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,  transportation of veterans to and from medical centers for treatment, and  logistical support and facility maintenance for VHA medical centers  nationwide. VHA officials stated that miscellaneous obligations facilitate the payment  for contracted goods and services when the quantities and delivery dates  are not known. 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, 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. Collectively, these control design flaws increase the risk of fraud,  waste, and abuse (including employees converting government assets to  their own use without detection). 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. In May 2008, VHA management finalized the interim guidance. 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    establish an oversight mechanism to ensure that these control policies  and procedures are fully and effectively implemented. 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. 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.
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 billionof miscellaneous obligationsfor 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 VHA's 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. 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, VA's 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.