May212013
Hearing Transcript on Continued Oversight of Inadequate Cost Controls at the U.S. Department of Veterans Affairs.
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CONTINUED OVERSIGHT OF INADEQUATE COST CONTROLS AT THE U.S. DEPARTMENT OF VETERANS AFFAIRS
HEARING BEFORE THE COMMITTEE ON VETERANS' AFFAIRS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION JULY 28, 2010 SERIAL No. 111-95 Printed for the use of the Committee on Veterans' Affairs
U.S. GOVERNMENT PRINTING OFFICE For sale by the Superintendent of Documents, U.S. Government Printing Office
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CORRINE BROWN, Florida |
STEVE BUYER, Indiana, Ranking |
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Malcom A. Shorter, Staff Director Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. |
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C O N T E N T S
July 28, 2010
Continued Oversight of Inadequate Cost Controls at the U.S. Department of Veterans Affairs
OPENING STATEMENTS
Chairman Bob Filner
Prepared statement of Chairman Filner
Hon. Steve Buyer, Ranking Republican Member
WITNESSES
U.S. Government Accountability Office, Susan Ragland, Director, Financial Management and Assurance
Prepared statement of Susan Ragland
U.S. Department of Veterans Affairs, Edward Murray, Deputy Assistant Secretary for Finance
Prepared statement of Mr. Murray
MATERIAL SUBMITTED FOR THE RECORD
Post-Hearing Questions and Responses for the Record:
CONTINUED OVERSIGHT OF INADEQUATE COST CONTROLS AT THE U.S. DEPARTMENT OF VETERANS AFFAIRS
Wednesday, July 28, 2010
U. S. House of Representatives,
Committee on Veterans' Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in Room 334, Cannon House Office Building, Hon. Bob Filner [Chairman of the Committee] presiding.
Present: Representatives Filner, Michaud, Herseth Sandlin, Donnelly, McNerney, Adler, Kirkpatrick, Buyer, Stearns, Boozman, and Roe.
OPENING STATEMENT OF CHAIRMAN FILNER
The CHAIRMAN. Good morning. The Committee on Veterans’ Affairs will come to order.
Before we get started, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks.
Hearing no objection, so ordered.
The U.S. Department of Veterans Affairs (VA) is the second largest agency in our system of government and each year they are authorized billions of dollars to care for our Nation’s veterans.
Miscellaneous obligations, as they are called, are used by the VA to obligate funds in circumstances where the amount to be spent is uncertain. They are used to reduce administrative workload and to facilitate payment for contracted goods and services when quantities and delivery dates are unknown.
In 2008, the Subcommittee on Oversight and Investigations held a hearing to assess the Department’s inadequate controls of these funds, shedding light on material weaknesses in VA financial management systems.
Today, we will examine exactly what actions the VA has taken since 2008 to ensure that these financial material weaknesses are corrected and that improvements are being made in its internal financial control reporting.
The Secretary’s recent decision to cancel the Integrated Financial Accounting System project effectively eliminates the FLITE Program, that is the Financial and Logistics Integrated Technology Enterprise Program. FLITE was intended to integrate and standardize the agency’s financial and asset management processes across all offices of the Department by 2014 at a cost of $570 million.
Though the FLITE Program was not the ultimate end all, VA had parallel efforts under way to fix the material weaknesses.
We are here today to make certain that the process is credible and ensure integrity of that process.
In fiscal year 2009, the VA spent almost $12 billion on miscellaneous obligations, which was doubled from the reported 2007 levels.
The U.S. Government Accountability Office (GAO) reviewed VA’s financial reporting system and cited that the Department has made some improvements, but still have not fully addressed the specific control design flaws.
The GAO made four recommendations to the VA to develop and implement policies and procedures intended to improve overall control, including better oversight of miscellaneous obligations; segregation of duties; improved supporting documentation of these obligations; and, oversight mechanisms to ensure control policies and procedures were fully implemented.
We will hear today that the VA is making significant strides in its financial accounting employing policies and procedures to improve the oversight of the miscellaneous obligations and implement GAO’s recommendations, but I am anxious to hear from the VA when they plan to fully implement these policies.
Effective oversight and review by trained, qualified officials is a key factor in identifying potential risk for fraud and waste.
It is obvious that without basic controls over these billions of dollars, the VA is at a significant risk of fraud, and effectively designed internal controls would help mitigate those concerns.
As we ensure there is more accountability in miscellaneous obligations, we do not want to infringe on VA’s abilities to provide quality care to veterans.
While the VA’s mission is to care for those who have sacrificed so much, we must ensure proper use of taxpayer money, and financial accountability.
I will now yield to our Ranking Member, Mr. Buyer.
[The prepared statement of Chairman Filner appears in the Appendix.]
OPENING STATEMENT OF HON. STEVE BUYER
Mr. BUYER. Thank you, I appreciate you holding this hearing today, and as you know the Subcommittee on Oversight Investigations has held a number of hearings on cost control over the years.
During the 108th Congress, we held a series of three hearings, both at the Subcommittee and the full Committee level on eliminating the waste, fraud, and abuse, and mismanagement in veterans programs at the VA. Included in these hearings were discussions on the VA’s purchase cards, as well as third-party billing.
In July 2008, the Subcommittee on Oversight Investigations followed with another hearing on the use of miscellaneous obligations and the problems that the VA has in accounting for funds spent when using this type of purchasing of products and services.
