of notification of the claim to other interested parties. For the one physical injury claim in our sample, the claim file contained original medical records and a statement from the victim's employer that he had been working around the World Trade Center on September 11.
Our review was limited to the claims that were submitted by November 13, 2002, the date of the entrance conference for this audit. Of the 792 claims that had been submitted as of that date, 73 claims were denied by the Special Master or withdrawn by the claimant. We selected a sample of 10 of these 73 claims (9 denied and 1 withdrawn) to determine whether the reasons for denying a claim were consistent and whether the reasons for both denials and withdrawals were documented in the claim files. In our sample, one claim was withdrawn because the claimant did not realize that she would be forfeiting her right to sue. In our review of the nine denied claims, one was a death claim that was disqualified because the claimant was not the proper personal representative. The remaining eight claims were physical injury claims that were denied because of insufficient documentation of the victim's presence at one of the specified sites, the victim was not treated by medical personnel within the requisite period of time (72 hours for rescue personnel and 24 hours for all others), no medical records were provided, or the injury did not meet the qualifications established in the regulations. VCF officials denied five of these eight claims for more than one of the listed reasons.
Our review disclosed that all of these files were adequately documented with the reason(s) for the denial. Based on our review, VCF officials are consistently applying the criteria for claim eligibility and properly documenting the decisions made about these claims, and are substantially in compliance with procedures for verifying claimant eligibility.
The VCF procedures require claimants to submit documentation to verify the victim's income for calendar years 1998 through 2001. This documentation includes tax returns, year-end payroll statements, Internal Revenue Service (IRS) W-2 forms, pension benefits, and the cost of employer-provided benefits. We reviewed our sample of ten claims to determine how the VCF staff calculated the victim's income for input into the calculation model and whether these income calculations were made consistently. The victim's income was only required for the death claims, which comprised nine of the ten claims in our sample. The income of the physically injured claimant was not applicable to his claim, because the award did not include any future work limitation. For eight of the nine death claims in our sample, VCF personnel verified the last four years of the claimant's income through tax returns or employer statements. In the remaining death claim, VCF staff members did not find any income for 1998.
The Special Master has the discretion to use this income information or to modify it as he deems necessary to arrive at an income amount that is most representative of the victim's future income. This discretion is specifically stated in Section 104.43 of the regulations:
Similarly, the VCF procedures that PwC follows in computing the victim's representative income to be used in the calculation model also allow discretion.
In accordance with these procedures, PwC provided reasons in the claim files for excluding one or more years of the victim's income from the calculation of representative income. For seven of the nine death claims that we examined, the income used in the calculation model was higher than the 4-year average. Although VCF personnel are varying the number of years used to calculate the victim's income, this practice is in compliance with the regulations and VCF procedures. The Special Master stated that he wants to give claimants every consideration in determining the award amount and to include as many claimants as possible in the Fund. Based on our review of these claims, VCF personnel are compliant with the procedures for verifying the victim's income.
The Act requires that the award calculation be based on economic loss plus noneconomic loss less collateral sources of compensation.12 Because of the nature of collateral sources, verification of their existence can be difficult. For example, if a victim has purchased a life insurance policy privately, its existence would be unknown to Fund personnel and difficult to identify. Therefore, the claim form requires the claimant to verify the accuracy of the information included on the form "under penalty of law." Our sample of ten claims included nine death benefit claims and one personal injury claim. All of the nine death benefit claims included offsets for one or more of the following (frequency of type in parenthesis): pensions (1), life insurance (6), social security (4), workmen's compensation (7), employer death benefit (4), or special fund benefits (3). The personal injury claim had no offset for collateral sources of income. The claim files included notations showing that the case manager verified the collateral sources.
We examined whether Fund personnel were consistent in the calculation of award amounts. We reviewed the use of calculation models, the Special Master's consideration of extraordinary circumstances, the valuation of physical injury claims, and the treatment of awards for high-income victims. We further reviewed the timeliness of the award process, the sufficiency of budgeted funds to pay all potential claimants, and the preparations that the staff have made for a last-minute influx of claims. Each of these areas is discussed below.
When the Fund was established, the Special Master established a presumed award methodology. PwC then created calculation models for computing presumed award amounts for each claimant. We tested the veracity of the presumed award amounts generated by the calculation models. Using the PwC calculation models and actual presumed award calculations provided to us, we were able to replicate the calculation model's results for the two claims selected.
