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entitled 'Veterans Health Administration: Improvements Needed in Design 
of Controls over Miscellaneous Obligations' which was released on 
September 11, 2008. 

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GAO: 

September 2008: 

Veterans Health Administration: 

Improvements Needed in Design of Controls over Miscellaneous 
Obligations: 

VHA Miscellaneous Obligations: 

GAO-08-976: 

GAO Highlights: 

Highlights of GAO-08-976, a report to the Subcommittee on Oversight and 
Investigations, Committee on Veterans' Affairs, House of 
Representatives. 

Why GAO Did This Study: 

The Veterans Health Administration (VHA) has been using miscellaneous 
obligations for over 60 years to record estimates of obligations to be 
incurred at a later time. The large percentage of procurements recorded 
as miscellaneous obligations in fiscal year 2007 raised questions about 
whether proper controls were in place over the authorization and use of 
billions of dollars. GAO was asked to review (1) how VHA used 
miscellaneous obligations during fiscal year 2007, and (2) whether 
Department of Veterans Affairs (VA) policies and procedures were 
designed to provide adequate controls over their authorization and use. 
GAO obtained and analyzed available VHA data on miscellaneous 
obligations, reviewed VA policies and procedures, and reviewed a 
nongeneralizable sample of 42 miscellaneous obligations at three case 
study locations. 

What GAO Found: 

VHA recorded over $6.9 billion of miscellaneous obligations for the 
procurement of mission-related goods and services in fiscal year 2007. 
According to VHA officials, miscellaneous obligations were used to 
facilitate payment for goods and services when the quantities and 
delivery dates are not known. According to VHA data, almost $3.8 
billion (55.1 percent) of VHAs miscellaneous obligations was for fee-
based medical services for veterans and another $1.4 billion (20.4 
percent) was for drugs and medicines. The remainder funded, among other 
things, state homes for the care of disabled veterans, transportation 
of veterans to and from medical centers for treatment, and logistical 
support and facility maintenance for VHA medical centers nationwide. 

GAO's Standards for Internal Control in the Federal Government states 
that agency management is responsible for developing detailed policies 
and procedures for internal control suitable for their agency's 
operations. However, VA policies and procedures were not designed to 
provide adequate controls over the authorization and use of 
miscellaneous obligations with respect to oversight by contracting 
officials, segregation of duties, and supporting documentation for the 
obligation of funds. Collectively, these control design flaws increase 
the risk of fraud, waste, and abuse (including employees converting 
government assets to their own use without detection). These control 
design flaws were confirmed in our case studies at VHA Medical centers 
in Pittsburgh, Pennsylvania; Cheyenne, Wyoming; and Kansas City, 
Missouri. 

Table: Summary of Control Design Deficiencies at Three Case Study 
Locations: 

Station: Pittsburgh; 
Number of obligations reviewed: 14; 
No documented approval by contracting officials: 14; 
Inadequate segregation of duties[ A]: 9; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
3; 
Inadequate supporting documentation: Blank vendor field: 6; 
Inadequate supporting documentation: Blank contract field[C]: 3. 

Station: Cheyenne; 
Number of obligations reviewed: 11; 
No documented approval by contracting officials: 11; 
Inadequate segregation of duties[ A]: 11; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
1; 
Inadequate supporting documentation: Blank vendor field: 6; 
Inadequate supporting documentation: Blank contract field[C]: 4. 

Station: Kansas City[D]; 
Number of obligations reviewed: 17; 
No documented approval by contracting officials: 17; 
Inadequate segregation of duties[ A]: 10; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
4; 
Inadequate supporting documentation: Blank vendor field: 8; 
Inadequate supporting documentation: Blank contract field[C]: 9. 

Station: Total; 
Number of obligations reviewed: 42; 
No documented approval by contracting officials: 42; 
Inadequate segregation of duties[ A]: 30; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
8; 
Inadequate supporting documentation: Blank vendor field: 20; 
Inadequate supporting documentation: Blank contract field[C]: 16. 

Source: GAO analysis of VHA data. 

[End of table] 

In May 2008, VHA issued revised guidance on required procedures for 
authorizing and using miscellaneous obligations. GAO reviewed the 
revised guidance and found that while it offered some improvement, it 
did not fully address the specific control design flaws GAO identified. 
Furthermore, according to VA officials, VAs policies governing 
miscellaneous obligations have not been subject to legal review by VA's 
Office of General Counsel. Such a review is essential to ensure that 
policies and procedures comply with applicable federal appropriations 
law and internal control standards. 

What GAO Recommends: 

GAO makes four recommendations to the Secretary of Veterans Affairs to 
modify its policies and procedures, in conjunction with VAs Office of 
General Counsel, to better ensure adequate oversight of miscellaneous 
obligations by contracting officials, segregation of duties throughout 
the process, and sufficient supporting documentation for miscellaneous 
obligations. VA concurred with the recommendations and identified 
specific actions it will take to implement them. 

To view the full product, including the scope and methodology, click on 
[http://www.gao.gov/cgi-bin/getrpt?GAO-08-976]. For more information, 
contact Kay L. Daly at (202) 512-9095 or dalykl@gao.gov. 

[End of section] 

United States Government Accountability Office: 

Report to the Subcommittee on Oversight and Investigations, Committee 
on Veterans' Affairs, House of Representatives: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Miscellaneous Obligations Used Extensively for Mission-Related 
Activities in Fiscal Year 2007: 

Deficiencies in Design of Controls over Miscellaneous Obligations 
Increase the Risk of Fraud, Waste, and Abuse: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Veterans Affairs: 

Appendix III: Miscellaneous Obligations by VISN in Fiscal Year 2007: 

Appendix IV: VHA Stations Ranked by Use of Miscellaneous Obligations: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Miscellaneous Obligations at VHA and VA for Fiscal Year 2007: 

Table 2: Summary of Case Study Results: 

Table 3: Case Study Analysis of Segregation of Duties: 

Figures: 

Figure 1: Veterans Integrated Service Networks (VISN): 

Figure 2: VA's Miscellaneous Obligation Process: 

Figure 3: VHA Miscellaneous Obligations for Fiscal Year 2007: 

Abbreviations: 

BOC: budget object code: 

FAR: Federal Acquisition Regulation: 

FMS: Financial Management System: 

IFCAP: Integrated Funds Distribution, Control Point Activity, 
Accounting and Procurement: 

IPA: independent public accountant: 

OIG: Office of Inspector General: 

UPMC: University of Pittsburgh Medical Center: 

VA: Department of Veterans Affairs: 

VHA: Veterans Health Administration: 

VISN: Veterans Integrated Service Network: 

VISTA: Veterans Health Information System and Technology Architecture: 

[End of section] 

United States Government Accountability Office: 

Washington, DC 20548: 

September 11, 2008: 

The Honorable Harry E. Mitchell: 
Chairman: 
The Honorable Ginny Brown- Waite: 
Ranking Member: 
Subcommittee on Oversight and Investigations: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Department of Veterans Affairs (VA) is responsible for providing a 
variety of services to veterans, including medical care, disability 
compensation, and vocational rehabilitation. The Veterans Health 
Administration (VHA), a component of VA, manages one of the largest 
health care systems in the United States, providing health care to 
veterans throughout the country. VHA officials briefed your 
Subcommittee staff in September 2007 about various financial reporting 
weaknesses in the agency and initiatives under way to address them. In 
the briefing, VHA officials disclosed that $4.8 billion (56 percent) of 
the reported $8.6 billion in procurements through the third quarter of 
fiscal year 2007 had been done using funds categorized as 
"miscellaneous obligations." VHA officials said that they have been 
using miscellaneous obligations for over 60 years to record estimates 
of obligations[Footnote 1] to be incurred at a later time.[Footnote 2] 
According to VA policy,[Footnote 3] miscellaneous obligations can be 
used to record estimated obligations to facilitate the procurement of a 
variety of goods and services, including fee-based medical and nursing 
services and beneficiary travel. In addition, VA's Office of Inspector 
General (OIG) issued a report in May 2007 on the alleged mismanagement 
of funds at the VA Boston Healthcare System.[Footnote 4] According to 
OIG officials, they obtained documents showing that a miscellaneous 
obligation for $200,000 was requested, approved, and obligated by the 
same fiscal official, calling into question the adequacy of the 
segregation of duty controls over miscellaneous obligations. In light 
of these concerns, you requested that we review whether the design of 
VHA's internal controls over the use of miscellaneous obligations was 
adequate for fiscal year 2007. 

In response to your request, we initiated a review to determine (1) how 
VHA used miscellaneous obligations during fiscal year 2007, and (2) 
whether VA's policies and procedures are designed to provide adequate 
controls over the authorization and use of miscellaneous obligations. 
Our review focused on the approximately $6.9 billion of miscellaneous 
obligations that VHA made during fiscal year 2007, the most complete 
fiscal year for which data were available when we began our review. We 
discussed our preliminary findings at a hearing before the Subcommittee 
on July 31, 2008.[Footnote 5] 

To determine the purposes for which VHA used miscellaneous obligations 
during fiscal year 2007, we obtained and analyzed a copy of VHA's 
Integrated Funds Distribution, Control Point Activity, Accounting and 
Procurement (IFCAP) database of miscellaneous obligations. VA's Senior 
Procurement Executive stated that the IFCAP database provided the best 
available data on VHA miscellaneous obligations created in fiscal year 
2007. We determined that the IFCAP data were sufficiently reliable for 
the purposes of our report based on (1) testing various required data 
elements, (2) performing walkthroughs of the system, and (3) tracing 
selected transactions from source documents to the database. We could 
not reconcile IFCAP miscellaneous obligations to VA's Financial 
Management System (FMS)--the VA accounting system of record used to 
generate VA financial statements and other reports--because FMS does 
not identify the method used to obligate funds for transactions (e.g., 
miscellaneous obligations, purchase card, purchase order). 

To determine whether VA's policies and procedures are designed to 
provide adequate controls over the use of miscellaneous obligations, we 
compared VA policies and procedures governing the use of miscellaneous 
obligations with federal appropriations law and internal control 
standards, interviewed VHA officials in Denver, Colorado, and 
Washington, D.C., and conducted case studies at VHA medical centers in 
Cheyenne, Wyoming; Kansas City, Missouri; and Pittsburgh, Pennsylvania. 
As part of the case studies, we interviewed VHA financial management 
and procurement officials, and reviewed a nongeneralizable sample of 
miscellaneous obligations to provide more detailed data on the extent 
and nature of any control design deficiencies. We did not review VHA's 
procurement or service authorization processes. Appendix I contains a 
more detailed description of our scope and methodology. We conducted 
our audit work from November 2007 through July 2008 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

Results in Brief: 

In fiscal year 2007, available information from the Integrated Funds 
Distribution, Control Point Activity, Accounting and Procurement 
(IFCAP) database show that VHA used miscellaneous obligations to record 
over $6.9 billion against its appropriations for the procurement of 
mission-related goods and services. According to the IFCAP data, almost 
$3.8 billion of this total (55.1 percent) was for fee-based medical and 
dental services for veterans and another $1.4 billion (20.4 percent) 
was for drugs, medicines, and hospital supplies. The remainder covered, 
among other things, state homes for the care of disabled veterans, 
transportation of veterans to and from medical centers for treatment, 
and logistical support and facility maintenance for VHA medical centers 
nationwide. VHA officials said they used miscellaneous obligations to 
administratively reserve estimated funds required to facilitate the 
payments for goods and services for which specific quantities and time 
frames were uncertain. Another cited benefit was that miscellaneous 
obligations simplify the procurement process when no underlying 
contract or purchase order exists. For example, VHA centers used 
miscellaneous obligations to record estimated obligations for an 
umbrella agreement for fee-based medical services; the umbrella 
agreement can then be used to fund the work performed by a number of 
different physicians. Nonetheless, without effectively designed 
mitigating controls, the use of miscellaneous obligations may also 
expose VHA to increased risk of fraud, waste, and abuse. 