It remained clear that VA still did not have a means to determine where and how its funds were being spent. All VA could tell the Subcommittee at that time was that it had spent $5.7 billion through miscellaneous obligations and the use of the VA Form 4-1358.
I understand the fixes that VA tried to put in place to reduce this have failed, and now miscellaneous obligations have more than doubled to $12 billion. So we have gone from the $5.7 billion in 2008 to now $12 billion being spent under miscellaneous obligations.
Any business in the private sector would cease to exist I think under those types of conditions.
How does the VA have any confidence that it is not deficient on any given day?
The hearing today is truly timely in light of the VA’s recent announcement to our offices that they plan to halt the development of what the Chairman just talked about, our Integrated Financial Accounting System, continuing the lack of adequate controls over the cost of the Department.
I frankly was surprised that the VA would take this step with the supposed blessing of the Office of Management and Budget (OMB), but without any real plan for the future other than to limp along. That is what surprised me most.
I anticipate hearing today what the VA is going to do to rectify the issue, and I am always interested in not only where you were now, but what your over the horizon vision is with regard to these cost controls.
Without a working financial system to track the spending, how can the VA get a grip on their expenditures? It is almost as if the VA is purposefully refusing to integrate transparency into its budget and does not want Congress or the public to know exactly how inefficient its procurement practices are.
If a chief financial officer (CFO) in the private sector didn’t use a system to track where the money is going, that person would no longer be the chief financial officer. The government should take the same type of care and precaution when using funds it takes from the Nation’s treasury. We should treat these funds as sacred trust and invest them wisely and full accountability is warranted.
By the continuing use of miscellaneous obligations and the overuse of VA Form 4-1358 when making purchases, the VA has absolutely no idea where it is spending its funding, opening itself to a widespread fraud, waste, and abuse that the Chairman referred to, and I think we can better utilize these dollars.
And where is the transparency in government? What is the VA doing in the cost controls when it doesn’t even know where the funds are being spent? I think this is unacceptable.
Mr. Chairman, I want to thank you for working with my staff, along with the Subcommittee—your Subcommittee staff on the Acquisition Reform Bill.
In your statement that you just made, you talked about the need for better oversight and its mechanisms, and I think the Acquisition Reform Bill that we are working on puts together the structure and hopefully the internal controls for which you are referring.
I yield back.
The CHAIRMAN. I hope we do that before we adjourn for the year in September.
Mr. BUYER. We have to get it to the Senate.
The CHAIRMAN. All right, I will work with you.
Mr. BUYER. Okay.
The CHAIRMAN. We will keep him in.
If the first panel will please come forward? Ms. Susan Ragland is the Director of Financial Management and Assurance at the U.S. Government Accountability Office, and she is accompanied by Mr. Glenn Slocum, the Assistant Director for Financial Management and Assurance at GAO.
Thank you both for being here today. Your complete written statements will be made part of the record. You will be given 5 minutes for an oral statement?
Ms. Ragland?
STATEMENT OF SUSAN RAGLAND, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; ACCOMPANIED BY GLENN SLOCUM, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. RAGLAND. All right.
Thank you Chairman Filner and Members of the Committee. I am pleased to be here to discuss the findings from our work relevant to this hearing on VA’s internal controls.
I will discuss our reports on the Veterans Health Administration's (VHA’s) use of miscellaneous obligations and VA’s plans to correct financial reporting control deficiencies, and I will also provide a brief update on VA’s internal inspections in its fiscal year 2009 financial audit report.
Starting with miscellaneous obligations.
In September 2008, we reported that VA policies and procedures were not designed to provide adequate controls over the authorization and use of miscellaneous obligations.
We made four recommendations, and VA developed policies and procedures in these areas in January of 2009.
The first area is oversight by contracting officials. Without control procedures for contracting review and approval, VHA is at risk that procurements do not have the necessary safeguards.
The second area was inadequate segregation of duties. Key duties and responsibilities need to be divided among different people to reduce the risk of error or fraud.
Third, VA’s policies and procedures were not sufficiently detailed to require information such as purpose, vendor, and contract number that are needed to document that the obligation was for a legitimate use of Federal funds.
Our fourth area recommended that VA establish an oversight mechanism to ensure that the control policies and procedures are fully and effectively implemented.
VA’s Management Quality Assurance Service (MQAS) evaluated compliance with VA’s policies and procedures for using miscellaneous obligations, and they found that continuing control problems exist in each of these areas that we identified.
Many miscellaneous obligations were not submitted for the required contracting review and approval, there was inadequate segregation of duties, a lack of supporting documentation, and facilities still needed to institute quarterly reviews of their miscellaneous obligations as VA policies call for.
According to VA officials, VHA facilities are in the process of taking corrective actions to address these recommendations.
Turning to VA’s long-standing material weaknesses.
In November of 2009, we reported that VA had three long-standing material weaknesses in internal control over financial reporting.
Financial management oversight has been reported as a material weakness since fiscal year 2005. This includes recording financial data without sufficient review and monitoring.
Financial management system functionality has been reported as a material weakness since fiscal year 2000. That is linked to VA’s outdated legacy financial systems and affects VA’s ability to prepare and analyze financial information that is timely and reliable.
The third weakness, information technology (IT) security controls, has also been reported since 2000. That includes the need for better controls over access and changes, and as well as for segregation of duties.
While we found that VA had corrective action plans, the plans did not contain detail needed to provide VA officials with assurance that the plans could be effectively implemented in a timely manner on schedule.
