Department Of Veterans Affairs:

Improvements Needed in Corrective Action Plans to Remediate Financial Reporting Material Weaknesses

GAO-10-65: Published: Nov 16, 2009. Publicly Released: Nov 16, 2009.

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In fiscal year 2008, the Department of Veterans Affairs (VA) identified three material internal control weaknesses over financial reporting--financial management system functionality, IT security controls, and financial management oversight. VA is developing a new financial system--FLITE--but full implementation is not expected until 2014. Therefore, the Subcommittee asked us to determine whether VA corrective action plans and oversight are appropriately focused on near-term actions to provide improved financial information. This report addresses (1) the nature of the internal control weaknesses identified in the VA fiscal year 2008 financial audit report and how long they have been outstanding, (2) whether VA had plans appropriately focused on near-term corrective actions, and (3) whether VA had appropriate oversight mechanisms in place to help assure that near-term corrective action plans are implemented on schedule. GAO reviewed corrective action plans for significant deficiencies underlying 2 of the 3 material weaknesses and performed additional analysis for two underlying significant deficiencies.

VA's fiscal year 2008 material weaknesses in financial management system functionality and financial management oversight have been reported since fiscal years 2000 and 2005, respectively. These two material weaknesses are comprised of 16 underlying significant financial reporting control deficiencies. Although VA had eliminated some significant deficiencies in prior years, other deficiencies have emerged. As a result, continuing serious deficiencies in financial reporting leave VA at risk of processing errors and misstatements in its financial statements. Although VA had corrective action plans in place intended to result in near-term remediation of the 16 fiscal year 2008 significant control deficiencies, many of these plans did not contain the detail needed to provide VA officials with assurance that the plans could be effectively implemented on schedule. VA lacked documented policies and procedures needed to assure the consistent and comprehensive design of these corrective action plans, and 8 of 13 of VA's plans for correcting its financial reporting deficiencies lacked key information regarding milestones for action steps and validation activities.As of August 2009, VA had missed milestones in 5 of the 13 corrective action plans. For example, our analysis of plans for remediating deficiencies regarding the capitalization of property, plant, and equipment and inadequate benefit payment reconciliations showed that slipping milestones could jeopardize VA's timely completion of these plans, and consequently may impair VA's ability to obtain improved data reliability within the time frames originally envisioned. VA lacked documented policies and procedures for overseeing implementation of the corrective action plans, but recently took steps intended to better coordinate its oversight activities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2009, VA established the Senior Assessment Team (SAT), chaired by the Assistant Secretary for Management, to oversee remediation of control weaknesses. In addition, VA issued a revised policies and procedures manual relating to its internal control processes and the stakeholders involved in the processes. This manual includes (among other items) processes on how to initiate, record, track, and approve corrective action plans (CAP). The manual also describes the steps for monitoring, verifying, and validating the corrective action plans. Included in the manual is a matrix of all the steps related to the CAP process and which individual or groups are responsible or involved in each step. The manual also describes the roles and responsibilities of each stakeholder in the process, including the role of the SAT, the team of senior VA officials who have the ultimate decision-making authority on the timelines of CAPs and whether each CAP has been fully implemented. VA's Office of Financial Process Improvement and Audit Readiness (FPIAR) is in charge of VA's CAP process. The FPIAR works with the process owner of the finding to develop a strategy to remediate the weakness and the FPIAR is in charge of keeping track of all CAPs to ensure that the CAPs are proceeding according to schedule. The FPIAR will then review the documentation to verify evidence of completion of the CAP. The FPIAR also reports to the SAT on a monthly basis on the status of CAPs, including any CAPs that might require more time or resources to complete. The FPIAR will then work with the process owner of the CAP to develop strategies to mitigate missed timelines, per the SAT's instructions. According to VA, the FPIAR office is staffed to allow for alignment of resources with the workload which and provides sufficient resources to meet its current needs.

    Recommendation: To help focus VA's corrective action plans on more effectively establishing and completing consistent and comprehensive near-term actions, the Secretary of VA should direct the Assistant Secretary for Management to issue policies and procedures for identifying and reporting on financial audit weaknesses to include: Establishing a VA Secretariat-level agency-wide governance structure for overseeing all Office of Management and Budget (OMB) Circular No. A-123 and financial statement audit material weakness remediation activities that provides for (1) involving key stakeholders in the remediation process (such as the Financial Process Improvement and Audit Readiness (FPIAR), administration Chief Financial Officer's (CFO), and other senior VA officials); (2) clearly defining stakeholder roles and responsibilities; (3) establishing and implementing strategic workforce planning for FPIAR; and (4) regularly assessing and reporting on the status of corrective action plans and identification of any actions needed to address any slippages of remediation activities.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: In December 2009, VA issued a revised policies and procedures manual relating to their internal control processes and the stakeholders involved in the processes. This manual includes (among other items) processes on how to initiate, record, track, and approve corrective action plans (CAPs). The manual also describes the steps for monitoring, verifying, and validating the corrective action plans. The manual also prescribes a standard template for all CAPs which includes descriptions of actions to be taken, key dates for expected completion, interim steps, and final approval, and total cost of the corrective action. VA's manual and template are applicable for all financial reporting deficiencies, including those identified through VA's assessment of its internal control (as required by OMB Circular A-123), financial statement audit findings, and any other findings requiring a CAP.

    Recommendation: To help focus VA's corrective action plans on more effectively establishing and completing consistent and comprehensive near-term actions, the Secretary of VA should direct the Assistant Secretary for Management to issue policies and procedures for identifying and reporting on financial audit weaknesses to include: Detailed guidance (such as a set of tools and templates in place to identify and report on programmatic weaknesses) on required corrective action plan elements (including milestones for completion of interim action steps and validation steps).

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: In August 2009, VA issued new policies and procedures regarding the timely capitalization of property, plant, and equipment (PP&E) which identified specific actions and time frames. The procedures provide, among other things, that property should be capitalized no later than the end of the fiscal month following the month that the property is put into use or accepted by VA. VA implemented their new PP&E policies, and in fiscal years 2010 and 2011. Further, VAs's external financial auditor no longer reported timely capitalization of PP&E as a significant deficiency.

    Recommendation: To help ensure the timely and complete capitalization of property, plant, and equipment, the Secretary of VA should direct the Assistant Secretary for Management to issue procedures on specific actions and identify specific reasonable time frames, such as within 30 days, to implement VA policy to capitalize property, plant, and equipment (PP&E) projects when they are placed in service.

    Agency Affected: Department of Veterans Affairs

 

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