VA policies and procedures were not designed to provide adequate 
controls over the use of miscellaneous obligations with respect to 
oversight by contracting officials, segregation of duties, and 
supporting documentation for recording the obligation of funds. 
Specifically, although VA's September 29, 2006, policy required 
contracting officials to review miscellaneous obligations to help 
ensure the proper use of these obligations, the supporting procedures 
did not describe how these reviews should be carried out. Further, the 
design of the current control process did not include detailed 
procedures for conducting either an automated or manual review of 
miscellaneous obligations by contracting officials. With regard to 
segregation of duties, the miscellaneous obligation automated system 
and associated policies and procedures were not designed to prevent one 
person from performing multiple roles in the process of authorizing and 
executing miscellaneous obligations. Finally, with regard to 
documentation, we found that current guidance did not include detailed 
procedures on what was to be included in the purpose field of the 
miscellaneous obligation authorization document and did not require 
that the vendor name and contract number be included. These control 
design flaws were confirmed in our case studies at Pittsburgh, 
Cheyenne, and Kansas City. Such VHA-wide policy and procedure design 
flaws increase the risk of fraud, waste, and abuse at the 129 VHA 
stations using miscellaneous obligations in fiscal year 2007. New 
guidance for the use of miscellaneous obligations was issued in May 
2008. This guidance, while it offered some improvement, did not fully 
address the three problem areas. Also, we understand that VA attorneys 
have not reviewed these policies to help ensure compliance with 
applicable appropriations law and other requirements. 

We are making four recommendations to VA to establish policies and 
procedures that will improve overall control design to better ensure 
adequate oversight of miscellaneous obligations by contracting 
officials, segregation of duties during the authorization process, and 
supporting documentation for miscellaneous obligations. We received 
written comments on a draft of this report from the Deputy Secretary of 
Veterans Affairs, which are reprinted in appendix II. VA concurred with 
our recommendations and identified specific actions it plans to take to 
implement these recommendations. VA also provided technical comments 
which we considered and incorporated as appropriate. 

Background: 

VA is responsible for providing federal benefits to veterans. Headed by 
the Secretary of Veterans Affairs, VA operates nationwide programs for 
health care, financial assistance, and burial benefits. In fiscal year 
2007, VA received appropriations of over $77 billion, including over 
$35 billion for health care and approximately $41.4 billion for other 
benefits. The Congress appropriated more than $87 billion for VA in 
fiscal year 2008. 

VHA is responsible for implementing the VA medical assistance programs. 
In fiscal year 2007, VHA operated more than 1,200 sites of care, 
including 155 medical centers, 135 nursing homes, 717 ambulatory care 
and community-based outpatient clinics, and 209 Readjustment Counseling 
Centers. VHA health care centers provide a broad range of primary care, 
specialized care, and related medical and social support services. The 
number of patients treated increased by 47.4 percent from 3.8 million 
in 2000 to nearly 5.6 million in 2007 due to an increased number of 
veterans eligible to receive care. 

As shown in figure 1, VHA has organized its health care centers under 
21 Veterans Integrated Service Networks (VISN),[Footnote 6] which 
oversee the operations of the various medical centers and treatment 
facilities within their assigned geographic areas. 

During fiscal year 2007, these networks provided more medical services 
to a greater number of veterans than at any time during VA's long 
history. 

Figure 1: Veterans Integrated Service Networks (VISN): 

This figure is a map of Veterans Integrated Service Networks (VISN). 

[See PDF for image] 

Source: U.S. Department of Veterans Affairs. 

[End of figure] 

VA Policies and Procedures on the Use of Miscellaneous Obligations: 

VA has used "Estimated Miscellaneous Obligation or Change in 
Obligation" (VA Form 4-1358) to record estimated obligations for goods 
and services for over 60 years. According to VA policy,[Footnote 7] 
miscellaneous obligations can be used to record obligations against 
appropriations for the procurement of a variety of goods and services, 
including fee-based medical, dental, and nursing services; non-VA 
hospitalization; nursing home care; beneficiary travel; and rent and 
utilities. The policy states that miscellaneous obligations should be 
used as obligation control documents when a formal purchase order or 
authorization is not required, and when necessary to record estimated 
obligations to be incurred by the subsequent issue of purchase orders. 
The policy also states that the use of miscellaneous obligations should 
be kept to an absolute minimum, consistent with sound financial 
management policies on the control of funds, and should only be used in 
cases where there was a bona fide need for the goods and services being 
procured. 

In September 2006, VA policy for miscellaneous obligations was revised 
in an attempt to minimize the use of miscellaneous obligations as an 
obligation control document.[Footnote 8] The revision states that 
miscellaneous obligations should not be used as obligation control 
documents unless the head contracting official for the station has 
determined that a purchase order[Footnote 9] or contract will not be 
required. However, the policy provides that fiscal staff can use 
miscellaneous obligations as a tracking mechanism for obligations of 
variable quantity contracts,[Footnote 10] as well as for public 
utilities. In January 2008, VA issued interim guidance on the use of 
miscellaneous obligations; however, the guidance did not apply to the 
fiscal year 2007 miscellaneous obligations we reviewed.[Footnote 11] 

In recent years VHA has attempted to improve its oversight of 
miscellaneous obligations. For example, VHA's Clinical Logistics Group 
created the IFCAP system database in April 2006 to analyze the use of 
miscellaneous obligations agencywide. The database is updated monthly 
and contains information on the miscellaneous obligations created 
monthly by the 21 VISN offices and their associated stations. VHA 
officials are using the IFCAP database to (1) analyze the number and 
dollar amounts of procurements being done using contracts and purchase 
cards, and recorded using miscellaneous obligations, and (2) identify 
the types of goods and services recorded as miscellaneous obligations. 
Prior to the creation of the IFCAP database, such information on the 
use of miscellaneous obligations nationwide was not readily available 
to VHA upper-level management. 

VHA's Current Miscellaneous Obligation Process: 

The creation and processing of miscellaneous obligations (VA Form 4- 
1358) is documented in IFCAP--a component of VA's Veterans Health 
Information System and Technology Architecture (VISTA). The 
miscellaneous obligation request passes through several stages 
illustrated in figure 2.[Footnote 12] 

Figure 2: VA's Miscellaneous Obligation Process: 

This figure is a flowchart of VA's miscellaneous obligation process. 

[See PDF for image] 

Source: GAO analysis of VA policy and procedures. 

[A] In many transactions, the amount recorded reflects an 
administrative reservation of funds for which no obligations have yet 
been incurred. 

[B] Our review did not include the processes VHA officials may use to 
incur legal obligations, such as by issuing purchase orders or delivery 
orders. 

[C] A different payment process is followed for fee-based medical, 
dental and nursing services. 

[End of figure] 

Miscellaneous Obligations Used Extensively for Mission-Related 
Activities in Fiscal Year 2007: 

The IFCAP database shows that in fiscal year 2007 nearly 132,000 
miscellaneous obligations, with a total value of nearly $9.8 billion, 
were created (see table 1). While VA's Central Office had $2.9 billion 
in miscellaneous obligations during fiscal year 2007, our review 
focused on the $6.9 billion in miscellaneous obligations used by VHA's 
129 stations,[Footnote 13] located in every VISN throughout the 
country, for a variety of mission-related activities. (See app. III for 
a list of the uses of miscellaneous obligations by VISN, and app. IV 
for a list of the uses of miscellaneous obligations by station). 

Table 1: Miscellaneous Obligations at VHA and VA for Fiscal Year 2007: 

(Dollars in billions). 

VISN name: VHA[A]; 
Number of miscellaneous obligations: 127,070; 
Dollar amount of miscellaneous obligations: $6.9; 
Percentage of total dollar value: 70%. 

VISN name: VA's Central Office[B]; 
Number of miscellaneous obligations: 4,839; 
Dollar amount of miscellaneous obligations: 2.9; 
Percentage of total dollar value: 30%. 

Total; 
Number of miscellaneous obligations: 131,909; 
Dollar amount of miscellaneous obligations: $9.8; 
Percentage of total dollar value: 100%. 

Source: GAO analysis of IFCAP data. 

[A] Includes miscellaneous obligations for VISNs 1-12 and 15-23 (VISNs 
13 and 14 were consolidated and designated VISN 23). 

[B] VA's Central Office (VISN 0) is responsible for the administration 
of the Consolidated Mail Outpatient Pharmacy (CMOP) initiative that 
provides mail order prescriptions to veterans using automated 
distribution centers located throughout the country. In fiscal year 
2007, VISN 0 obligated about $2.08 billion in miscellaneous obligations 
for drugs, medicines, and other supplies, and almost $800 million for 
various fee-based medical, dental, and other services. 

[End of table] 

According to available VHA data, VHA used miscellaneous obligations to 
record estimated obligations of over $6.9 billion for mission-related 
goods and services. As shown in figure 3, about $3.8 billion (55.1 
percent) was for fee-based medical and dental services for veterans, 
and another $1.4 billion (20.4 percent) was for drugs, medicines, and 
hospital supplies. The remainder was for, among other things, state 
veterans homes,[Footnote 14] transportation of veterans to and from 
medical centers for treatment, and logistical support and facility 
maintenance for VHA medical centers nationwide. 

Figure 3: VHA Miscellaneous Obligations for Fiscal Year 2007: 

This figure is a pie chart showing miscellaneous obligations for fiscal 
year 2007. 

Other, such as dietetic provisions, operating supplies, cleaning 
services, and data processing: $210 million: 3%; 
Transportation of persons/things: $301 million: 4.4%; 
State homes and homeless veteran support: $553 million: 8%; 
Rent, communications, and utilities including gas, electricity, water, 
sewer, and phone: $628 million: 9.1%; 
Supplies including drugs, medicines, hospital supplies, blood products, 
and prosthetic supplies: $1,412 million: 20.4%; 
Services including fee-basis physician, nursing, dental, 
hospitalization stays, research, and prosthetic repair: $3,805 million: 
55.1%. 

[See PDF for image] 

Source: GAO analysis of VHA data. 

[End of figure] 

According to VHA contracting and fiscal service officials, using 
miscellaneous obligations tends to reduce administrative workload and 
facilitates the payment for contracted goods and services, including 
drugs, medicines, and transportation, and for goods and services for 
which no preexisting contracts exist, such as fee-basis medical and 
dental services and utilities. 