After submitting the claim form and receiving notification of the presumed award amount generated by the calculation model, the claimant can elect to attend a hearing with the Special Master. At this hearing the claimant presents additional information describing "extraordinary circumstances" that could entitle the claimant to an award amount greater than the presumed award amount. We found that the Special Master made a finding of extraordinary circumstances in 5 of the 92 claims that received presumed award letters. We reviewed these five claims to determine: (1) what circumstances the Special Master considered extraordinary to warrant an award above the presumed award amount, and (2) whether the reasons behind the Special Master's findings of extraordinary circumstances appear to be consistent.
When the Fund was established, the Special Master set the noneconomic portion of the award (pain and suffering) for death claims at $250,000. Therefore, even if claimants were not entitled to any economic loss because of large collateral source offsets, they would still be awarded the $250,000 for noneconomic loss. In two of the five extraordinary circumstances claims, the result was less than $250,000 after the calculation model computed the economic loss, added the noneconomic loss, and reduced this amount by the collateral source offsets. Therefore, these claimants received an increase to raise the presumed award amount up to the minimum of $250,000 for noneconomic loss, but no additional amount. In the other three cases, discretionary amounts were awarded, in addition to the presumed award amount, for extraordinary circumstances as follows:
These decisions fall within the discretion provided to the Special Master in the Act.
We reviewed all four of the physical injury claim awards issued as of November 13, 2002, to determine whether the Special Master is consistent in his valuation of noneconomic loss for physical injuries. Two of the injuries appear relatively serious in comparison to the other two. The Special Master awarded $7,500 to a claimant who suffered corneal abrasions, and $15,000 to a claimant who suffered an ankle fracture and a temporary disability. On the other hand, the VCF awarded $250,000 to a victim with burns, fractures, and a permanent partial disability and $5 million to a totally disabled claimant who suffered severe burns. Again, these decisions fall within the discretion of the Special Master.
The maximum starting income used in the calculation model for the presumed award is $231,000 per year, which, according to VCF officials, represents income in the 98th percentile for the country. This limitation is one of the major criticisms of the calculation models raised by relatives of high-income victims. The VCF's website explains that the Special Master limited income to this point because calculations of larger awards would be highly speculative and would not be necessary to meet the financial needs of the claimant. In addition, the website notes that limiting income to $231,000 in the calculation model lessens the disparity between the awards of high-income and low?income victims. High?income claimants can request hearings with the Special Master to present their cases.
In our review of the 92 claims for which presumed awards had been issued, we identified 8 claims with $231,000 entered as the victim's representative income in the calculation model. Review of the 8 high-income claim files revealed that for 6 of the 8 claims, the 4-year average of the victim's actual income was greater than $231,000. For the remaining two claims, the 4-year average of the victims' actual incomes (including an annualized amount for 2001) were less than $231,000 each. However, the projected amounts of these two victims' incomes for all of 2001 indicated that they would have earned more than $231,000 each during that year. We determined that only one of these eight claimants requested a hearing with the Special Master. Based on our review, we concluded that the VCF staff has consistently applied the $231,000 limitation to the victim's income when using the calculation models.
We reviewed a sample of 10 of the 92 claims to determine the timeliness of their processing. We identified three key process dates: the date the claim is substantially complete and considered filed, the date the presumed award amount letter is sent to the claimant or the claimant is notified of eligibility, and the date the final award amount letter is sent to the claimant. The VCF only deems a claim "filed" once it is "substantially complete," meaning that the claimant has submitted all the information needed to establish eligibility and calculate a presumptive award. Under Section 104.31 of the regulations, the VCF has 45 days after a claim has been filed to notify the claimant of the presumed award amount (Track A claims) or of the claimant's eligibility (Track B claims). (See Appendices II and III for the definition and discussion of Track A and B.) For 9 of the 10 claims in our sample, the length of time between the date the claim reached substantially complete status and the date VCF personnel presented a presumed award amount to the claimant was less than 45 days. VCF personnel explained that 1 claim required 77 days because of the claimant's indecision in selecting Track A or Track B. VCF personnel noted that the claimant initially selected Track B and the VCF staff prepared to schedule a hearing, but the claimant decided to switch to Track A. By the time the claimant switched from Track B to Track A, the 45-day time limit had already passed. For all 10 claims, the average number of days that passed between the date filed and the presumed award date was 12 days. The shortest length of time between these two dates was 1 day, and the longest was 77 days. Based on this analysis and using the "filed" criteria, we concluded that VCF officials are compliant with the 45?day requirement to notify the awardee.
