Mr. Chairman,

I thank you for holding this hearing today to re-evaluate the quality of the system of controls in the VA’s internal contracting process and its fervent use of Miscellaneous Obligations (MOs).  The VA uses MOs to obligate funds when the amount to be spent on large expenditures - such as fee-basis care - is uncertain.  The GAO has recently found that the VA procured billions through the use of MOs in FY2007.  At a hearing last year, we also heard about cases of mismanagement of funds and circumventions of the control procedures in the contracting system.  It’s therefore no secret that the VA has a history of inadequate oversight of its procurement process, and it’s important that we re-visit this issue today.

Last year, the Secretary of Veterans Affairs stressed, in a memorandum to key VA officials, the need for stronger internal controls.  He said, “It is extremely important to me and to our constituents that we have effective internal controls in place to enhance the stewardship of taxpayers’ assets and programs.  It is imperative that we approach this responsibility as a Department wide initiative.”

Significant time has passed since this memorandum was issued, and we are here today to determine if the VA has made adequate progress.  In January 2008 the VA issued new guidance for the use of miscellaneous obligations; the VA subsequently finalized this new guidance in May.  The GAO has reviewed this new guidance and has stated that “while it offered some improvement, it did not fully address the specific control design flaws” that GAO had previously identified and concluded that there were “serious deficiencies in internal financial control reporting.” 

The GAO has now made four rather basic recommendations for the VA to consider and hopefully implement, and I am encouraged to know that the VA agrees with all four of the recommendations.  I personally believe that the VA shouldn’t have any problem implementing such things, for example, as GAO Recommendation # 3 - “documenting the purpose, vendor, and contract number for miscellaneous obligations.”  I am astonished, as a former business owner, to know that the VA is not properly keeping track of such an important practice that utilizes taxpayers’ dollars.

The bottom line, Mr. Chairman, is that the VA does not have adequate controls over its excessive use of miscellaneous obligations, and the VA has shown us that there are clearly risks associated with their excessive use of MOs.

I therefore look forward to hearing from our panel of witnesses, and I hope to see the VA fully implement all four of the GAO’s recommendations, which will significantly reduce the internal risks associated with the use of miscellaneous obligations.