VHA officials stated that miscellaneous obligations facilitate the 
payment for contracted goods and services when the quantities and 
delivery dates are not known. A miscellaneous obligation can be created 
for an estimated amount and then modified as specific quantities are 
needed or specific delivery dates are set. When a purchase order is 
created, however, the obligated amount cannot be changed without a 
modification of the purchase order. According to VHA officials, the 
need to prepare numerous modifications to purchase orders could place 
an undue burden on the limited contracting personnel available at 
individual centers and could also require additional work on the part 
of fiscal services personnel. 

VHA officials stated that the use of miscellaneous obligations can 
simplify the procurement process when no preexisting contract or 
purchase order exists. For example, providing medical care on a fee- 
basis to veterans outside of VHA medical centers may involve the 
services of thousands of private physicians nationwide. Attempting to 
negotiate a separate agreement or contract with each of these 
individuals would be a difficult task for VHA's contracting staff. 
Under the policies and procedures in place during fiscal year 2007, VHA 
centers could use miscellaneous obligations as umbrella authorizations 
for fee-based medical services performed by a number of different 
physicians. In effect, in cases for which there is no preexisting 
contract, the miscellaneous obligation form becomes the record of an 
obligation.[Footnote 15] However, use of miscellaneous obligations may 
also increase the risk of fraud, waste, and abuse. Consequently, 
mitigating controls must be designed to help compensate for the lack of 
a negotiated contract. Absent contractual terms, one risk area is the 
authorized fee schedule for the medical services being provided. In 
this case, federal regulations call for payments to non-VA physicians 
for services associated with outpatient and inpatient care provided at 
non-VA facilities to be the lesser of the amount billed or the amount 
calculated using the formula developed by the Department of Health and 
Human Services under Medicare's participating physician fee schedule 
for the period in which the service is provided.[Footnote 16] However, 
we did not verify that VHA officials were properly following the fee 
schedule. 

Deficiencies in Design of Controls over Miscellaneous Obligations 
Increase the Risk of Fraud, Waste, and Abuse: 

VA policies and procedures were not designed to provide adequate 
controls over the use of miscellaneous obligations. According to our 
Standards for Internal Control in the Federal Government,[Footnote 17] 
agency management is responsible for developing detailed policies and 
procedures for internal control suitable for their agency's operations 
and ensuring that they provide for adequate monitoring by management, 
segregation of duties, and supporting documentation for the need to 
acquire specific goods in the quantities purchased. We identified 
control design flaws in each of these oversight areas, and we confirmed 
that these weaknesses existed at the three locations where we conducted 
case studies. Collectively, these control design flaws increase the 
risk of fraud, waste, and abuse (including employees converting 
government assets to their own use without detection). New guidance for 
the use of miscellaneous obligations was released in January 2008 and 
finalized in May 2008. We reviewed the new guidance and found that 
while it offered some improvement, it did not fully address the 
specific control design flaws we identified. Furthermore, VA officials 
told us that this guidance was not subject to any legal review. Such an 
analysis is essential to help ensure that the design of policies and 
procedures comply with all applicable federal appropriations law and 
internal control standards. 

We reviewed 42 miscellaneous obligations at the three case study 
locations and developed illustrative, more detailed information on the 
extent and nature of these control design flaws. Table 2 summarizes the 
locations visited, the miscellaneous obligations reviewed at each 
location, and the extent and nature of control design deficiencies 
found. 

Table 2: Summary of Case Study Results: 

Station: Pittsburgh; 
Number of obligations reviewed: 14; 
Dollar value of obligations reviewed: $6,694,853; 
No documented approval by contracting officials: 14; 
Inadequate segregation of duties[ A]: 9; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
3; 
Inadequate supporting documentation: Blank vendor field: 6; 
Inadequate supporting documentation: Blank contract field[C]: 3. 

Station: Cheyenne; 
Number of obligations reviewed: 11; 
Dollar value of obligations reviewed: $2,076,648; 
No documented approval by contracting officials: 11; 
Inadequate segregation of duties[ A]: 11; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
1; 
Inadequate supporting documentation: Blank vendor field: 6; 
Inadequate supporting documentation: Blank contract field[C]: 4. 

Station: Kansas City[D]; 
Number of obligations reviewed: 17; 
Dollar value of obligations reviewed: $27,274,395; 
No documented approval by contracting officials: 17; 
Inadequate segregation of duties[ A]: 10; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
4; 
Inadequate supporting documentation: Blank vendor field: 8; 
Inadequate supporting documentation: Blank contract field[C]: 9. 

Station: Total; 
Number of obligations reviewed: 42; 
Dollar value of obligations reviewed: $36,045,896; 
No documented approval by contracting officials: 42; 
Inadequate segregation of duties[ A]: 30; 
Inadequate supporting documentation: Incomplete purpose description[B]: 
8; 
Inadequate supporting documentation: Blank vendor field: 20; 
Inadequate supporting documentation: Blank contract field[C]: 16. 

Source: GAO analysis of VHA data. 

[A] In 30 of the 42 obligations we reviewed, one official performed two 
or more of the following functions: requesting, creating, approving, or 
obligating funds for the original miscellaneous obligations, or 
certifying delivery of goods and services and approving payment. 

[B] In 8 of 42 instances, we could not determine the nature, timing, or 
the extent of the goods or services being procured from the description 
in the purpose field without reference to supporting invoices. 

[C] In these instances, we confirmed that contracts existed, but no 
contract number was listed on the miscellaneous obligation document. 

[D] Includes facilities located in Kansas City, Kansas; Wichita, 
Kansas; Columbia, Missouri; and eastern Kansas. 

[End of table] 

Inadequate Contracting Oversight of Miscellaneous Obligations: 

To help minimize the use of miscellaneous obligations, VA policy stated 
that miscellaneous obligations would not be used as obligation control 
documents unless the contracting authority for a station had determined 
that purchase orders or contracts would not be required. Furthermore, 
VA policy required review of miscellaneous obligations by contracting 
officials to help ensure proper use in accordance with federal 
acquisition regulations, but did not address the intended extent and 
nature of these reviews or how the reviews should be documented. 
Contracting officials were unable to electronically document their 
review of miscellaneous obligations and no manual documentation 
procedures had been developed. Our review of 42 miscellaneous 
obligations prepared at three VHA stations showed that contracting 
officers were at times familiar with specific miscellaneous obligations 
at their facilities, but that they had no documented approvals 
available for review. Furthermore, none of the three sites we visited 
had procedures in place to document review of the miscellaneous 
obligations by the appropriate contracting authorities. 

Effective oversight and review by trained, qualified officials is a key 
factor in identifying a potential risk for fraud, waste, or abuse. 
Without control procedures to help ensure that contracting personnel 
review and approve miscellaneous obligations prior to their creation, 
VHA is at risk that procurements will not have safeguards established 
through a contract approach. For example, in our case study at the VA 
Pittsburgh Medical Center, we found 12 miscellaneous obligations, 
totaling about $673,000, used to pay for laboratory services provided 
by the University of Pittsburgh Medical Center (UPMC). The Chief of 
Acquisition and Materiel Management for the VA Pittsburgh Medical 
Center stated that she was not aware of the UPMC's laboratory testing 
service procurements and would review these testing services to 
determine whether a contract should be established for these 
procurements. Subsequently, she stated that VISN 4, which includes the 
VA Pittsburgh Medical Center, was going to revise procedures to procure 
laboratory testing services through purchase orders backed by reviewed 
and competitively awarded contracts, instead of funding them through 
miscellaneous obligations. 

Another Pittsburgh miscellaneous obligation for about $141,000 was used 
to fund the procurement of livers for transplant patients. Local 
officials said that there was a national contract for the services, and 
that livers were provided at a standardized price of $21,800. However, 
officials could not provide us with a copy of the contract, nor 
documentation of the standardized pricing schedule. Therefore, we could 
not confirm that VHA was properly billed for these services or that the 
procurement was properly authorized. 

Furthermore, in the absence of review by contracting officials, 
controls were not designed to prevent miscellaneous obligations from 
being used for unauthorized purposes, or for assets that could be 
readily converted to personal use. Our analysis of the IFCAP database 
for fiscal year 2007 identified 145 miscellaneous obligations for over 
$30.2 million that appeared to be used in the procurement of such items 
as passenger vehicles; furniture and fixtures; office equipment; and 
medical, dental, and scientific equipment. Although VA's miscellaneous 
obligation policy did not address this issue, VA officials stated that 
acquisition of such assets should be done by contracting officials and 
not through miscellaneous obligations. Without adequate controls to 
review miscellaneous obligations and prevent them from being used for 
the acquisition of such assets, it is possible that VHA may be exposing 
the agency to unnecessary risks by using miscellaneous obligations to 
fund the acquisitions of goods or services that should have been 
obtained under contract with conventional controls built in. 

Inadequate Segregation of Duties: 

One tenet of an effectively designed control system is that key duties 
and responsibilities need to be divided or segregated among different 
people to reduce the risk of error or fraud.[Footnote 18] These 
controls should include separating the responsibilities for authorizing 
transactions, processing and recording them, reviewing the 
transactions, and accepting any acquired assets. The basic principle is 
that no one individual should be permitted to control all key aspects 
of a transaction or event, such as acquiring a good or service. 

However, IFCAP control design allows a single official to perform 
multiple key roles in the process of creating and executing 
miscellaneous obligations, and VA policies and procedures do not 
specifically prohibit this practice. Control point officials are 
authorized to create, edit, and approve requests for miscellaneous 
obligations. In addition, these same individuals can certify the 
delivery of goods and services and approve payment. Such weak control 
design could enable a VHA employee to convert VHA assets to his or her 
own use, without detection (such as the personal property acquired 
through the use of miscellaneous obligations described in the previous 
section). 

Our review of the previously mentioned 42 miscellaneous obligations at 
three case study locations indicated that controls in place at these 
locations were not designed to ensure sufficient segregation of duties 
for procurements. Specifically, as noted in table 3, we found 
inadequate segregation of key duties in 30 of the 42 obligations we 
reviewed. In these instances, controls were not designed to prevent one 
official from performing two or more of the following key functions: 
(1) requesting the miscellaneous obligation, (2) approving the 
miscellaneous obligation, (3) recording the obligation of funds, or (4) 
certifying delivery of goods and services and approving payment. 

Table 3: Case Study Analysis of Segregation of Duties: 

Number of functions performed by agency officials[A]: One official 
performed two out of the four functions; 
Obligations: 15. 

Number of functions performed by agency officials[A]: One official 
performed three out of the four functions; 
Obligations: 13. 

Number of functions performed by agency officials[A]: One official 
performed all four functions; 
Obligations: 2. 

Number of functions performed by agency officials[A]: Subtotal-- 
inadequate segregation of duties; 
Obligations: 30. 

Number of functions performed by agency officials[A]: Adequate 
segregation of duties--different officials performed each of the four 
functions; 
Obligations: 12. 

Number of functions performed by agency officials[A]: Total; 
Obligations: 42. 

Source: GAO analysis. 

[A] Agency officials performed various combinations of the following 
four functions: (1) requesting the miscellaneous obligation, (2) 
approving the miscellaneous obligation, (3) obligating funds, and (4) 
certifying receipt of goods and services and approving payment. 

[End of table] 

As noted in table 3, in 13 of the 42 obligations we examined, the same 
official performed three of the four functions. In 11 of these cases, 
the same official requested and approved the miscellaneous obligations, 
and then certified receipt of goods and services. For example, in one 
case in Pittsburgh, one official requested and approved a miscellaneous 
obligation of over $140,000 for medical services and then certified 
receipt and approved payment for at least $43,000 of those services. In 
another case in Cheyenne, we found one miscellaneous obligation for 
utilities where one official requested, approved, and certified receipt 
and approved payment of over $103,000 in services. 