Under Section 405(b)(3) of the Act, VCF personnel must provide the claimant with a final award within 120 days of the date the claim was filed. For 9 out of 10 claims in our sample, the length of time between the date the claim reached substantially complete status and the date VCF personnel presented a final award amount to the claimant was less than 120 days. The shortest length of time between the date that the claim was substantially complete and the date that a final award amount was presented was 10 days, and the longest was 116. The average was 35 days. The remaining claim was still in process during our fieldwork. Based on our review, and using the VCF's definition of "filed," we determined that VCF officials met the 120?day time limit specified in the Act.
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 $159,072.13 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. In one of the lawsuits, a plaintiff alleged that although the calculation methodology computed her award to be between $14.5 and $15 million, the Special Master informed her that he would only allow her a $4.5 to $6 million award. The plaintiff alleged that the expert she hired to do an independent analysis of her claim found that the plaintiff should be entitled to an award between $28.5 and $40.1 million. 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 challenged and the above estimates hold true, the Fund may have a surplus of approximately $27 million.
According to the Department, as of August 14, 2003, 2,205 claims had been submitted, and 606 awards had been finalized or accepted. The number of claims that actually will be filed before the December 22, 2003 deadline is unknown. Furthermore, the Civil Division informed us in its response to the draft report that the Special Master hopes to arrange for major advertising to run beginning in September 2003 to notify potential claimants that time is running out. 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 the Special Master with additional hearings. Based on these efforts, we concluded that the VCF is appropriately preparing for this anticipated surge in claim submissions.
We reviewed the established claim process to determine what controls Fund personnel have implemented to minimize the possibility that a payment will be made on a fraudulent claim. We examined the claimant files that the VCF staff identified as potentially fraudulent, noted the actions that the VCF had taken to support these suspicions, and spoke with investigators about those claims that had been forwarded to their unit.
Primarily, VCF personnel rely on multiple verifications of each claimant's eligibility, economic loss, and collateral sources to detect fraud. For instance, to verify the victim's death, VCF officials require primary documentation, such as a death certificate, with secondary documentation, such as an employer's affidavit that the victim was at a specified site on September 11. To combat fraudulent representations of income, VCF officials review both the victim's IRS W-2 forms and the Social Security Administration's payment histories. During the claim review, the victim's tax returns and the family structure reported in the obituaries are used to confirm the number of dependents. As a result, several VCF personnel stated they believed it is highly unlikely a claimant would be able to move a false claim through the entire system.
Despite their efforts, VCF personnel noted that valuation fraud, specifically of privately purchased collateral sources, could escape detection. For example, one official noted that a victim's individually purchased life insurance policy, which was not reported on the claim form, would be "virtually impossible to detect." VCF personnel stated that they rely on the threat of prosecution to prevent this fraud.
The Fund's use of multiple sources to corroborate claim information has been effective in identifying suspected fraudulent claims. In particular, many of the 17 claims identified as possibly fraudulent were for victims whose names were not found on any of the victim lists. Also, in several cases, verification of a document with its creator, such as medical records through the named hospital or a death certificate from a foreign country, exposed the document as fake. When a claim is suspected to be fraudulent, PwC officials send the claim to the Special Master's office. If the Special Master's office agrees, the claim is sent to the Fraud Detection Office (FDO) within the OIG's Investigations Division or to the FBI.14
Of the 17 claims that the Special Master identified as potentially fraudulent, 8 claims were determined not to be fraudulent and were returned to processing. Of the remaining nine claims, the Special Master referred eight cases for investigation to the FDO and one to the FBI. As of July 2003, the FDO reported the following dispositions:
It is also important to note that the FDO is working with State Regional Fraud Task Forces and other OIG investigative field offices to bring these cases to closure. Based on our review of these claims and the VCF's claim processing procedures, we concluded that the controls to detect fraud are reasonable.
We found that VCF personnel substantially comply with the rules and procedures developed in accordance with the Act. Based on our review of a sample of claims, VCF personnel process claims and issue awards in a consistent and timely manner. Controls incorporated into the system are reasonable to identify potentially fraudulent claims and serve to minimize the risk of a fraudulent payment. The VCF appears to have sufficient funds to pay all claimants considering the dismissal by the District Court of three lawsuits against the VCF. In anticipation of a large influx of claims as the sunset date approaches, Fund personnel are taking appropriate steps to prepare for this potential surge of claims, primarily by increasing staff.