A rigorous framework for designing and overseeing these plans and top leadership support will be essential in ensuring the timely resolution of VA’s internal control weaknesses.
VA concurred with the three recommendations that we made and said it is taking action to address these.
VA’s most recent financial report, fiscal year 2009, again included these three material weaknesses. Furthermore, the timetable for correcting them has slipped.
VA reported in its 2009 performance and accountability report that the financial management oversight weakness will be resolved in 2012, and the IT security controls weakness in 2010; however, in 2008 VA had anticipated that these two weaknesses would have been resolved in 2009.
So in summary, VA’s internal inspections and most recent financial audit report indicate that the serious, long-standing deficiencies that we discussed in our 2008 and 2009 reports are continuing.
Effectively addressing the root causes and resolving these issues will require well designed plans and diligent and focused oversight by senior VA officials.
Until VA’s management fully addresses our recommendations VA will continue to be at risk of improper payments, waste, and mismanagement.
This concludes my prepared statement. I am pleased to be accompanied by Glenn Slocum, the Assistant Director, who worked on both of these reports, and we are happy to respond to any questions that you may have.
Thank you.
[The prepared statement of Ms. Ragland appears in the Appendix.]
The CHAIRMAN. Thank you very much.
Before I call on Mr. Donnelly, if you had to give a grade between your initial report and now what would you give? I am a teacher, so—
Ms. RAGLAND. I guess I would say somewhere C plus or B minus, somewhere in there.
The CHAIRMAN. Sounded like an F to me, but what do I know.
Mr. Donnelly, do you have any questions?
Mr. DONNELLY. No questions, Mr. Chairman.
The CHAIRMAN. Mr. McNerney?
Mr. MCNERNEY. Well, thank you, Mr. Chairman.
One of the things that I have heard over and over this morning is the risk. I mean there is a certain risk of fraud, things aren’t well controlled, there is going to be opportunity for abuse.
Is there any evidence of actual abuse, or is this just speculative at this point?
Ms. RAGLAND. Well, there has been a combination of factors. Because if you have—on the miscellaneous obligation side—if you are not checking from the contracting review and then you have one person who was able to make all of the decisions about what to purchase and is authorizing that and signing off on that, which is a very basic tenant of internal controls, then that is very risky. And so VA is working to address that, but that would be one area that I would say is a clear risk. And so that would be an important area to fix.
Mr. MCNERNEY. I mean, it seems obvious to me that if there is that level of risk then there is going to be some fraud going on now that is unacceptable. I mean any fraud is unacceptable, but a level that would be scandalous and would reflect badly on the VA and this Committee and the whole bit, so, I mean we need to look into that and find out who those people are, if there are people committing fraud and bring that to light before the press does, before outside activities do.
What steps will require Congressional action as opposed to regulatory action to improve the situation?
Ms. RAGLAND. Well the basic thing that I would say is the continuing oversight. Because one of the things that we see generally is that if there is top level attention to an issue then there is improvement, but it is uneven.
And so progress, even though some of the areas may be declining in terms of non-compliance at that point, it is not just a straight line down, it is uneven, and sometimes it may be coming back up.
And so having the focus and the ongoing attention I think is very important.
Mr. MCNERNEY. Okay. Well, what did the GAO find regarding the extent to which the VA has adequate plans and timetables for fixing them? I mean you mentioned 2012 and 2011. I mean those seem a little bit far off.
Ms. RAGLAND. Yes, sir. Well, what we found was that the corrective action plans that VA had didn’t have the necessary information. They didn’t have milestones in some cases for specific actions. And we also, as you say, we saw that the plans had slipped.
So one of the things is that for the financial management oversight area, that is going to be 3 years longer than they had said it might be in 2008.
There is also another material weakness that has been added in fiscal year 2009, and there is no timetable yet set that we know of to address that area of compensation, pension, and burial liabilities.
And as Members here have said, it is too soon to tell what the impact of the cancellation of FLITE components will have on VA’s ability to fully remediate some of these financial management weaknesses.
Mr. MCNERNEY. Okay. So your written testimony has specific recommendations and guidelines, is that correct?
Ms. RAGLAND. Yes, sir.
Mr. MCNERNEY. So I assume that the Committee is going to make sure that the VA follows up on this.
The CHAIRMAN. Well, they will be on the second panel, so we will be checking with them.
Mr. MCNERNEY. Okay. Oh, that is right. Okay, I yield back.
The CHAIRMAN. Mr. Roe?
Mr. ROE. Thank you, Mr. Chairman.
Just a couple of things. One, a little bit of frustration. Yesterday we hear—I took an amendment to the bill we are going to vote on today to the Rules Committee, and it was to use some unused funds from the FLITE Program to adequately fund the Office of Inspector General (OIG). If you looked at what the OIG returned us last year in oversight and fraud, or I guess it was 2009, it was $38 to $1.
So you are correct, Ms. Ragland, that there were—and I guess the bill was ruled—the amendment was ruled non-germane. But I think we should have increased—used some unused funds to be able to get some accountability and oversight.
What Ranking Member Buyer just said a moment ago about accountability is extremely important. And what are the penalties if you recognize these things?
And I think you ought to set reasonable timelines. I think it is unfair to give an organization as large as the VA, here, by 6 months you have to have it done, but some reasonable timelines to get it done with, and if that doesn’t happen what happens to the people who are in charge of this when it doesn’t happen?
And then you find out when—for instance in CBOCs (Community-Based Outpatient Clinics) we don’t review them but once every 20 years in the VA.