In two instances in Cheyenne involving employee grievance settlements 
for about $22,000, one official performed all four functions. While our 
review found that these obligations were for legitimate purposes, the 
fact that one official was able to perform multiple functions is 
indicative of an inherent control system flaw. One individual, 
controlling all of the key stages of the transaction, leaves VHA 
vulnerable to potential fraud, waste, or abuse because of the 
opportunity for the creation of inappropriate, perhaps fraudulent, 
transactions. 

The VA OIG noted a similar problem in its review of the alleged 
mismanagement of funds at the VA Boston Healthcare System.[Footnote 19] 
According to OIG officials, they obtained documents showing that a 
miscellaneous obligation was used to obligate $200,000, and was 
requested, approved, and obligated by the same fiscal official. The OIG 
officials said that this transaction called into question the adequacy 
of segregation of duty controls over funds obligated through 
miscellaneous obligations. 

Similarly, a July 2007 report by an independent public accountant (IPA) 
also found, among other things, the segregation of duties for VA's 
miscellaneous obligation process was inadequate.[Footnote 20] The 
report noted that control point officials at a VISN, VA's Central 
Office, and two medical centers had the ability to act as the requestor 
and approving official for the same transaction. This condition was 
observed at four of the six locations the IPA reviewed. The IPA 
recommended that the medical centers update their local policies to 
prevent control point officials from acting both as requestor and 
approving official on the same transaction. Similarly, in 23 of the 42 
miscellaneous obligations we reviewed in our case studies, the same 
individual served as both the requestor and approving official for a 
miscellaneous obligation.[Footnote 21] 

Lack of Adequate Supporting Documentation: 

Another tenet of an effectively designed control system is that all 
transactions need to be clearly documented and all documentation and 
records should be properly managed and maintained.[Footnote 22] 
Adequate documentation is essential to support an effective funds 
control system; is crucial in helping to ensure that a procurement 
represents a bona fide need; and reduces the risk of fraud, waste, and 
abuse. When a legal obligation is recorded, it must be supported by 
adequate documentary evidence of the liability.[Footnote 23] An agency 
should use its best estimate to reserve an amount for future obligation 
when the amount of the government's final liability is undefined. 
Further, the basis for the estimate and the computation must be 
documented. Although VA's form entitled "Estimated Miscellaneous 
Obligation or Change in Obligation" (VA Form 4-1358) includes three key 
fields--the purpose, vendor, and contract number fields--that provide 
crucial supporting documentation for the obligation, VA policies and 
procedures were not sufficiently detailed to specifically require this 
type of information needed to adequately document miscellaneous 
obligations. During the period covered by our review, VA did not have 
specific guidance as to what information should be included in the 
purpose field, including such essential data as the nature and extent 
of the transaction. Further, during our case studies, we found many 
instances where these fields on the miscellaneous obligation form were 
left blank or did not provide adequate information as a result of this 
control design flaw. 

Specifically, in our case studies, we found that these control design 
flaws resulted in the purpose field on 8 of the 42 miscellaneous 
obligations having insufficient data to determine whether the 
miscellaneous obligation represented a bona fide need. In many 
instances, while the stated purposes may have been adequate for the 
requesters and approving officials in the using services, this level of 
documentation was not sufficient for an independent reviewer to 
determine from the purpose field what items were procured and whether 
the appropriate budget object code was charged. As a result of these 
deficiencies in the design of controls, in several cases we had to rely 
on invoices to determine the probable purpose of the miscellaneous 
obligation and whether it represented a bona fide need. For example, in 
Kansas City, we found one miscellaneous obligation for over $1.3 
million whose purpose was listed as "To obligate funds for the Oct 06 
payment," while the associated invoices showed that the miscellaneous 
obligation was used to cover the services of medical resident staff. In 
another instance, we found a miscellaneous obligation for over $53,000 
whose purpose was listed as "October billing," while the associated 
invoices showed that the miscellaneous obligation was used for 
automated prescription services provided at the Kansas Soldiers Home in 
October 2007. In another case in Pittsburgh, we found a miscellaneous 
obligation for over $45,000 whose purpose was listed as "LABCORP 5/1-5/ 
31/07," while the associated invoices showed that the obligation was 
for laboratory testing services. Without procedures calling for more 
definitive descriptions of the purpose, we could not confirm that these 
miscellaneous obligations were for bona fide needs or that the invoices 
reflected a legitimate use of federal funds. 

Although appropriation law provides that the basis for the amount 
obligated should be documented, we found deficient VA control design 
resulted in several miscellaneous obligations at one location with 
inadequate support for the recorded obligations.[Footnote 24] For 
example, according to our analysis of the IFCAP database, 12 
miscellaneous obligations, totaling almost $1.3 million, were created 
using no-year funds[Footnote 25] by the VA Pittsburgh Medical Center on 
September 28, 2007, to support the St. Clairsville community-based 
outpatient clinic. One miscellaneous obligation for $106,400 covered 
March 2008 services, and another miscellaneous obligation for $108,400 
covered April 2008 clinic services. The purpose fields for the two 
miscellaneous obligations did not provide an explanation of how the 
estimates were calculated. When asked, medical center officials stated 
that the estimates were based on historical trends or calculations, but 
they did not provide any documentation to support the estimates. 
Furthermore, established control procedures did not require them to do 
so. In another instance, the VA Kansas City Medical Center obligated 
$200,000 for "patient care services at the Kirksville community-based 
outpatient clinic from 10/01/06 to 12/31/06." The purpose field did not 
provide an explanation of how the estimate was calculated. 

Further, in the absence of explicit documentation requirements, data 
fields were left blank on a number of the miscellaneous obligations we 
examined. For example, the vendor field was left blank in 20 of the 42 
miscellaneous obligations we reviewed. Current VA guidance states that 
the vendor field is to be left blank when multiple vendors exist since 
the IFCAP system allows only one vendor to be listed; however, we 
observed several cases where the field was left blank even when there 
was only one vendor. For example, in Kansas City we found obligations 
for electricity and natural gas where historically only one vendor had 
been used, but the vendor field was left blank. Similarly, in Kansas 
City another miscellaneous obligation was used in the procurement of 
$8.6 million in services at the Warrensburg Veteran's Home in 
Warrensburg, Missouri, but the vendor field was left blank. While 
payment was made to the vendor that invoiced VA in these instances, 
leaving the vendor field blank poses several problems for agency 
management, including establishing that the vendor is appropriate for 
the purpose of the miscellaneous obligation and verifying that the 
correct, authorized vendor is paid. 

We also found that the contract number field was left blank in 16 of 
the 42 miscellaneous obligations reviewed, even though supporting 
contracts did exist for these miscellaneous obligations. VA guidance 
did not require that the contract number be included in order to 
process the miscellaneous obligation. However, missing contract numbers 
make it difficult to determine whether VA is receiving the appropriate 
type and quantity of goods and services at the correct price. 

Inadequate control requirements for supporting documentation and 
completing data fields concerning the purpose of the obligation, vendor 
information, and contract numbers can hinder oversight by senior VA 
management officials. The Deputy Assistant Secretary for Logistics and 
Acquisition[Footnote 26] said that he and other VHA officials use the 
IFCAP database to monitor the extent and nature of miscellaneous 
obligations nationwide, including analyzing the number and dollar 
amounts of miscellaneous obligations and identifying the types of goods 
and services procured using miscellaneous obligations. He told us that 
he was concerned with the extent and nature of the use of miscellaneous 
obligations at VA, that he lacked adequate oversight or control over 
procurements made through miscellaneous obligations, and that he often 
did not know what was being bought or who it was being bought from. Our 
analysis of the IFCAP database found that over 88,000 (69 percent) of 
127,070 miscellaneous obligations did not include vendor information, 
accounting for over $5 billion of the $6.9 billion in recorded 
miscellaneous obligations in fiscal year 2007. Similarly, the IFCAP 
database did not contain a description of what was purchased or 
information on the quantities purchased. As a result, important 
management information was not available to senior VA procurement 
officials. 

Interim Guidance Does Not Address All Control Weaknesses: 

In January 2008, VHA issued interim guidance effective for all 
miscellaneous obligations created after January 30, 2008, concerning 
required procedures for using miscellaneous obligations.[Footnote 27] 
The guidance provides that prior to creating a miscellaneous 
obligation, fiscal service staff are required to check with the 
contracting activity to ensure that a valid contract is associated with 
the miscellaneous obligation, except in specific, itemized cases. Under 
this guidance, the using service is to have the contracting activity 
determine (1) if a valid procurement authority exists, (2) if a 
procurement needs to be initiated, and (3) the appropriate method of 
obligation. Also, this guidance requires that a copy of the head 
contracting official's approval be kept with a copy of the 
miscellaneous obligation for future audit purposes. In addition, the 
guidance provides that the fiscal service may not create a 
miscellaneous obligation without appropriate information recorded in 
the purpose, vendor, and contract number fields on the document. The 
guidance specifically cites a number of invalid uses for miscellaneous 
obligations, including contract ambulance, lab tests, blood products, 
and construction, but did not always specify a procurement process to 
be used for these items. 

In May 2008, VHA management finalized the interim guidance.[Footnote 
28] This guidance represents a step in the right direction. It includes 
a manual process for documenting contracting approval of miscellaneous 
obligations and specifically states that a miscellaneous obligation 
cannot be created if the purpose, vendor, and contract number fields 
are incomplete. However, the new guidance does not address the 
segregation of duties issues we and others have identified and does not 
establish an oversight mechanism to ensure that control procedures 
outlined are properly implemented. 

In our view, VHA has missed an opportunity to obtain an important legal 
perspective on this matter. According to VA officials, these policies 
have not been subject to any legal review, which is essential in 
ensuring that the policies and procedures comply with federal funds 
control laws and regulations and any other relevant VA policies or 
procedures dealing with budgetary or procurement matters. For example, 
such a review would help ensure that the guidance adequately addresses 
Federal Acquisition Regulation, requiring that no contract shall be 
entered into unless the contracting officer ensures that all 
requirements of law, executive orders, regulations, and all other 
applicable procedures, including clearances and approvals, have been 
met.[Footnote 29] In addition, a legal review could help to ensure that 
this guidance (1) provides that all legal obligations of VA are 
supported by adequate documentation to meet the requirements of the 
recording statute 31 U.S.C. 1501(a) and (2) prevents any individual 
from committing the government for purchases of supplies, equipment, or 
services without being delegated contracting authority as a contracting 
officer, purchase card holder, or a designated representative of a 
contracting officer.[Footnote 30] The absence of a legal review to 
determine the propriety of VA's miscellaneous obligations policies and 
procedures places VA at risk of not complying with important laws and 
regulations. 

