[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                         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
  58-062                   WASHINGTON : 2011
___________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer 
Contact Center, U.S. Government Printing Office. Phone 202-512-1800, or 
866-512-1800 (toll-free). E-mail, [email protected].  



                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   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.








                            C O N T E N T S

                               __________

                             July 28, 2010

                                                                   Page
Continued Oversight of Inadequate Cost Controls at the U.S. 
  Department of Veterans Affairs.................................     1

                           OPENING STATEMENTS

Chairman Bob Filner..............................................     1
    Prepared statement of Chairman Filner........................    28
Hon. Steve Buyer, Ranking Republican Member......................     2

                               WITNESSES

U.S. Government Accountability Office, Susan Ragland, Director, 
  Financial Management and Assurance.............................     4
    Prepared statement of Susan Ragland..........................    29
U.S. Department of Veterans Affairs, Edward Murray, Deputy 
  Assistant Secretary for Finance................................    16
    Prepared statement of Mr. Murray.............................    35

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:

    Hon. Bob Filner, Chairman, Committee on Veterans' Affairs to 
      Gene L. Dodaro, Acting Comptroller General, U.S. Government 
      Accountability Office, letter dated July 29, 2010, and 
      response from Susan Ragland, Director, Financial Management 
      and Assurance, U.S. Government Accountability Office, 
      letter dated September 9, 2010.............................    39
    Hon. