Department of Veterans Affairs

Recommendations and Actions

DVA12: Improve Business Practices Through Electronic Commerce


Electronic commerce offers significant potential for cost savings and improved funds accountability in Department of Veterans Affairs (VA) programs and operations. Electronic commerce encompasses electronic data interchange, electronic funds transfer, electronic benefits transfer, and direct deposit.

Electronic data interchange (EDI). EDI is defined by the American National Standards Institute (ANSI) as "the transmission, in a standard syntax, of unambiguous information of business or strategic significance, between computers of independent organizations."(1) Nationally, the use of EDI applications has grown significantly from an estimated 1,465 in 1987 to 31,000 in 1992.(2) Electronic funds transfers, electronic benefits transfers, and direct deposit are closely aligned with EDI applications, but involve the one-way electronic transfer of funds by the government in payments to employees and beneficiaries.

VA has already made substantial progress to date in implementing EDI and related applications. Support for the initiative from VA program offices throughout the department has been significant.

The department's Office of Acquisition and Material Management (OAMM) has pilot-tested EDI by exchanging purchasing information with select vendors of pharmaceuticals and medical supplies. The VA Finance Center in Austin receives EDI invoices from 55 vendors, accounting for 17 percent of invoices for goods received by the department. Currently, OAMM is expanding the use of EDI to cover orders from additional vendors for the entire VA medical system. The replacement of VA-owned inventories with just-in-time delivery to VA field stations has been made possible by industry adoption of EDI standards and technology.

The following VA activities will benefit most from the use of EDI capabilities:

--- purchase orders and delivery orders;

--- invoices, including government bills of lading (GBLs);

--- eligibility claims, and payments transactions with health care providers and insurers;

--- enrollment certification and financial information transactions with educational institutions;

--- applications, defaults, and foreclosures with mortgage lenders;

--- military service histories with the Department of Defense (DOD);

--- exchanges of veteran income data with the Social Security Administration (SSA) and the Internal Revenue Service (IRS); and

--- exchanges of retirement pay data with DOD and the Office of Personnel Management.

VA has conducted a series of studies that document significant benefits by the use of EDI for these activities--particularly those involving invoices, GBLs, and acquisition processing. Examples include:

--- The Austin Finance Center's use of EDI to receive invoices from the 220 firms that produce approximately 50 percent of all invoices received would lower the per invoice cost by about $2.00, with a net savings of $12 million (discounted) over five years.

--- The use of EDI by VA's Office of Finance for GBLs would reduce the cost from $10.07 to $4.52 each, for a total savings of about $388,541 (discounted) over five years.

--- OAMM's use of EDI for delivery orders and purchase orders under $25,000 would result in a net savings of about $75 million (discounted) over five years.(3)

If VA, in coordination with the Treasury Department, implements EDI departmentwide, it can send detailed statements with vendor payments (including to educational institutions) to facilitate account reconciliations and prevent misunderstandings. When a veteran is at risk of default, the mortgage lender can advise the Veterans Benefits Administration (VBA) by means of EDI. This will permit the department to respond more quickly to help veterans keep their homes and reduce VBA's potential liability for the costs of foreclosure. Network costs to the government would depend upon whether the Treasury or a commercial network is used as the conduit.

Other cost savings, as well as improved accountability for funds, can be realized by implementation of EDI and better business practices. For example, even before a veteran arrives at a medical center, staff can use EDI to verify the veteran's insurance coverage and obtain the insurer's precertification for service to be rendered by the center and covered by the veteran's medical insurance. This will eliminate cost penalties for failure to get timely precertification and denials of claims. Claims can be generated and submitted automatically, and medical record data can be incorporated electronically, as appropriate, to document the need for procedures, medication, or service.

The VHA now can initiate, as needed, an electronic query to the IRS, which matches the query against tax return data, replying in a fraction of the time now required. In some cases, this feedback may be obtained even before the veteran leaves the facility. Untimely notices are avoided and copayments are collected when service is delivered, rather than months later when memories have dimmed. Similar matching initiatives are being used by VBA.

Table 1 summarizes the estimated cost savings from use of EDI identified to date, for the applications shown. A total of $111 million has been projected for the five-year period from fiscal years 1995-1999.

Electronic Funds Transfer (EFT). Currently, VA processes about 3.3 million monthly payments to compensation and pension beneficiaries. Of this total, 48 percent are processed using EFT technology. EFT allows VA to transmit checks directly to a veteran's bank account, resulting in significant savings to the government. Savings to the treasury through the use of EFT amount to about 30 cents per payment.

Electronic Benefits Transfers (EBT). Benefits payments can be made to compensation and pension beneficiaries by means of EBT technology. A veteran who does not have a bank account can still obtain his or her benefits by the use of a plastic access card in an automated teller machine. It is estimated that approximately 8 percent of compensation and pension beneficiaries may not have bank accounts. The start-up costs for EBT are unclear. The implementation of the governmentwide recommendations in the NPR Accompanying Report Reengineering Through Information Technology will result in lower overall costs to the VA.