Conclusions: 

Without basic controls in place over billions of dollars in 
miscellaneous obligations, VA is at significant risk of fraud, waste, 
and abuse. Effectively designed internal controls serve as the first 
line of defense for preventing and detecting fraud, and they help 
ensure that an agency effectively and efficiently meets its missions, 
goals, and objectives; complies with laws and regulations; and is able 
to provide reliable financial and other information concerning its 
programs, operations, and activities. Although miscellaneous 
obligations can facilitate and streamline the procurement process, they 
require effectively designed mitigating controls to avoid impairing 
full accountability and transparency. In the absence of effectively 
designed key funds and acquisition controls, VA has limited assurance 
that its use of miscellaneous obligations is kept to a minimum, for 
bona fide needs, in the correct amounts, and to the correct vendors. 
Improved controls in the form of detailed policies and procedures, 
along with a management oversight mechanism, will be critical to 
reducing the government's risks from VA's use of miscellaneous 
obligations. 

Recommendations for Executive Action: 

In order for VA to reduce the risks associated with the use of 
miscellaneous obligations, we recommend that the Secretary of Veterans 
Affairs, in conjunction with VA's Office of General Counsel, develop 
and implement policies and procedures consistent with federal 
appropriations law and internal control standards that: 

* establish a process for the review of miscellaneous obligations by 
contracting officials, including requiring appropriate documentation 
that the review has occurred; 

* segregate duties for (1) creating, approving, and recording 
miscellaneous obligations; (2) the certification and payment of 
invoices; and (3) the receipt of the resulting goods or services; 

* document the purposes, vendors, and contract numbers of miscellaneous 
obligations; and: 

* establish an oversight mechanism to ensure that these control 
policies and procedures are fully and effectively implemented. 

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from the Deputy 
Secretary of Veterans Affairs, which are reprinted in appendix II. VA 
concurred with our recommendations and identified specific actions it 
plans to take to implement these recommendations. For example, VA 
commented it plans to include electronic approval requirements of 
miscellaneous obligations by contracting officials in the financial 
component of its new accounting system. Also, VA commented it plans to 
address the segregation of duties issues identified in our report in an 
upcoming VA Office of Finance Bulletin, and that VA policy now requires 
documentation of the purpose, vendor, and contract number for all 
miscellaneous obligations. Finally, VA commented it plans to implement 
reporting and auditing processes to help ensure that the internal 
control procedures are properly implemented agencywide. If effectively 
implemented, these planned actions should enable VHA to substantially 
resolve the deficiencies pointed out in our report. VA also provided 
technical comments which we considered and incorporated as appropriate. 

We are sending copies of this report to other interested congressional 
committees and to affected federal agencies. Copies of this report will 
also be made available to others upon request. In addition, this report 
is available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-9095 or at dalykl@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix V. 

Signed by: 

Kay L. Daly: 
Acting Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Scope and Methodology: 

In order to determine how VHA used miscellaneous obligations during 
fiscal year 2007, we obtained and analyzed a copy of VHA's Integrated 
Funds Distribution, Control Point Activity, Accounting and Procurement 
(IFCAP) database of miscellaneous obligations for that year. IFCAP is 
used to create miscellaneous obligations (VA Form 4-1358) at VA, and 
serves as a feeder system for VA's Financial Management System (FMS)-- 
the department's financial reporting system of record. According to VA 
officials, FMS cannot be used to identify the universe of miscellaneous 
obligations at VHA in fiscal year 2007 because FMS does not identify 
the procurement method used for transactions (i.e., miscellaneous 
obligation, purchase card, purchase order). Furthermore, FMS does not 
capture the contract number, requester, approving official, and 
obligating official for obligations. However, according to senior 
agency officials, the IFCAP database is the most complete record of 
miscellaneous obligations available at VHA and can be used to provide 
an assessment of how miscellaneous obligations were used during fiscal 
year 2007. 

IFCAP's data included information on the appropriation codes, vendors, 
budget object codes (BOC), date and amount of obligations, obligation 
numbers, approving officials, and VISN and VHA stations for VHA 
miscellaneous obligations. We converted the database to a spreadsheet 
format and sorted the data by VISN, station, and BOC to determine where 
and how miscellaneous obligations were used in fiscal year 2007 (See 
app. III and IV.) 

To determine whether VHA's policies and procedures are designed to 
provide adequate controls over the use of miscellaneous obligations, we 
first reviewed VHA's policies and procedures governing the use of 
miscellaneous obligations at VA. Specifically, we reviewed the VA 
Controller Policy, MP-4, Part V, Chapter 3, Section A, Paragraph 3A.02 
- Estimated Miscellaneous Obligation or Change in Obligation (VA Form 4-
1358); the VA Office of Finance Bulletin 06GA1.05, Revision to MP-4, 
Part V, Chapter 3, Section A, Paragraph 3A.02 - Estimated Miscellaneous 
Obligation or Change in Obligation (VA Form 4-1358), dated September 
29, 2006; VA Interim Guidance on Miscellaneous Obligations, VA Form 
1358, dated January 30, 2008; VHA Revised Guidance for Processing of 
Miscellaneous Obligations, VA Form 1358, dated May 18, 2008; and other 
VA and VHA directives, policies, and procedures. We also used relevant 
sections of the Federal Acquisition Regulation (FAR); VA's Acquisition 
Regulation; appropriations law; and our Standards for Internal Control 
in the Federal Government in assessing the design of VA's policies and 
procedures. We met with VA and VHA officials in Washington, D.C., and 
coordinated with VHA's Office of Inspector General staff to identify 
any previous audit findings relevant to our audit work. In addition, we 
interviewed representatives of VA's independent public accounting firm 
and reviewed copies of their reports. 

In order to better understand the extent and nature of VA policy and 
procedure design deficiencies related to miscellaneous obligations, we 
conducted case studies at three VHA stations in Cheyenne, Wyoming; 
Kansas City, Missouri; and Pittsburgh, Pennsylvania.[Footnote 31] The 
stations in Kansas City and Pittsburgh were selected because they had a 
high volume of miscellaneous obligation activity, and they were located 
in different regions of the country. We conducted field work at the 
Cheyenne, Wyoming, station during the design phase of our review to 
better understand the extent and nature of miscellaneous obligation 
control design deficiencies at a small medical center. Inclusion of the 
Cheyenne facility in our review increased the geographic diversity of 
our analysis and allowed us to compare the extent and nature of 
miscellaneous obligation design deficiencies at medical centers in the 
eastern, midwestern, and western portions of the United States. 

During the case studies, we met with senior medical center 
administrative, procurement, and financial management officials to 
discuss how VA policies and procedures were designed with regard to 
specific obligations, and assess the control environment design for 
using miscellaneous obligations at the local level. We discussed how 
miscellaneous obligations were used as part of the procurement process 
and the effect of new VHA guidance on medical center operations. We 
also reviewed the design of local policies and procedures for executing 
miscellaneous obligations and conducted walkthroughs of the processes. 

To provide more detailed information on the extent and nature of the 
control design deficiencies we found at our case study locations, we 
identified a nongeneralizable sample of obligations for further review 
at each site. Through data mining techniques, we identified a total of 
42 miscellaneous obligations for more detailed examination at our case 
study sites: 11 from Cheyenne, 17 from Kansas City, and 14 from 
Pittsburgh. We based our selection on the nature, dollar amount, date, 
and other identifying characteristics of the obligations. For each 
miscellaneous obligation selected, we accumulated information on the 
extent and nature of control design weaknesses in the areas of: 

* review and documentation by contracting officials; 

* segregation of duties during the procurement process; and: 

* the purpose, timing, and documentation of obligations. 

Concerning the adequacy of control design with respect to contracting 
review, we reviewed miscellaneous obligations for evidence of review by 
contracting officials and, for selected miscellaneous obligations, 
followed up with contracting officials to discuss contracts in place 
for miscellaneous obligations, whether review by contracting officials 
was needed, and when and how this review could occur and be documented. 

Concerning the control design deficiencies with respect to segregation 
of duties, we reviewed miscellaneous obligation documents to determine 
which officials requested, approved, and obligated funds for the 
original miscellaneous obligations and then which officials certified 
delivery of goods and services and approved payment. We noted those 
instances where control design deficiencies permitted one official to 
perform multiple functions. 

With respect to control design deficiencies relating to the supporting 
documentation for the miscellaneous obligations, we reviewed the 
purpose, vendor, and contract number fields for each obligation. For 
the purpose field, we assessed whether the required description was 
adequate to determine the nature, timing, and extent of the goods or 
services being procured and whether controls provided for an adequate 
explanation for any estimated miscellaneous obligation amounts. For the 
vendor and contract number fields, we assessed whether controls were 
designed to ensure entered information was complete, and we identified 
those instances where control deficiencies permitted fields to be left 
blank. 

Because of time limitations, we did not review VHA's procurement or 
service authorization processes. In addition, in our case study 
approach, we were unable to analyze a sufficient number of obligations 
to allow us to generalize our conclusions to the sites visited, nor to 
the universe of VHA medical centers. The 42 obligations represented a 
total of approximately $36.0 million; however, the results cannot be 
projected to the overall population of miscellaneous obligations in 
fiscal year 2007. While we found no examples of fraudulent or otherwise 
improper purchases made by VHA, our work was not specifically designed 
to identify such cases or estimate their full extent. 

Data Reliability Assessment: 

We assessed the reliability of the IFCAP data provided by (1) 
performing various tests on required data elements, (2) reviewing 
related policies and procedures, (3) performing walkthroughs of the 
system, (4) interviewing VA officials knowledgeable about the data, and 
(5) tracing selected transactions from source documents to the 
database. In addition, we verified that totals from the fiscal year 
2007 IFCAP database agreed with a method of procurement compliance 
report provided by VA. We did not reconcile the IFCAP miscellaneous 
obligations reported to us to FMS--the VA system of record--and 
published VA financial statements because FMS does not identify the 
procurement method used for transactions (i.e., miscellaneous 
obligations, purchase card, purchase order). We determined that the 
data were sufficiently reliable for the purposes of our report and that 
the data can be used to provide an assessment of how miscellaneous 
obligations were used during fiscal year 2007. 

We conducted this audit from November 2007 through July 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. We requested comments on a 
draft of this report from the Secretary of Veterans Affairs or his 
designee. We received written comments from the Deputy Secretary of 
Veterans Affairs, which are reprinted in appendix II. 

[End of section] 

Appendix II: Comments from the Department of Veterans Affairs: 

The Deputy Secretary Of Veterans Affairs: 
Washington: 

August 19, 2008: 

Ms. Kay Daly: 
Acting Director: 
Financial Management and Assurance: 
U. S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Daly: 

The Department of Veterans Affairs (VA) has reviewed the draft report, 
Veterans Health Administration: Improvements Needed in Design of 
Controls over Miscellaneous Obligations (GAO-08-976), and concurs with 
the recommendations. 

The enclosures address GAO's recommendations and provide technical 
comments to the draft report. VA appreciates the opportunity to comment 
on the draft report. 

Sincerely yours, 

Signed by: 

Gordon H. Mansfield: 
Enclosures: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report Veterans Health 
Administration: Improvements Needed in Design of Controls over 
Miscellaneous Obligations (GAO-08-976): 

Recommendation 1: Establish a process for the review of miscellaneous 
obligations by contracting officials, including requiring appropriate 
documentation that the review has occurred. 

Concur - The current process, as established by Veterans Health 
Administration (VHA) interim guidance, is for the contracting 
official's review and approval to be documented in an e-mail. This is 
strictly an interim process that will be used until the Integrated 
Funds Distribution, Control Point Activity, Accounting and Procurement 
(IFCAP) system can be changed to capture this information. 