So the question is what happens to those? Who is accountable and what happens to them when we find out these problems exist?
Ms. RAGLAND. Well, I think that is an excellent question.
I know on some of the corrective action plans one of the elements that we called for was to have a person who would be responsible so that you would be able to identify who should you go to to find out what happened and why isn’t progress being made on that?
Mr. ROE. Now, I would think when you have a—and obviously $12 billion is a lot of money and it is a lot to look after, but there should be a plan that when this isn’t implemented and you don’t find it, someone ought to be held accountable and heads ought to roll.
And clearly what Congressman Buyer said in the private sector, that is clearly what happens. People get fired.
Ms. RAGLAND. Yes.
Mr. ROE. Is that what happens here or do we just don’t do anything or what do we do?
Mr. SLOCUM. I would just say that OMB circular A-50 addresses this point. You know, one of the things that it talks about is holding people accountable for the remediation of these problems, but we have not looked at the extent to which that is actually has taken place. It is part of a monitoring mechanism that should be there, but we haven’t looked at that.
Mr. ROE. And I agree with Congressman McNerney, my colleague, is that it reflects poorly on the VA, which they don’t want to be. I mean, I understand that they want to do a good job, and this Committee, if we allow that to happen, and if we come back a year or 2 years from now and the same thing is going on what happens?
Ms. RAGLAND. Yes.
Mr. ROE. Is there any corrective action that can be taken in your recommendation, Ms. Ragland?
Ms. RAGLAND. I think that the only thing that we have is to come back to you all and point that out, that is our role.
Mr. ROE. Okay. Thank you.
I yield back, Mr. Chairman.
The CHAIRMAN. Thank you. Mr. Roe, if you would get that amendment to us I want to track that down. It sounds good to me.
[Congressman Roe provided the Chairman with a copy of the amendment later in the day.]
The CHAIRMAN. Mr. Donnelly?
Mr. DONNELLY. Thank you, Mr. Chairman.
Given the various compliance issues that GAO found and the problems that we have seen and the attempt to fix it, what—do you have a new timeline as to when these problems can get resolved, what we are looking at?
Ms. RAGLAND. We don’t have a new timeline. We would look to the VA to set a timeline—
Mr. DONNELLY. Have they given you any information on that?
Ms. RAGLAND. Just the information about the material weaknesses dates. That is the basic information that we have.
Mr. DONNELLY. With various components of FLITE being terminated, what financial management initiatives are being considered instead?
Ms. RAGLAND. That is a question that we would ask VA.
Mr. DONNELLY. And they haven’t given you any information?
Ms. RAGLAND. No, we have just seen that they do have initiatives in place that were intended to remediate some of these weaknesses, but we have a question in terms of how fully they will be able to do that without the implementation of FLITE
Mr. DONNELLY. So there is still a whole bunch of information that you need that the VA has not gotten to you at this time?
Ms. RAGLAND. Right. We just got general information.
Mr. DONNELLY. Okay. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Donnelly.
Mr. Stearns?
Mr. STEARNS. Thank you, Mr. Chairman.
Ms. Ragland, you gave this exercise a B minus. Now the report in 2008 was roughly $5.7 billion miscellaneous obligations that were unable to be identified as how they were spent, and now it is $12 billion in 2009. I mean, so it looks like it has jumped twice. So the problem has gotten twice as—
Ms. RAGLAND [continuing]. Twice as big.
Mr. STEARNS. Twice as big. And wouldn’t that mean that they flunked? I mean, wouldn’t you have to be honest to yourself and say it appears to me that nothing has been done?
I mean if the thing had—if you couldn’t get $6 billion and find out where it was spent in 2008 and now it is $12 billion, following this extrapolation it will be $24 billion, $25 billion when you come back here again with your GAO report.
At what point don’t you think that they are—how can you say they are passing?
Ms. RAGLAND. Well, you are making a very good point, and really the thinking that I had behind my response was that I do think that VA is making efforts in these areas. And so even though the risk may be—
Mr. STEARNS. So they get a B minus because they are making efforts when it doubles?
Ms. RAGLAND. Well—
Mr. STEARNS. Would you have a student that—
Ms. RAGLAND. They do have the policies and procedures in place, and they are taking actions to monitor them, and that is the information that we got from the Management Quality Assurance Service service—that they are doing inspections and finding these things, which is what we would look for.
Mr. STEARNS. Well, I understand you are being diplomatic.
In reading the summary in your report, you said there are serious long-standing deficiencies we identified that are continuing. So here in 2008-2009 you say these deficiencies—serious long-standing deficiencies are continuing.
Ms. RAGLAND. Yes.
Mr. STEARNS. And that is not very optimistic to me.
And then you went on to say that there are serious weaknesses that continue to raise questions concerning whether VA management has established the appropriate tone at the top necessary to ensure that these matters receive the full, sustained attention.
So in both the statements I gave you it appears that the management is not connecting, that you have identified long-standing deficiencies that continue, and these serious weaknesses raise further questions.
So I think you have done your job, I think you have to be woman enough to say these folks are flunking, and you have to be a little bit more draconian in your statement.
Now let me ask you this question. You mention in your report they have outdated systems. Does the VA have the technological capability to do this? What do you mean by outdated systems?
Mr. SLOCUM. VA’s systems sometimes revert to manual processes in order to produce its year-end financial—
Mr. STEARNS. So they haven’t used computers, they haven’t used the internet, they haven’t—
Mr. SLOCUM. No, they do have all that, but some of the reconciliations that they may need to do at year end, they have a MINIX system, which is used to produce their year-end statements. They have—
Mr. STEARNS. They are done manually then?
