Two former Department of Veterans Affairs employees have been convicted of engineering fraudulent veterans claims that cost taxpayers $1.2 million, crimes that an internal report suggests may have been helped by government downsizing.

Last week, a supervisory claims examiner in Florida who stole $615,451 by creating a false claim in her fiance's name was sentenced to 33 months in prison. Earlier this summer in New York, a former VA rating specialist was given an identical sentence for creating a claim for a fictitious veteran suffering from multiple sclerosis that cost taxpayers $620,000. A third employee was arrested Thursday on charges of conspiring with the VA official.

The cases illustrate the dangers inherent in downsizing, according to Richard J. Griffin, the VA's inspector general. In a June 17 memorandum, he warned the VA's top benefits officer that some VA workers now are unchecked in granting large benefit awards, for which multiple approvals were once required.

"It is apparent that the Veterans Benefits Administration faces significant challenges to improve timeliness and quality of service in a downsizing environment," he said. "One theme that seems to run through all the observations is that internal control functions were reduced as a result of shifting staffing resources to production activities."

Joseph Thompson, the VA undersecretary for benefits, said in an interview Thursday that he agrees with Griffin's warning and expressed hope that he can secure more staff to reinstitute increased checks for possible employee fraud. A career VA employee, Thompson said he was troubled by the two recent fraud cases, which were as large as any employee fraud he could recall in his 24 years with the department.

In the Florida case, investigators say Joy Cheri Brown, a GS-13 supervisory claims examiner, awarded a 100 percent disability claim to her fiance, a St. Petersburg police officer who had served on active duty during the Gulf War. VA officials said the fiance was unaware that Brown took his claim for a Gulf War ailment and created fraudulent records that awarded benefits for a unspecified skeletal condition.

From the time the scheme began in March 1997 to its detection earlier this year, Brown had awarded her fiance a series of one-time payments that totaled $519,981 and granted him a $5,011 monthly payment for his supposed ailment. Brown, who was ordered to pay $615,472 to the government, had won a promotion during that period.

Had not a third party called the VA to question the payments, the department IG said, Brown's fraud "would have continued indefinitely without detection." On Thursday, federal agents charged Hack Carr, one of Brown's co-workers, with conspiring with her in the theft of more than $40,000 and obstructing the IG's earlier investigation of Brown.

The New Jersey arrest of George C. Cox, a former VA employee, on drug charges in April 1998 led to the discovery of the other major fraud case, VA officials said. A former VA rating specialist, Cox was carrying an identification card for a fictitious veteran when arrested.

Officials say they later discovered he had created a 100 percent disability claim for the fictitious veteran and apparently had been collecting payments for 12 years. Cox, who was sentenced June 25, was ordered to pay the government $588,872 in restitution.

The VA's Thompson said he agrees with the inspector general's assessment that staff reductions may have made the agency more vulnerable to fraud. The VA's benefits staff, deployed in regional offices across the country, has been cut by about 20 percent, or 2,566 positions, since 1993, VA officials said.

Thompson said he hopes to add reviewers at all of the VA's regional offices. The VA has long been pulled between demands to cut the time it takes to process claims and controls designed to ensure the claims are valid, he noted.

Nonetheless, Thompson expressed confidence that the fraud cases were exceptions. "I don't see it as a systemic problem," he said.