Requirements for an electronic approval process are included in the new 
Financial and Logistics Integrated Technology Enterprise (FLITE) and 
the Integrated Financial Accounting System (IFAS), the financial 
component of ELITE. IFAS requirements (finalized June 2008) include an 
electronic workflow to allow the system to route documents through 
predefined steps. IFAS requirements were created to specifically 
address the miscellaneous obligation process and include a gatekeeper 
who will review and direct the correct flow of the documents. The 
gatekeeper (an employee knowledgeable in procurement and workload 
distribution) will be responsible for ensuring the flow of purchasing 
documents to appropriate contracting/purchasing personnel. 

Recommendation 2: Segregate duties for (1) creating, approving, and 
recording miscellaneous obligations, (2) the certification and payment 
of invoices, and (3) the receipt of the resulting goods or services. 

Concur - The VA's Office of Finance Bulletin will address the issue of 
segregation of duties. This Bulletin is in the concurrence process and 
should be issued shortly. 

IFAS will be a centralized system that also replaces the purchasing 
feature, currently performed by the IFCAP system. Access to IFAS will 
be managed at a central location; this will prevent individual stations 
from allowing users multiple accesses and will maintain the proper 
segregation of duties. 

Recommendation 3: Document the purpose, vendor, and contract number for 
miscellaneous obligations. 

Concur - The interim VHA guidance requires that all VA Forms 1358, 
Miscellaneous Obligation, document the purpose, vendor, and if 
applicable, the contract number. These same requirements are included 
in the Department policy (VA Directive and Handbook) that has been 
issued. 

The IFAS requirements state that the system must have the ability to 
edit and mandate specific fields to be completed before continuing to 
the next step. All three of these fields will be required. 

However, there is no automated method for ensuring that the purpose, 
vendor, and contract number have been recorded on the 1358. VA will 
explore the feasibility of developing a patch that would allow VHA to 
capture these fields for reporting purposes. 

Recommendation 4: Establish an oversight mechanism to ensure that these 
control policies and procedures are fully and effectively implemented 

Concur - VHA has developed a monthly report that will track and trend 
the number and dollar amount of 1358s obligated in VHA by individual 
budget object code. This will enable VHA to determine whether the 
policy is being adhered to. 

The IFAS project group (composed of subject matter experts from 
logistics, fiscal, and policy) has developed a policy on use of 1358s. 
The policy is under review before it is finalized, we will add guidance 
on segregation of duties and on the appropriate oversight procedures. 

Another IFAS requirement is the ability to perform audits and 
statistical samples. This feature will allow VA to review and manage 
the use of miscellaneous obligations and oversee the audits.

[End of section] 

Appendix III: Miscellaneous Obligations by VISN in Fiscal Year 2007: 

VISN[A]: 1; 
VISN name: VA New England Healthcare System; 
Number: 6,638; 
Dollar amount: $360,762,340; 
Percentage of total: 5.2%. 

VISN[A]: 2; 
VISN name: VA Healthcare Network Upstate New York; 
Number: 2,910; 
Dollar amount: 160,799,144; 
Percentage of total: 2.3%. 

VISN[A]: 3; 
VISN name: VA NY/NJ Veterans Healthcare Network; 
Number: 7,248; 
Dollar amount: 256,453,022; 
Percentage of total: 3.7%. 

VISN[A]: 4; 
VISN name: VA Stars & Stripes Healthcare Network; 
Number: 12,321; 
Dollar amount: 328,355,399; 
Percentage of total: 4.8%. 

VISN[A]: 5; 
VISN name: VA Capitol Health Care Network; 
Number: 2,024; 
Dollar amount: 185,679,821; 
Percentage of total: 2.7%. 

VISN[A]: 6; 
VISN name: VA Mid-Atlantic Health Care Network; 
Number: 2,808; 
Dollar amount: 304,500,111; 
Percentage of total: 4.4%. 

VISN[A]: 7; 
VISN name: The Southeast Network; 
Number: 4,548; 
Dollar amount: 440,137,101; 
Percentage of total: 6.4%. 

VISN[A]: 8; 
VISN name: VA Sunshine Healthcare Network; 
Number: 9,985; 
Dollar amount: 496,497,019; 
Percentage of total: 7.2%. 

VISN[A]: 9; 
VISN name: VA Mid South Healthcare Network; 
Number: 4,461; 
Dollar amount: 356,353,797; 
Percentage of total: 5.2%. 

VISN[A]: 10; 
VISN name: VA Healthcare System of Ohio; 
Number: 5,093; 
Dollar amount: 247,515,982; 
Percentage of total: 3.6%. 

VISN[A]: 11; 
VISN name: Veterans in Partnership; 
Number: 3,947; 
Dollar amount: 261,290,926; 
Percentage of total: 3.8%. 

VISN[A]: 12; 
VISN name: VA Great Lakes Health Care System; 
Number: 4,284; 
Dollar amount: 293,466,391; 
Percentage of total: 4.2%. 

VISN[A]: 15; 
VISN name: VA Heartland Network; 
Number: 5,941; 
Dollar amount: 300,314,177; 
Percentage of total: 4.3%. 

VISN[A]: 16; 
VISN name: South Central VA Health Care Network; 
Number: 9,859; 
Dollar amount: 551,236,444; 
Percentage of total: 8.0%. 

VISN[A]: 17; 
VISN name: VA Heart of Texas Health Care Network; 
Number: 2,388; 
Dollar amount: 292,273,251; 
Percentage of total: 4.2%. 

VISN[A]: 18; 
VISN name: VA Southwest Health Care Network; 
Number: 6,308; 
Dollar amount: 346,135,243; 
Percentage of total: 5.0%. 

VISN[A]: 19; 
VISN name: Rocky Mountain Network; 
Number: 3,332; 
Dollar amount: 220,514,581; 
Percentage of total: 3.2%. 

VISN[A]: 20; 
VISN name: Northwest Network; 
Number: 9,370; 
Dollar amount: 360,007,803; 
Percentage of total: 5.2%. 

VISN[A]: 21; 
VISN name: Sierra Pacific Network; 
Number: 11,262; 
Dollar amount: 403,378,623; 
Percentage of total: 5.8%. 

VISN[A]: 22; 
VISN name: Desert Pacific Healthcare Network; 
Number: 1,906; 
Dollar amount: 388,244,689; 
Percentage of total: 5.6%. 

VISN[A]: 23; 
VISN name: VA Midwest Health Care Network; 
Number: 10,437; 
Dollar amount: 354,911,219; 
Percentage of total: 5.1%. 

VISN[A]: Total; 
Number: VISN[A]Number: 127,070; 
Dollar amount: VISN[A]Dollar amount: $6,908,827,084; 
Percentage of total: VISN[A]Percentage of total: 100%. 

Source: GAO analysis of IFCAP database. 

[A] VISNs 13 and 14 were consolidated and designated as VISN 23. 

[End of table] 

[End of section] 

Appendix IV: VHA Stations Ranked by Use of Miscellaneous Obligations: 

Rank: 1; 
Station: Omaha; 
Facility number: 636; 
VISN: 23; 
Number: 6,832; 
Amount: $158,912,717. 

Rank: 2; 
Station: North Florida/South Georgia VHA; 
Facility number: 573; 
VISN: 8; 
Number: 4,131; 
Amount: 145,875,702. 

Rank: 3; 
Station: Kansas City, Missouri; 
Facility number: 589; 
VISN: 15; 
Number: 3,603; 
Amount: 171,613,075. 

Rank: 4; 
Station: Pittsburgh HCS-University Dr; 
Facility number: 646; 
VISN: 4; 
Number: 3,567; 
Amount: 69,880,889. 

Rank: 5; 
Station: VA New York Harbor HCS - NY CA; 
Facility number: 630; 
VISN: 3; 
Number: 3,280; 
Amount: 85,275,329. 

Rank: 6; 
Station: San Francisco; 
Facility number: 662; 
VISN: 21; 
Number: 3,200; 
Amount: 89,361,982. 

Rank: 7; 
Station: N. California HCS-Martinez; 
Facility number: 612; 
VISN: 21; 
Number: 3,166; 
Amount: 88,567,989. 

Rank: 8; 
Station: Upstate New York HCS; 
Facility number: 528; 
VISN: 2; 
Number: 2,910; 
Amount: 160,799,144. 

Rank: 9; 
Station: Philadelphia; 
Facility number: 642; 
VISN: 4; 
Number: 2,536; 
Amount: 77,015,657. 

Rank: 10; 
Station: VA Boston HCS-Boston Division; 
Facility number: 523; 
VISN: 1; 
Number: 2,351; 
Amount: 102,803,146. 

Rank: 11; 
Station: St. Louis-John Cochran; 
Facility number: 657; 
VISN: 15; 
Number: 2,338; 
Amount: 128,701,102. 

Rank: 12; 
Station: Seattle, Washington; 
Facility number: 663; 
VISN: 20; 
Number: 2,030; 
Amount: 110,264,551. 

Rank: 13; 
Station: G. V. (Sonny) Montgomery VAMC; 
Facility number: 586; 
VISN: 16; 
Number: 1,964; 
Amount: 84,782,426. 

Rank: 14; 
Station: VAMC Bronx; 
Facility number: 526; 
VISN: 3; 
Number: 1,743; 
Amount: 37,336,434. 

Rank: 15; 
Station: Northern Arizona HCS; 
Facility number: 649; 
VISN: 18; 
Number: 1,706; 
Amount: 30,897,276. 

Rank: 16; 
Station: Miami; 
Facility number: 546; 
VISN: 8; 
Number: 1,686; 
Amount: 64,028,264. 

Rank: 17; 
Station: Middle Tennessee HCS; 
Facility number: 626; 
VISN: 9; 
Number: 1,644; 
Amount: 102,901,107. 

Rank: 18; 
Station: Cleveland-Wade Park; 
Facility number: 541; 
VISN: 10; 
Number: 1,642; 
Amount: 119,323,832. 

Rank: 19; 
Station: Portland; 
Facility number: 648; 
VISN: 20; 
Number: 1,602; 
Amount: 88,110,706. 

Rank: 20; 
Station: VA Palo Alto HCS-Palo Alto; 
Facility number: 640; 
VISN: 21; 
Number: 1,498; 
Amount: 100,993,614. 

Rank: 21; 
Station: Clarksburg; 
Facility number: 540; 
VISN: 4; 
Number: 1,470; 
Amount: 25,244,100. 

Rank: 22; 
Station: Amarillo HCS; 
Facility number: 504; 
VISN: 18; 
Number: 1,453; 
Amount: 32,694,257. 

Rank: 23; 
Station: Central California HCS (Fresno); 
Facility number: 570; 
VISN: 21; 
Number: 1,403; 
Amount: 30,528,159. 

Rank: 24; 
Station: Fayetteville AR; 
Facility number: 564; 
VISN: 16; 
Number: 1,386; 
Amount: 42,468,351. 

Rank: 25; 
Station: Boise; 
Facility number: 531; 
VISN: 20; 
Number: 1,385; 
Amount: 35,371,800. 

Rank: 26; 
Station: New Orleans; 
Facility number: 629; 
VISN: 16; 
Number: 1,369; 
Amount: 57,125,143. 