Mr. SLOCUM. It is not manually, but there is—it is not totally manually, but there are reconciliations that take place that in a better world would be more automated, and it effects their inventory systems at pharmacies, and that is what we are talking about.
Mr. STEARNS. In 2008, did you bring that to their attention with this same statement that they had outdated systems?
Mr. SLOCUM. Well, there are two reports. You know, there is one with miscellaneous obligations, and I think that is the one that—
Mr. STEARNS. Okay.
Mr. SLOCUM [continuing]. Ms. Ragland gave them a B minus on. The other report dealt with a financial reporting control deficiencies, and those with the problems that have been around since 2000 or longer, and maybe there would be a—maybe you would give them a lower grade on that. I am not sure.
Mr. STEARNS. Okay. Well, then the statement says lack of sufficient personnel.
Have you found that the personnel is one of the serious problems that they have? Personnel that either don’t have the appropriate knowledge and skills, or they just don’t have the personnel?
Ms. RAGLAND. That has been one of the independent public auditor’s findings in the financial reports.
Mr. STEARNS. Uh-huh.
Ms. RAGLAND. And that has been over years.
Mr. STEARNS. And was that true in 2008, that same conclusion?
Ms. RAGLAND. I am not positive. I believe so.
Mr. STEARNS. Okay.
Mr. BUYER. Mr. Stearns, would you yield?
Mr. STEARNS. Yes, I would be glad to yield to the Ranking Member.
Mr. BUYER. Based off of the question just asked. Do you believe there would be any value in doing an updated audit of the VA’s controls over its contracting?
Ms. RAGLAND. I believe that it would be valuable to look at VA’s contracting procedures and the organizational structure.
Mr. STEARNS. Well, I will just close, Mr. Chairman.
You know, this might be something that we would ask the VA, since they have had a continuing long-term problem here, is to maybe subcontract this out so that we get a little bit more efficiency and this problem doesn’t continue.
Because, Ms. Ragland, based upon what these reports would indicate, in another year it could be $25 billion in miscellaneous obligation, and we can’t have that.
Thank you.
Ms. RAGLAND. Thank you.
The CHAIRMAN. They may subcontract it out under miscellaneous obligations.
Mr. STEARNS. Right.
Mr. BUYER. Mr. Chairman, may I do a followup on that?
The CHAIRMAN. Please.
Mr. BUYER. The reason I asked this question about an audit, this is about the contracting officers. So we are all talking here in almost the nebulous. We are talking about oversight and we are throwing all these words around. These are the contracting officers that are overusing the miscellaneous obligations and they are doing it without sufficient documentation. This is not surgery, I am sorry, doctor. You know, this isn’t really complex.
That is why I said every business out there, they have to know how they are spending their money and they have to document it. This isn’t hard is it?
I mean, I am just getting annoyed here at the moment.
Ms. RAGLAND. Well, one of the things is that—one of the problems that VA’s material weaknesses bring to bear is that they have to take heroic efforts at the end of the year to get the balances to account. And so what that really means is that for the day-to-day management information they need better financial management information to use to manage their programs.
The CHAIRMAN. Mr. Michaud?
Mr. MICHAUD. Thank you very much, Mr. Chairman and Mr. Ranking Member for having this very important hearing this morning. I have a few question.
When you talk about the serious weaknesses that the VA has constantly had it is a big concern that it appears and they are not addressing those weaknesses go all the way back to 2000.
So we have this hearing today, they will say they will do a better job, but we are back here again next year with the same weaknesses that they currently have.
Has the GAO looked at other agencies within the Federal Government? And if so, have other agencies had the similar problems, or are they willing to address it? And what is the root of the problem? Did you look at, for instance, the root of their problem?
I have heard that the U.S. Department of Defense (DoD) has an extensive standardized acquisition training and certification process that individuals involved in procurement and process must complete.
Did you look at that within the VA system? And if so, are they lacking there as well and that is what has caused the root of the problem?
Ms. RAGLAND. Well, we haven’t looked at that at VA. I do know that, other agencies have different situations and circumstances, and so we, don’t have a comparison across agencies, but other agencies experience similar kinds of internal control problems. And so it is just a question of what pressures or resources can be brought to bear to ensure that VA management does give the attention needed to fix the issues that they face.
For example, the miscellaneous obligations is a tool that VA has used for decades, and if they choose to use that tool then the important focus needs to be put on having the controls that they need to manage appropriately.
Mr. MICHAUD. Now, Mr. Slocum, you had stated in answering Mr. Roe’s question about accountability, and you mentioned the A-50 as a way for it to be accountable. Exactly, can you explain what is A-50 and what can we do to make sure that VA is held accountable in those regards as it relates to the A-50?
Mr. SLOCUM. Well, A-50 speaks to setting up a monitoring framework that would begin with having a positive tone at the top for addressing these issues, having a framework to make sure that recommendations are addressed with good corrective action plans, having senior officials in place to monitor the implementation of those plans to make sure that the problems have been addressed and remediated and fixed and having validation activities. And the final thing that is laid out in A-50 is holding people accountable to make sure that this is being done.
Mr. MICHAUD. Thank you.
Once again, Mr. Chairman and Mr. Ranking Member, one of the things that I have been talking with staff about is my concern is the fact that when you look at pharmacy, you look at nursing homes, and look at all the money that we are putting into the VA system, that it be used effectively and efficiently. My concern is that has not been the case.