Direct Deposit. About 80 percent of VA's 260,000 employees authorize salary and other payments from the government to be transmitted directly to their banks by electronic means for deposit. If VA could increase the usage to 95 percent (about 39,000 more employees) it can save about $300,000 annually. An added benefit is that increased employee awareness of this useful technological application might spur consideration of other applications throughout VA.


1. The Department of Veterans Affairs should expand its use of EDI for invoicing, GBLs, and purchase orders, and analyze the cost effectiveness of EDI applications in VHA and VBA programs.

VA's proposed VDI initiative is based upon a thorough analysis of selected applications. Further research will be required to design the appropriate implementation strategy in VHA and VBA. Program offices will need close support to plan, design, and execute their EDI implementation initiatives. This includes development of applications systems, technical support, and appropriate standards- based telecommunications networks.

The reduced administrative costs found in EDI studies include savings in salaries and fringe benefits. VA program units should determine the appropriate alternative use of employees. For example, staff in medical administration freed of routine paperwork could be used more extensively in negotiations with insurers and providers.

EDI is extremely broad in scope and VA managers need the flexibility to realign their staff resources. Consequently, a full realization of the potential of EDI depends on the elimination of constraints on managers addressed in other sections of this report.(4)

2. VA should seek to implement EFT for compensation and pension beneficiaries who do not now use it.

VA should encourage the use of EFT by the remaining 52 percent of compensation and pension beneficiaries who are not now using it. It is worth noting that not all beneficiaries will either have access to a bank account or want such access. This is an issue common to the Social Security Administration and other federal organizations that make payments to individuals.

3. VA should work with the Department of the Treasury to develop a cost-effective, governmentwide approach to EBT for beneficiaries who cannot use EFT.

The preferred approach to servicing compensation and pension beneficiaries is EFT, because it costs about six cents per transaction and saves about 30 cents per payment over the cost of providing a paper check. EBT is an alternative approach for those who do not have bank accounts.

4. VA should seek to increase the level of employee participation in the direct deposit program.

The current 80 percent level of VA employees who use direct deposit should be raised to at least 95 percent. This activity is cost- effective, and can lead to a heightened awareness by employees about creative, time-saving uses of technology. VA is moving to a single release date for both paper checks and electronic deposits, and the use of direct deposit by employees would allow them early access to the funds and serve as an incentive for their participation.


These recommendations were made to the National Performance Review by the VA. Continued support by VA employees and beneficiaries for EDI, EFT, EBT, and related applications is critical to their successful implementation.

Fiscal Impact

Implementation of EDI for the invoices, GBLs, and purchase orders would produce savings of about $150 million over the five-year period from fiscal years 1994-1999. Start-up costs associated with the use of EBT, however, are estimated at $25.9 million. Consequently, the net savings is estimated at $124.1 million through fiscal year 1999.

 Table 1
 Net Benefits from Use of EDI (Dollars in Millions) 
 Fiscal Years            1995     1996     1997    1998    1999
 Invoices                2.6      3.2      3.2     3.2     3.2
 Finance GBLs	         0.2      0.2      0.2     0.2     0.2
 OA&MM Purchase
 Requests 	         7.7      17.7     21.9    25.6    21.7
 VHA Medical 
 Claims                  tbd      tbd      tbd     tbd     tbd
 VBA Education	         tbd      tbd      tbd     tbd     tbd
 VBA Loan Guaranty       tbd      tbd      tbd     tbd     tbd
 VBA Service 
 History                 tbd      tbd      tbd     tbd     tbd
 Total                   10.5     21.1     25.3    29.0    25.1
 tbd = To be determined
 Budget Authority (BA) and Outlays (Dollars in Millions) 
 Fiscal Year
		1994    1995    1996    1997    1998    1999    Total
 BA		-1.1   -12.9   -23.5   -27.7   -31.4   -27.5   -124.1
 Outlays	-1.1   -12.9   -23.5   -27.7   -31.4   -27.5   -124.1
 Change	           0       0       0       0       0       0        0
 in FTEs


1. U.S. Department of Veterans Affairs, So You Would Like to be an EDI Trading Partner with the VA (Washington, D.C., August 1992), p. 1.

2. "A Message of Unity: A Fledgling Standard May Finally Put Electronic Data Interchange in the E-Mail Network," Information Week (August 2, 1993), p. 28.

3. U.S. Department of Veterans Affairs, Application of EDI Technology at the Austin Finance Center (Washington, D.C., September 1992). See also U.S. Department of Veterans Affairs, Applications of EDI Technology in Acquisition and Material Management (Washington, D.C., July 1993).

4. See "DVA03: Eliminate Legislative Budget Constraints to Promote Management Effectiveness" and "DVA08: Decentralize Decisionmaking Authority to Promote Management Effectiveness."

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