Rank: 27; 
Station: VA New Jersey HCS; 
Facility number: 561; 
VISN: 3; 
Number: 1,366; 
Amount: 65,538,526. 

Rank: 28; 
Station: W Palm Beach; 
Facility number: 548; 
VISN: 8; 
Number: 1,318; 
Amount: 56,059,142. 

Rank: 29; 
Station: Dayton; 
Facility number: 552; 
VISN: 10; 
Number: 1,306; 
Amount: 43,574,791. 

Rank: 30; 
Station: Fort Meade; 
Facility number: 568; 
VISN: 23; 
Number: 1,284; 
Amount: 28,139,258. 

Rank: 31; 
Station: Bay Pines; 
Facility number: 516; 
VISN: 8; 
Number: 1,128; 
Amount: 76,081,613. 

Rank: 32; 
Station: Lebanon; 
Facility number: 595; 
VISN: 4; 
Number: 1,105; 
Amount: 29,330,151. 

Rank: 33; 
Station: Alaska HCS; 
Facility number: 463; 
VISN: 20; 
Number: 1,090; 
Amount: 55,377,371. 

Rank: 34; 
Station: Togus; 
Facility number: 402; 
VISN: 1; 
Number: 1,085; 
Amount: 52,777,782. 

Rank: 35; 
Station: Baltimore; 
Facility number: 512; 
VISN: 5; 
Number: 1,060; 
Amount: 92,856,732. 

Rank: 36; 
Station: Chillicothe; 
Facility number: 538; 
VISN: 10; 
Number: 1,037; 
Amount: 16,704,890. 

Rank: 37; 
Station: Oklahoma City; 
Facility number: 635; 
VISN: 16; 
Number: 1,020; 
Amount: 80,419,697. 

Rank: 38; 
Station: Roseburg HCS; 
Facility number: 653; 
VISN: 20; 
Number: 996; 
Amount: 21,172,773. 

Rank: 39; 
Station: Lexington-Leestown; 
Facility number: 596; 
VISN: 9; 
Number: 987; 
Amount: 48,090,092. 

Rank: 40; 
Station: Milwaukee WI; 
Facility number: 695; 
VISN: 12; 
Number: 974; 
Amount: 59,113,209. 

Rank: 41; 
Station: Walla Walla; 
Facility number: 687; 
VISN: 20; 
Number: 964; 
Amount: 13,199,190. 

Rank: 42; 
Station: Dallas VAMC; 
Facility number: 549; 
VISN: 17; 
Number: 942; 
Amount: 100,556,097. 

Rank: 43; 
Station: Fargo; 
Facility number: 437; 
VISN: 23; 
Number: 937; 
Amount: 26,988,919. 

Rank: 44; 
Station: Wilmington; 
Facility number: 460; 
VISN: 4; 
Number: 923; 
Amount: 24,534,375. 

Rank: 45; 
Station: Providence; 
Facility number: 650; 
VISN: 1; 
Number: 900; 
Amount: 31,961,444. 

Rank: 46; 
Station: Pacific Islands HCS (Honolulu); 
Facility number: 459; 
VISN: 21; 
Number: 894; 
Amount: 57,759,481. 

Rank: 47; 
Station: Southern Oregon Rehabilitation; 
Facility number: 692; 
VISN: 20; 
Number: 883; 
Amount: 11,294,874. 

Rank: 48; 
Station: Phoenix; 
Facility number: 644; 
VISN: 18; 
Number: 879; 
Amount: 84,069,252. 

Rank: 49; 
Station: Columbia SC; 
Facility number: 544; 
VISN: 7; 
Number: 870; 
Amount: 70,594,890. 

Rank: 50; 
Station: Wilkes Barre; 
Facility number: 693; 
VISN: 4; 
Number: 861; 
Amount: 26,987,646. 

Rank: 51; 
Station: Houston; 
Facility number: 580; 
VISN: 16; 
Number: 855; 
Amount: 67,739,913. 

Rank: 52; 
Station: Augusta; 
Facility number: 509; 
VISN: 7; 
Number: 846; 
Amount: 53,390,674. 

Rank: 53; 
Station: Tampa; 
Facility number: 673; 
VISN: 8; 
Number: 838; 
Amount: 116,270,986. 

Rank: 54; 
Station: Alexandria; 
Facility number: 502; 
VISN: 16; 
Number: 830; 
Amount: 25,417,175. 

Rank: 55; 
Station: Gulf Coast HCS; 
Facility number: 520; 
VISN: 16; 
Number: 823; 
Amount: 46,044,544. 

Rank: 56; 
Station: Hines; 
Facility number: 578; 
VISN: 12; 
Number: 813; 
Amount: 72,402,760. 

Rank: 57; 
Station: Eastern Colorado HCS; 
Facility number: 554; 
VISN: 19; 
Number: 803; 
Amount: 82,599,599. 

Rank: 58; 
Station: Salt Lake City HCS; 
Facility number: 660; 
VISN: 19; 
Number: 803; 
Amount: 68,390,644. 

Rank: 59; 
Station: San Antonio VAMC; 
Facility number: 671; 
VISN: 17; 
Number: 801; 
Amount: 113,175,496. 

Rank: 60; 
Station: Butler; 
Facility number: 529; 
VISN: 4; 
Number: 792; 
Amount: 15,272,087. 

Rank: 61; 
Station: West Haven; 
Facility number: 689; 
VISN: 1; 
Number: 731; 
Amount: 80,337,724. 

Rank: 62; 
Station: Ann Arbor HCS; 
Facility number: 506; 
VISN: 11; 
Number: 715; 
Amount: 50,017,830. 

Rank: 63; 
Station: N. Indiana HCS-Marion; 
Facility number: 610; 
VISN: 11; 
Number: 706; 
Amount: 33,501,439. 

Rank: 64; 
Station: Coatesville; 
Facility number: 542; 
VISN: 4; 
Number: 702; 
Amount: 17,933,344. 

Rank: 65; 
Station: Chicago HCS; 
Facility number: 537; 
VISN: 12; 
Number: 700; 
Amount: 53,085,848. 

Rank: 66; 
Station: El Paso HCS; 
Facility number: 756; 
VISN: 18; 
Number: 699; 
Amount: 24,242,716. 

Rank: 67; 
Station: Madison WI; 
Facility number: 607; 
VISN: 12; 
Number: 696; 
Amount: 46,845,867. 

Rank: 68; 
Station: VA Sierra Nevada HCS; 
Facility number: 654; 
VISN: 21; 
Number: 691; 
Amount: 31,948,186. 

Rank: 69; 
Station: Huntington; 
Facility number: 581; 
VISN: 9; 
Number: 690; 
Amount: 32,256,564. 

Rank: 70; 
Station: Greater Los Angeles HCS; 
Facility number: 691; 
VISN: 22; 
Number: 670; 
Amount: 113,284,821. 

Rank: 71; 
Station: Detroit (John D. Dingell); 
Facility number: 553; 
VISN: 11; 
Number: 667; 
Amount: 41,810,942. 

Rank: 72; 
Station: New Mexico HCS; 
Facility number: 501; 
VISN: 18; 
Number: 666; 
Amount: 84,082,667. 

Rank: 73; 
Station: Tuscaloosa; 
Facility number: 679; 
VISN: 7; 
Number: 650; 
Amount: 20,128,372. 

Rank: 74; 
Station: Temple VAMC; 
Facility number: 674; 
VISN: 17; 
Number: 645; 
Amount: 78,541,658. 

Rank: 75; 
Station: Indianapolis; 
Facility number: 583; 
VISN: 11; 
Number: 645; 
Amount: 54,906,324. 

Rank: 76; 
Station: Muskogee; 
Facility number: 623; 
VISN: 16; 
Number: 645; 
Amount: 39,781,639. 

Rank: 77; 
Station: Montana HCS; 
Facility number: 436; 
VISN: 19; 
Number: 645; 
Amount: 32,278,047. 

Rank: 78; 
Station: Durham; 
Facility number: 558; 
VISN: 6; 
Number: 639; 
Amount: 61,960,744. 

Rank: 79; 
Station: Sheridan; 
Facility number: 666; 
VISN: 19; 
Number: 629; 
Amount: 12,501,607. 

Rank: 80; 
Station: Manchester; 
Facility number: 608; 
VISN: 1; 
Number: 606; 
Amount: 27,003,396. 

Rank: 81; 
Station: White River Jct; 
Facility number: 405; 
VISN: 1; 
Number: 580; 
Amount: 28,279,283. 

Rank: 82; 
Station: S. Arizona HCS; 
Facility number: 678; 
VISN: 18; 
Number: 578; 
Amount: 69,574,532. 

Rank: 83; 
Station: Columbus; 
Facility number: 757; 
VISN: 10; 
Number: 570; 
Amount: 25,461,020. 

Rank: 84; 
Station: Central AR. Veterans HCS LR; 
Facility number: 598; 
VISN: 16; 
Number: 564; 
Amount: 70,779,560. 

Rank: 85; 
Station: Washington; 
Facility number: 688; 
VISN: 5; 
Number: 563; 
Amount: 65,013,443. 

Rank: 86; 
Station: Illiana HCS (Danville); 
Facility number: 550; 
VISN: 11; 
Number: 543; 
Amount: 19,659,628. 

Rank: 87; 
Station: Cincinnati; 
Facility number: 539; 
VISN: 10; 
Number: 538; 
Amount: 42,451,450. 

Rank: 88; 
Station: Minneapolis; 
Facility number: 618; 
VISN: 23; 
Number: 534; 
Amount: 93,816,762. 

Rank: 89; 
Station: Mountain Home; 
Facility number: 621; 
VISN: 9; 
Number: 517; 
Amount: 57,849,934. 

Rank: 90; 
Station: Orlando; 
Facility number: 675; 
VISN: 8; 
Number: 505; 
Amount: 9,342,539. 

Rank: 91; 
Station: San Diego HCS; 
Facility number: 664; 
VISN: 22; 
Number: 503; 
Amount: 76,890,097. 

Rank: 92; 
Station: Decatur; 
Facility number: 508; 
VISN: 7; 
Number: 494; 
Amount: 103,798,914. 

Rank: 93; 
Station: Richmond; 
Facility number: 652; 
VISN: 6; 
Number: 490; 
Amount: 50,242,036. 

Rank: 94; 
Station: Montgomery; 
Facility number: 619; 
VISN: 7; 
Number: 488; 
Amount: 33,582,736. 

Rank: 95; 
Station: Birmingham; 
Facility number: 521; 
VISN: 7; 
Number: 481; 
Amount: 75,609,201. 

Rank: 96; 
Station: Iron Mountain MI; 
Facility number: 585; 
VISN: 12; 
Number: 459; 
Amount: 16,882,679. 

Rank: 97; 
Station: St. Cloud; 
Facility number: 656; 
VISN: 23; 
Number: 456; 
Amount: 17,539,831. 

Rank: 98; 
Station: Louisville; 
Facility number: 603; 
VISN: 9; 
Number: 438; 
Amount: 51,080,527. 

Rank: 99; 
Station: W.G. (Bill) Hefner Salisbury V; 
Facility number: 659; 
VISN: 6; 
Number: 438; 
Amount: 50,753,235. 