And we have been discussing with the private sector ways that they have been working, particularly in pharmacy and the nursing home areas, and what we should do in the VA area as well. I'm not asking for an internal review within the VA system, because my concern is we are going to get the same old stuff that we have been getting over and over again, but actually have an outside group look at what is happening internally on a pilot program to see where we might be able actually to do things differently.
We are still in the early discussion stages of that, but I think it is very important that we actually look at the outside as far as have a different set of eyes to look at these issues versus what is happening currently, and that is one of the problems I see we are having here today when you look at some of the recommendations that were made way back in 2000, they are still not being complied with.
Mr. BUYER. With the gentleman yield?
Mr. MICHAUD. Yes.
Mr. BUYER. We have, the Chairman and I and some others are working on the Acquisition Reform Bill. I think that is a vehicle for us. Why don’t we get it to you and put your eyes into it. Because there might be an opportunity here to do what you are seeking.
And Mr. Stearns also had mentioned that, Mr. Chairman, from an outside view. I just throw that out on the table.
The CHAIRMAN. We should work on that before, or after the August recess.
Mr. BUYER. Yeah, during the August recess.
The CHAIRMAN. Where we can look at the acquisition issue. The Secretary has purposed legislation and we have legislation. That will be the time, I think. That is a very good suggestion.
Mr. MICHAUD. I would like to thank the Chairman and Ranking Member as well.
Mr. BUYER. Yeah, we are building the framework and the structure and you are going right to a specific detail, so if you get it to us we can talk to the Administration too and see if it can be part of the bill.
Mr. MICHAUD. Great. Thank you very much.
The CHAIRMAN. Thank you.
Mrs. Kirkpatrick?
Mrs. KIRKPATRICK. Thank you, Mr. Chairman.
You know, it sounds to me like there is just a complete lack of internal checks and balances. And as Mr. Buyer said, you know, any business owner has a standard accounting policy or procurement policy, and so I am trying to just understand.
Is it the lack of policy? Is it the lack of trained personnel or sufficient personnel?
For instance, I am thinking about the Form 4-1358, which you mention and that is used for miscellaneous obligations and you cite some examples of very, very vague language in that form. Is no one reviewing those forms? So is it lack of personnel to actually review those?
The fact that there is not documentation astounds me. How hard is it to attach a vending order or a receipt or something to the form? So could you address that for me, please?
Ms. RAGLAND. Okay. Well, one of the things that we found is that is still the case. And so, part of it is that VA does have policies and procedures, but when you go to look at the implementation, when VA went and looked at the implementation, they found that the policies and procedures weren’t being followed in all cases and that people didn’t have a good awareness of what they should be doing. That is one of the things that needs better explanation, better communication.
Mrs. KIRKPATRICK. So that sounds like a training issue. So they have personnel, they have policies, but the personnel are not following the policies, and maybe because they don’t know what they are.
Ms. RAGLAND. Yes.
Mrs. KIRKPATRICK. So a training component has to be part of this.
Ms. RAGLAND. That is a good point.
Mrs. KIRKPATRICK. Now does the VA have an internal system for auditing that is effective?
Mrs. KIRKPATRICK. Or do they just gloss over the problems when they find them?
Mr. SLOCUM. No, VA has these inspections that Ms. Ragland was referring to. They are through an Office of Business Oversight (OBO). And so once the policies and procedures were put in place, the Office of Business Oversight, and within that office there is a Management Quality Assurance Service, (there are three services within that office) and that particular service had done a number of inspections as part of their work. During fiscal year 2009, they went to a number of facilities and found these types of problems.
So they do have that internal mechanism to followup to see if policies and procedures are being implemented, and that is how we know that there has been some progress, but not enough progress.
Mrs. KIRKPATRICK. All right. And so they find that they are not being implemented, but it sort of stops. As you said, there is no accountability in terms of personnel.
Mr. SLOCUM. They found problems with implementation, and then they make recommendations.
And we haven’t been able to verify this, but we have received some information that they make recommendations to each of the facilities where these problems have been found, and then the facility is responsible for putting together corrective action plans. The corrective action plans are to address the specific problems that each of the inspections identified. And the OBO tracks when the corrective action plans are coming in and if the facilities are accepting or concurring with the recommendations.
And it seems—from the preliminary information we have gotten—that they have concurred with the recommendations and they are taking actions to address them. The problem is that that just hadn’t happened yet, and so those problems are still out there.
Mrs. KIRKPATRICK. Okay. Well, thank you very much for reporting to the Committee.
And Mr. Chairman, I share the sentiment of the other Members of the Committee, this is a serious problem that we really need to stay on top.
Thank you.
The CHAIRMAN. Thank you, Mrs. Kirkpatrick.
Mr. Buyer?
Mr. BUYER. Let me ask a question about the—we are in a decentralized model without controls or accountability to the degree for which we would desire. I mean right now if you look back in the last three or four secretaries, I mean they have since 2000 increased these directives without execution.
So if you moved from a decentralized to a more centralized model in contracting is that something that you would endorse?
Ms. RAGLAND. We haven’t done work on that issue. I will say that that is something that the auditor has reported as being one of the root causes is decentralization.
Mr. BUYER. Thank you very much for that answer.
Let me ask about the—with regard to the canceling of the FLITE Program. You want to talk about that a little more, please?
