Financial Audit:

Veterans Administration's Financial Statements for Fiscal Years 1987 and 1986

AFMD-89-23: Published: Nov 30, 1988. Publicly Released: Nov 30, 1988.

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GAO reviewed the Veterans Administration's (VA): (1) consolidated financial statements for the fiscal years ended September 30, 1987 and 1986; (2) internal accounting controls; and (3) compliance with laws and regulations.

GAO found that, except for two qualifications, the consolidated financial statements presented fairly: (1) the financial position of VA on September 30, 1987 and 1986; and (2) the results of VA operations, the changes in its financial position, and the budget reconciliation for fiscal year (FY) 1987. GAO qualified its opinion due to: (1) its inability to perform necessary auditing procedures to substantiate the asset and related expense accounts, due to unavailable documentation and inaccurate account balances; and (2) a $3-billion overstatement in life insurance reserves due to VA use of statutory assumptions, rather than more realistic assumptions. GAO also found: (1) that the VA manual property accounting system was inefficient; and (2) automatic data processing (ADP) internal control weaknesses at all three VA data processing centers. In addition, GAO found that VA violated laws and regulations by failing to charge: (1) interest and administrative costs on certain debts that compensation and pension programs generated; or (2) the correct interest rate on its loan guaranty accounts receivable. GAO found that: (1) VA stated that it could not charge the correct rate until 1991 when it would complete necessary computer software reprogramming; and (2) the VA cash vendor invoice payment procedures did not fully comply with regulations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: VA expects to implement computer software changes and commence charging current interest rates in FY 1992.

    Recommendation: The Administrator of Veterans Affairs should require the Director of the Department of Veterans Benefits to reevaluate the priority given the computer software reprogramming work load to determine whether the 1980 legal requirement for charging current interest rates on loan guaranty receivables can be implemented earlier than 1991.

    Agency Affected: Veterans Administration

  2. Status: Closed - Not Implemented

    Comments: On July 8, 1992, the Deputy Secretary decided not to charge interest and administrative costs on compensation- and pension-related items. This decision does not appear consistent with the law.

    Recommendation: The Administrator of Veterans Affairs should require the Director of the Department of Veterans Benefits to determine an effective and appropriate method of resolving the issue of charging interest on accounts receivable relating to the compensation and pension benefit overpayments as required by the 1980 amendments to the Veterans' Rehabilitation and Education Act. At least two potential alternatives include: (1) issuing waivers as authorized by 38 U.S.C. 3102 for cases where charging interest and administrative costs is deemed to be against equity and good conscience; or (2) obtaining the legislative approval to exempt compensation and pension receivables from interest and administrative costs charges.

    Agency Affected: Veterans Administration

  3. Status: Closed - Implemented

    Comments: VA is emphasizing to department directors the quality and timeliness of reconciliations.

    Recommendation: The Administrator of Veterans Affairs should reiterate to department directors the need to follow all internal accounting control procedures and to adhere to VA policies, with particular emphasis on performing and finalizing reconciliations of account balances.

    Agency Affected: Veterans Administration

  4. Status: Closed - Implemented

    Comments: VA has taken action to address the recommendations. VA updated its policy manual in 1991. Software changes are now controlled by change control software. The Austin Data Processing Center EDP Audit Group has established and implemented independent audit test procedures and files.

    Recommendation: The Administrator of Veterans Affairs should direct the Office of Information Systems and Telecommunications and the Department of Veterans Benefits to improve the ADP centers. These corrective actions should include: (1) implementing effective manual or automated documented reviews of software program code changes for sensitive applications; and (2) incorporating software maintenance and data integrity controls, such as establishing independent audit test files at the Austin Data Processing Center.

    Agency Affected: Veterans Administration

  5. Status: Closed - Implemented

    Comments: Corrective action had been taken by the date of VA response on recommended improvements. Another improvement will require automation of the VA real property system. VA is providing for the design of such a system in the design requirements for a new financial management system, the VA primary financial system which is to be installed in FY 1992.

    Recommendation: The Administrator of Veterans Affairs should direct the Controller and the Director of Facilities to develop an automated property management accounting system which includes improved internal controls over transactions affecting property and related accounts. The improvements should include: (1) issuing additional guidance to medical centers on identifying the operational fund expenditures that should be capitalized; (2) revising capitalization procedures to identify responsibilities of individuals involved in making capitalization decisions and to ensure that costs are capitalized when buildings or capital improvements are placed in use; and (3) implementing internal controls to ensure that medical centers accurately calculate depreciation on buildings and other structures.

    Agency Affected: Veterans Administration

  6. Status: Closed - Implemented

    Comments: CAPPS system enhancement has been installed. All field stations now have on-line capability to handle certified invoices.

    Recommendation: The Administrator of Veterans Affairs should direct the Controller to complete the conversion to the automated invoice payment system of invoices handled manually.

    Agency Affected: Veterans Administration

 

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