Veterans Health Administration: Improvements Needed in Design of Controls over Miscellaneous Obligations

In our September 2008 review of VA controls over Miscellaneous Obligations, we reported that contracting officials were unable to electronically document their review of miscellaneous obligations (VA Form 1358) and no manual documentation procedure had been developed. Without control procedures for contracting personnel to review and approve miscellaneous obligations prior to their creation, VHA is at risk that procurements will not have safeguards established through a contract approach. As a result VA lacked control over the procurement of and the use of its resources. To help address this issue, we recommended that the Secretary of Veterans Affairs, in conjunction with VA's Office for 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 the review has occurred. In response to our recommendation, VA completed actions to establish and implement a process for contracting officials to review and document reviews of miscellaneous obligations. In January 2009, VA issued Volume II, Chapter 6 of VA Financial Policies and Procedures: Miscellaneous Obligations. This policy required that the VA Form 1358 could not be used as an obligation control document unless approved by a contracting official. Furthermore, in August 2010, VA revised its 1358 policy to restrict use of 1358's to document procurement actions for 23 previously approved uses. In addition, to enforce the new policy, VA's Integrated Funds Distribution, Control Point Activity, Accounting and Procurement system was modified to require users to select the purpose of the 1358 from a drop down menu. Under this new policy, all other actions are to be routed to contracting officials for reviews, approval, and documentation. By implementing our recommendation to establish a process for review and documentation of reviews by contracting officials, VA has improved its accountability of government resources and helped safeguard those assets from fraud, waste, and abuse.

In our September 2008 review of VA controls over Miscellaneous Obligations, we reported that the VA's Integrated Funds Distribution, Control Point Activity, Accounting and Procurement (IFCAP) system control design allowed for a single official to perform multiple key roles in the process of creating and executing miscellaneous obligations (VA Form 1358), and that VA policies and procedures did not specifically prohibit this practice. To help address this issue, we recommended that the Secretary of Veterans Affairs, in conjunction with VA?s Office for General Counsel, develop and implement policies and procedures consistent with federal appropriations law and internal control standards that 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. In response to our recommendation, VA completed actions to establish and implement policies and procedures to segregate duties in the process of creating and executing miscellaneous obligations. In January 2009, VA issued Volume II, Chapter 6 of VA Financial Policies and Procedures: Miscellaneous Obligations. The policy provided no one official may control all key aspects of a transaction or event. Specifically, no one official may perform more than one of the following key functions: requesting, approving, recording the obligation of funds, or certifying delivery of goods and services or approving payment. In June 2010, the Secretary issued a decision memo requiring quarterly certification by all field facility directors and their information security officers that their facilities were meeting segregation of duties as defined by VA's policy for 1358s. In addition, in February 2011, VA installed a patch to the IFCAP system that included an automated enforcement of segregation of duties. Also, in March 2011, a statistically valid VA-wide review of 1358s to determine the level of Department-wide compliance with new policies and procedures was completed. The results should substantially improve VA-wide compliance with segregation of duties requirements. By implementing our recommendation to establish and implement policies and procedures for the segregation of duties, VA has improved its accountability of government resources and helped safeguard those assets from fraud, waste, and abuse.

In our September 2008 review of VA controls over Miscellaneous Obligations, we reported that VA policies and procedures were not sufficiently detailed to specifically require the purpose, vendor, and contract fields to be adequately documented on the Miscellaneous Obligation VA Form 1358. Without control procedures for documenting these fields VA cannot determine that the procurement represents a bonafide need or that the invoices reflected a legitimate use of federal funds. As a result VA lacked control over the procurement of and the use of its resources. To help address this issue, we recommended that the Secretary of Veterans Affairs, in conjunction with VA's Office for General Counsel, develop and implement policies and procedures consistent with federal appropriations law and internal control standards to document the purposes, vendors, and contract numbers of miscellaneous obligations. In response to our recommendation, VA completed actions to establish polices and implement a process for documentation of the purpose, vendor, and contract number fields on the miscellaneous obligation form. In January 2009, VA issued Volume II, Chapter 6 of VA Financial Policies and Procedures: Miscellaneous Obligations, which established a VA-wide policy requiring that the purpose, vendor and contract number be documented on all miscellaneous obligations. In February 2011, VA completed actions needed to implement its new procedural requirements by implementing an Integrated Funds Distribution, Control Point Activity, Accounting and Procurement system patch requiring mandatory fields for purpose, vendor, contract number and period of performance for each 1358, to be completed, before the 1358 can be further processed and approved. By implementing our recommendation to establish policies and procedures for documentation of the mandatory data fields, VA has improved its accountability of government resources and helped safeguard those assets from fraud, waste, and abuse.

In our September 2008 review of VA controls over Miscellaneous Obligations, we reported that VA policies were not sufficiently detailed concerning the documentation of review by contracting officials, segregation of duties, and the completion of purpose, vendor, and contract number fields on the Miscellaneous Obligation VA Form 1358. To address these issues, we recommended that the Secretary of Veterans Affairs establish an oversight mechanism to ensure that new control policies and procedures are fully and effectively implemented. In response to our recommendation, VA established an oversight mechanism for policies and procedures over Miscellaneous Obligations. In particular VA established two related oversight mechanisms. First, the Management Quality Assurance Service (MQAS) expanded their procurement audits to require a review of 1358's on all audit visits. Second, the Veterans Health Administration (VHA) Financial Quality Management Group was to review a percentage of all VHA stations 1358s. Further, in Fiscal Year 2011 MQAS initiated a new reporting process to provide 1358 findings more visibility and enabling faster corrective action. For example, a mini-report focuses exclusively on 1358s. The reports are to provide stations a deadline in which to implement recommendations and provide supporting documentation to verify implementation of the recommendations. In addition, under the revised procedures the Chief Financial Officer receives certification reports from all facilities for segregation of duties on a monthly basis, along with their corrective action plans. By implementing our recommendation to establish an oversight mechanism over policies and procedures for 1358s VA has improved its accountability of government resources and helped safeguard those assets from fraud, waste, and abuse.