Ms. RAGLAND. Well we—
Mr. BUYER. Let me just say this, I don’t have a problem if someone with authority is going to cancel out the program, but tell me what you are going to do to replace it. What is your plan? And I am kind of in the nebula.
Ms. RAGLAND. Well, I think that is a good question, and that is the same question that we have.
We have seen some press releases that FLITE has been canceled. We have very little sketchy information in terms of what the initiatives are that VA has in mind to be able to continue to address the serious problems that exist.
Mr. BUYER. Why do you think the VA’s own audits have been showing a continuing disregard for your recommendations?
Ms. RAGLAND. I think that, as I said initially, I think that VA is making some efforts. We have seen a memo from top management on the segregation of duties issue. So I feel that they are making efforts to try to address the recommendations that we have made. I don’t think they are there yet, but I do think that they have made some efforts.
Mr. BUYER. But two really big issues. Transparency and the lack of documentation on miscellaneous obligations. You know, a lot of these dollars—I am quite certain, I am confident—I don’t know if I should use the word confident—but I feel comfortable that a lot of these dollars are being spent for exactly what they are being spent for. But when you don’t have the documentation then it just—right? Opens the VA up to all types of—
Ms. RAGLAND. Right.
Mr. BUYER [continuing]. Allegations.
Ms. RAGLAND. Right.
Mr. BUYER. And then there are the bad apples—
Ms. RAGLAND. Right.
Mr. BUYER [continuing]. Who can then take advantage of that, you know.
Ms. RAGLAND. That is right.
Mr. BUYER. And so bringing in the internal controls, having the transparency is a pretty good thing, wouldn’t you agree?
Ms. RAGLAND. Definitely. Definitely agree.
Mr. BUYER. All right.
The CHAIRMAN. Thank you, Mr. Buyer.
I would like to thank the GAO for its efforts and the questions it continues to ask and the reports it gives us.
I would just say as an introduction to the next panel, we have all been polite here and we have a lot of bureaucratic words and processes. I would not underestimate the anger that my colleagues feel on this—on both sides of the aisle.
When an account doubles that was under scrutiny for unaccountability, and other things that GAO has mentioned today, I would not underestimate the sense that we are pretty mad. There has to be some answers. For some of the legislation that is coming forward you might see things that you won’t like but that we have to do in order to get some control over this.
Mr. BUYER. Mr. Chairman, may I ask just one quick question?
The CHAIRMAN. I will yield, yes.
Mr. BUYER. There has to be something here. I don’t know, I am not getting it.
The miscellaneous obligations, these contracting officers, in other words when the medical director of the medical center, I don’t know, they are out of something or they need something, right? Chief of medicine has come to them and said I have to have blah, blah, and I got to have this tomorrow. Great. Go to the contracting officer, get it done, get satisfied. How do they do it quickly? We will just put it under miscellaneous obligations. Right? Fine.
You know, if it makes you do your business—I don’t know the details. The VA is going to be up here, they can tell us all that, but there has to be something going on out there in the operations—within operations to have such a doubling of the miscellaneous account.
And we are just asking questions about what is happening out there, how is this happening? And when you don’t have these directives being followed, that is why we are all upset.
When you did your review are you finding something out there that is—why did this double like this? What is going on in operations in the medical centers?
Ms. RAGLAND. You know, we haven’t done that work so we don’t know.
Mr. BUYER. Okay.
Ms. RAGLAND. That is the question that we would like to hear the answer to.
Mr. BUYER. We will ask the next panel then.
All right, thank you.
The CHAIRMAN. Thank you, Mr. Buyer.
Okay, thank you again for your—
Ms. RAGLAND. Thank you.
The CHAIRMAN [continuing]. Contribution today, and we will call the next panel forward.
Joining us from the Department of Veterans Affairs is the Deputy Assistant Secretary for Finance, Mr. Edward Murray, who is accompanied by Paul Kearns, who is the Chief Financial Officer, Fred Downs, the Chief Procurement and Clinical Logistics Officer, and Mr. Jan Frye, the Deputy Assistant Secretary of the Office of Acquisition and Material Management.
We have your written statement, Mr. Murray, and look forward to your oral presentation.
STATEMENT OF EDWARD MURRAY, DEPUTY ASSISTANT SECRETARY FOR FINANCE, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY W. PAUL KEARNS III, FACHE, FHFMA, CPA, CHIEF FINANCIAL OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; FREDERICK DOWNS, JR., CHIEF PROCUREMENT AND LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND JAN R. FRYE, DEPUTY ASSISTANT SECRETARY FOR ACQUISITION AND LOGISTICS, U.S. DEPARTMENT OF VETERANS AFFAIRS
Mr. MURRAY. Mr. Chairman, Mr. Ranking Member, and Members of the Committee, thank you for inviting me to appear before you today to discuss what VA has done and plans to do to continue improving its oversight of miscellaneous obligations.
The CHAIRMAN. Is your microphone on? You have to press that button in front of you. It is a first step toward transparency.
Mr. MURRAY. Thank you, sir.
Mr. Chairman, Mr. Ranking Member, and Members of the Committee, thank you for inviting me to appear today to discuss what VA has done and plans to do to continue improving the oversight of miscellaneous obligations. These issues are cross-cutting, corporate issues that affect multiple VA organizations, as reflected in the witnesses invited to appear today.
VA primarily uses two different document types to obligate funds for goods and services; a VA Form 2237, a standard procurement requisition document; and a VA Form 1358, commonly known as a miscellaneous obligation. However, the word miscellaneous can be misleading.