Rank: 100; 
Station: VAMC Northport; 
Facility number: 632; 
VISN: 3; 
Number: 433; 
Amount: 45,155,858. 

Rank: 101; 
Station: VA Hudson Valley HCS-Montrose; 
Facility number: 620; 
VISN: 3; 
Number: 426; 
Amount: 23,146,875. 

Rank: 102; 
Station: Spokane; 
Facility number: 668; 
VISN: 20; 
Number: 420; 
Amount: 25,216,539. 

Rank: 103; 
Station: Manila; 
Facility number: 358; 
VISN: 21; 
Number: 410; 
Amount: 4,219,213. 

Rank: 104; 
Station: Charleston; 
Facility number: 534; 
VISN: 7; 
Number: 407; 
Amount: 44,239,266. 

Rank: 105; 
Station: Overton Brooks VAMC; 
Facility number: 667; 
VISN: 16; 
Number: 403; 
Amount: 36,677,997. 

Rank: 106; 
Station: Martinsburg; 
Facility number: 613; 
VISN: 5; 
Number: 401; 
Amount: 27,809,646. 

Rank: 107; 
Station: Sioux Falls; 
Facility number: 438; 
VISN: 23; 
Number: 394; 
Amount: 29,513,732. 

Rank: 108; 
Station: San Juan; 
Facility number: 672; 
VISN: 8; 
Number: 379; 
Amount: 28,838,772. 

Rank: 109; 
Station: North Chicago IL; 
Facility number: 556; 
VISN: 12; 
Number: 353; 
Amount: 31,553,133. 

Rank: 110; 
Station: Battle Creek; 
Facility number: 515; 
VISN: 11; 
Number: 337; 
Amount: 43,990,975. 

Rank: 111; 
Station: Saginaw; 
Facility number: 655; 
VISN: 11; 
Number: 334; 
Amount: 17,403,788. 

Rank: 112; 
Station: West Texas HCS; 
Facility number: 519; 
VISN: 18; 
Number: 327; 
Amount: 20,574,543. 

Rank: 113; 
Station: Salem; 
Facility number: 658; 
VISN: 6; 
Number: 326; 
Amount: 30,946,603. 

Rank: 114; 
Station: Dublin; 
Facility number: 557; 
VISN: 7; 
Number: 312; 
Amount: 38,793,048. 

Rank: 115; 
Station: Loma Linda VAMC; 
Facility number: 605; 
VISN: 22; 
Number: 298; 
Amount: 64,213,454. 

Rank: 116; 
Station: Tomah; 
Facility number: 676; 
VISN: 12; 
Number: 289; 
Amount: 13,582,895. 

Rank: 117; 
Station: Beckley; 
Facility number: 517; 
VISN: 6; 
Number: 274; 
Amount: 11,949,194. 

Rank: 118; 
Station: Cheyenne; 
Facility number: 442; 
VISN: 19; 
Number: 250; 
Amount: 13,484,935. 

Rank: 119; 
Station: Fayetteville NC; 
Facility number: 565; 
VISN: 6; 
Number: 243; 
Amount: 42,688,173. 

Rank: 120; 
Station: Southern Nevada HCS; 
Facility number: 593; 
VISN: 22; 
Number: 236; 
Amount: 95,628,301. 

Rank: 121; 
Station: Bedford; 
Facility number: 518; 
VISN: 1; 
Number: 229; 
Amount: 13,576,881. 

Rank: 122; 
Station: Asheville-Oteen; 
Facility number: 637; 
VISN: 6; 
Number: 203; 
Amount: 28,266,374. 

Rank: 123; 
Station: Grand Junction; 
Facility number: 575; 
VISN: 19; 
Number: 202; 
Amount: 11,259,749. 

Rank: 124; 
Station: Long Beach HCS; 
Facility number: 600; 
VISN: 22; 
Number: 199; 
Amount: 38,228,015. 

Rank: 125; 
Station: Hampton; 
Facility number: 590; 
VISN: 6; 
Number: 195; 
Amount: 27,693,752. 

Rank: 126; 
Station: Erie; 
Facility number: 562; 
VISN: 4; 
Number: 191; 
Amount: 15,333,253. 

Rank: 127; 
Station: Memphis; 
Facility number: 614; 
VISN: 9; Number: 185; 
Amount: 64,175,573. 

Rank: 128; 
Station: James E. Van Zandt VA (Altoona); 
Facility number: 503; 
VISN: 4; 
Number: 174; 
Amount: 26,823,897. 

Rank: 129; 
Station: Northampton; 
Facility number: 631; 
VISN: 1; 
Number: 156; 
Amount: 24,022,684. 

Station: RankStation: Total; 
Facility number: Rank Facility number: [Empty]; 
VISN: Rank VISN: [Empty]; 
Number: Rank Number: 127,070; 
Amount: Rank Amount: $6,908,827,084. 

Source: GAO analysis of IFCAP database. 

[End of table] 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kay Daly, (202) 512-9095 or dalykl@gao.gov. 

Acknowledgments: 

In addition to the contact named above, Glenn Slocum (Assistant 
Director), Richard Cambosos, Debra Cottrell, Francine DelVecchio, 
Daniel Egan, W. Stephen Lowrey, Robert Sharpe, and George Warnock made 
key contributions to this report. 

[End of section] 

Footnotes: 

[1] An obligation is a definite commitment that creates a legal 
liability of the government for the payment of goods and services 
ordered or received, or a legal duty on the part of the United States 
that could mature into a legal liability by virtue of actions on the 
part of the other party beyond the control of the United States. 
Payment may be made immediately or in the future. 

[2] A miscellaneous obligation can be used as a funds control document 
to commit (reserve) funds that will be obligated under a contract or 
other legal obligation at a later date. VA Office of Finance Directive, 
VA Controller Policy MP-4, Part V, Chapter 3, Section 3 A.01 states in 
pertinent part that "it will be noted that in many instances an 
estimated miscellaneous obligation (VA Form 4-1358) is authorized for 
use to record estimated monthly obligations to be incurred for 
activities which are to be specifically authorized during the month by 
the issuance of individual orders, authorization requests, etc. These 
documents will be identified by the issuing officer with the pertinent 
estimated obligation and will be posted by the accounting section to 
such estimated obligation." 

[3] VA Office of Finance Directives, VA Controller Policy MP-4, Part V, 
Chapter 3, Section A, Paragraph 3A.02 - Estimated Miscellaneous 
Obligation or Change in Obligation (VA Form 4-1358). 

[4] Department of Veterans Affairs, Office of Inspector General, Audit 
of Alleged Mismanagement of Government Funds at the VA Boston 
Healthcare System, Report No. 06-00931-139 (Washington, D.C.: May 31, 
2007). 

[5] GAO, Veterans Health Administration: Improvements Needed in Design 
of Controls over Miscellaneous Obligations, GAO-08-1056T (Washington, 
D.C.: July 31, 2008). 

[6] VISNs 13 and 14 were consolidated and designated VISN 23. 

[7] VA Office of Finance Directives, VA Controller Policy, MP-4, Part 
V, Chapter 3, Section A, Paragraph 3A.02 - Estimated Miscellaneous 
Obligation or Change in Obligation (VA Form 4-1358), [hyperlink, 
http://www.va.gov] accessed on December 12, 2007. 

[8] VA Office of Finance Bulletin 06GA1.05, Revision to MP-4, Part V, 
Chapter 3, Section A, Paragraph 3A.02 - Estimated Miscellaneous 
Obligation or Change in Obligation (VA Form 4-1358) (Sept. 29, 2006). 

[9] A purchase order is written authorization for a supplier to ship 
products to an agency at a specified price. Purchase orders may be 
supported by an underlying contract or function as the sole legally 
binding document. 

[10] In variable quantity contracts, the quantity of goods to be 
furnished or services to be performed may vary. Variations may be at 
the option of VA or the contractor. Under variable quantity contracts, 
normally no amount is obligated at the time the contract is signed. The 
order, which comes after the contract, obligates VA for goods or 
services and the obligation must be recorded for the exact amount, or a 
reasonable estimate of the order. 

[11] Department of Veterans Affairs Memorandum, Interim Guidance on 
Miscellaneous Obligations, VA Form 4-1358 (Jan. 30, 2008). 

[12] Further details on processes in place are described in VA's 
Integrated Funds Distribution Control Point Activity, Account and 
Procurement (IFCAP) PPM Accountable Officer User's Guide, Version 5.1 
(May 2007). 

[13] The IFCAP database included 129 VHA stations. A VHA station may 
include more than one medical center. 

[14] State veterans homes are established by individual states and 
approved by VA for the care of disabled veterans. The homes include 
facilities for domiciliary nursing home care and adult day health care. 

[15] In their comments on our draft report, VA officials said that this 
practice is consistent with 38 C.F.R. 17.52, which provides that 
infrequently used services, such as fee-basis services, may be 
initiated using individual authorizations. They said that individual 
authorizations for fee-basis care are not subject to procurement 
regulations, and that procurement regulations apply when the need for 
like medical services from the same medical provider is frequent enough 
to warrant the use of standard acquisition processes. 

[16] 38 C.F.R. 17.56. 

[17] GAO, Standards for Internal Control in the Federal Government, 
GAO/ AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[18] GAO, Standards for Internal Control in the Federal Government, 
GAO/ AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[19] Department of Veterans Affairs, Office of Inspector General, Audit 
of Alleged Mismanagement of Government Funds at the VA Boston 
Healthcare System, Report No. 06-00931-139 (Washington, D.C.: May 31, 
2007). 

[20] Grant Thornton, Department of Veterans Affairs, OMB Circular A-
123, Appendix A - Findings and Recommendations Report (Procurement 
Management) (July 18, 2007). 

[21] In 8 of the 23 cases, one official requested and approved a 
miscellaneous obligation. For the remaining 15 cases, one official 
performed those two tasks plus one or more other key tasks, such as 
recording the obligation of funds and certifying receipt of goods and 
services and approving payment. 

[22] GAO, Standards for Internal Control in the Federal Government, 
GAO/ AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[23] 31 U.S.C. 1501(a). 

[24] GAO, Principles of Federal Appropriations Law: Third Edition, 
Volume II, GAO-06-382SP (Washington, D.C.: Feb. 1, 2006). 

[25] No-year funds are appropriations for which budget authority 
remains available for obligation for an indefinite period of time. A no-
year appropriation is usually identified by language such as "to remain 
available until expended." 

[26] This official acts as VA's Senior Procurement Executive and 
oversees the development and implementation of policies and procedures 
for departmentwide acquisition and logistics programs supporting all VA 
facilities. 

[27] Department of Veterans Affairs Memorandum, Interim Guidance on 
Miscellaneous Obligations, VA Form 4-1358 (Jan. 30, 2008). 

[28] Department of Veterans Affairs, Memorandum, Revised Guidance for 
Processing of Miscellaneous Obligations, VA Form 4-1358 (May 18, 2008). 

[29] 48 C.F.R. 1.602-1 (b). 

[30] 48 C.F.R. 801.601 (b). 

[31] We visited the Cheyenne VA Medical Center in Cheyenne, Wyoming; 
the Kansas City VA Medical Center in Kansas City, Missouri; 
and the VA Pittsburgh Healthcare System, H. John Heinz III Progressive 
Care Center, in Pittsburgh, Pennsylvania. 

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