VA Faces Continuing Financial Reporting Deficiencies as a Result of Uncorrected Long-Standing Material Weaknesses

Although VA had eliminated some significant deficiencies in prior years,  other deficiencies have emerged that require attention. As a result of its  recurring internal control weaknesses in financial reporting, VA continues  to be at risk of processing errors and misstatements in VA’s financial  reports. However, although VA had corrective action plans in  place, many of these corrective action plans did not contain the detail  needed to provide VA or congressional oversight officials with assurance  that the plans had near-term actions that could be effectively implemented  on schedule. However, VA lacked documented policies and  procedures to ensure the consistent and comprehensive design of these  plans, and most of VA’s plans for correcting financial reporting  deficiencies in the near term lacked key information suggested in CFOC A- 123 Guidance. As of August 2009, VA had missed  milestones in 5 of the 13 corrective action plans to remediate fiscal year  2008 significant deficiencies underlying the financial management system  functionality and financial management oversight material weaknesses. Our analysis of corrective action plans for two significant deficiencies— the untimely capitalization of construction projects and inadequate  reconciliations related to benefit payments—showed that slipping  milestones could jeopardize VA’s completion of these plans by fiscal years  2009 and 2012 respectively, and therefore may impair VA’s ability to obtain  the improved data reliability originally envisioned within those time  frames. In addition, VA  lacked documented policies and procedures for overseeing the  implementation of corrective action plans to remediate material  weaknesses identified in financial statement audits. Appendix I: Scope and Methodology

To determine the nature of the internal control weaknesses identified in  the Department of Veterans Affairs (VA) fiscal year 2008 financial audit  report and how long they have been outstanding, we obtained and  analyzed the financial statement audit reports for fiscal years 2000 to 2008. To determine whether VA had plans appropriately focused on near-term  actions to address financial reporting deficiencies prior to the  implementation of its Financial and Logistics Integrated Technology  Enterprise (FLITE) system in fiscal year 2014, we analyzed VA’s corrective  action plans for remediating significant deficiencies underlying two of the  three material weaknesses impacting the reliability of financial  information integral for helping inform management decision making— weaknesses in VA’s financial management systems and in its financial  management oversight. To determine whether VA had appropriate oversight mechanisms in place  to help ensure that near-term corrective action plans to address financial  reporting deficiencies are implemented on schedule, we assessed the  status of plan implementation in July and August 2009 by identifying  whether VA met specific milestones and any slippages that had occurred.
Why GAO Did This Study

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.

What GAO Found

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.