In most cases we can clearly identify the purpose and vendor of these obligations. These obligations are supported by valid requirements.
I will note, however, that Form 1358 does not enforce internal control strictly.
The CHAIRMAN. I don’t mean to interrupt, sir, but you said in most cases we can track back. Why is that not in all cases? If everybody has to fill out a form why isn’t it in every case? You only said in most.
Mr. MURRAY. In a small number of cases, the supporting documentation cannot be located. We are working on that.
Form 1358 compliance relies heavily on review and oversight to identify a violation and is dependent on field mangers to review the compliance reports and take corrective actions where compliance problems are identified.
To address the two key Form 1358 findings in the Government Accountability Office’s September 2008 report, VA has provided new tools for management and staff to use to monitor compliance.
VA has modified its Integrated Funds Distribution Control Point Activity System, known as IFCAP, to distinguish if a transaction originated on a Form 1358 or a Form 2237.
As of September 2009, this data is now sent to VA’s financial management system to distinguish between these two types of transactions in our agency financial management system.
VA has developed two new IFCAP reports to help facilities accomplish their oversight responsibilities.
The Segregation of Duties Violations Report is used to ensure appropriate segregation of duties for approval functions involved in using a Form 1358, and an additional Missing Fields Report identifies where the vendor, contract number, or purpose data fields have not been entered.
In January 2009, VA’s Office of Finance reissued policy for the use of miscellaneous obligations, including a prohibition against one individual performing more than one approval function.
Our policy also prohibits the use of miscellaneous obligations for other uses unless the head of the contracting authority’s approval is obtained.
We are also ensuring that compliance with the policies is applied consistently throughout VA.
VA has established two review programs to mitigate the risks involved with miscellaneous obligations and to ensure adequate oversight and reviews are regularly performed.
The Management Quality Assurance Service, discussed previously, has expanded its site reviews to include miscellaneous obligations. The financial quality assurance managers at each VHA network review a percentage of all VHA station miscellaneous obligations for segregation of duties and documentation purposes.
Due to VA’s efforts, current fiscal year 2010 results—and I think you all can see the graph—show an overall trend of substantial improvement since GAO’s original report in 2008.
The percentage of completion of required fields on Form 1358 has improved. Segregation of duty violations have decreased, as have instances where miscellaneous obligations that require head of contracting review have not been sent as required.
The management quality assurance reviews in fiscal year 2010 have substantiated improvements in the separation of duty compliance rates.
For fiscal year 2010 to date Management Quality Assurance Service data indicates that 71 percent of sample transactions met the four person separation of duty standard, while 99 percent of sample transactions met the three person separation of duty standard.
In fiscal year 2009, only 49 percent of sample transactions met the four person standard, while 90 percent met the three person standard.
VA is also evaluating modifications to IFCAP, including changes to systematically enforce the segregation of duty requirements and route, where appropriate, miscellaneous obligations to the contracting office.
We are also considering requiring that our IFCAP system uniquely identify the type of obligation. If our IFCAP system uniquely identified the type of obligation we would effectively remove the “miscellaneous” aspect of these obligations.
VA is also taking interim action—
[The prepared statement of Mr. Murray appears in the Appendix.]
The CHAIRMAN. So your solution to the problem is you are going change the way you call it, right?
I am going to stop your testimony. Is there anybody from Congressional Relations at VA here?
You know, we put you on a later panel so that maybe you will listen to what happened on panel number one and respond to it, and you are reading the same stuff that we all read.
Why don’t you respond to a lot of the questions that our colleagues raised instead of reading this stuff?
The only reporter in the room walked out because he was so bored. You are not telling us anything.
Respond to the anger that I mentioned, respond to the questions that all my colleagues raised that were really good questions. We don’t hear anything except that you are going to change now, take the name miscellaneous off the obligations.
We will go to questions, because you know your statement is just not very helpful.
I have a fantasy based on what you said, that the very people who did not fill out the Form 1358 are going to get a bonus because they decreased the excess paper that you are going to have in the VA bureaucracy. That is my fantasy in how you guys work.
Mr. McNerney?
Mr. MCNERNEY. Thank you, Mr. Chairman. Thank you for coming here to testify this morning.
We have heard a lot about the risks, but I don’t have any specific instances in front of me of fraud, and that seems very odd to me.
As Mr. Stearns pointed out we have seen an increase from $5 billion to $12 billion in the use of Form 1358. It just seems to me that Form 1358 must be so easy to use that everybody in the VA wants to use it.
I mean is that why people are using it more? Is that why the—it is just easier to use, require, less discipline, less work? Is that what is happening?
Mr. MURRAY. The 1358 Form is used primarily—should be used primarily for non-Federal Acquisition Regulation (FAR) type procurement transactions, such as beneficiary travel, meal tickets, and purchase care under title 38 that do require a FAR-based contract.
Mr. BUYER. You just said should be. We are all getting really annoyed here. Please be responsive to the gentleman’s question.
Mr. MURRAY. There are 23 approved uses for that form.
Mr. MCNERNEY. Right.
Mr. MURRAY. They have been vetted. They should only be used for those 23 approved uses.
Mr. MCNERNEY. I mean it just seems that to me that Form 1358 ought to be eliminated and Form 2237 ought to be expanded and used for everything, because look at the situation you are in right now.
I mean if 2237 requires more discipline then that is what people should be using. Do you have a way to respond to that?
Mr. KEARNS. Yes, sir. I think I would respond that we currently have 23 auth
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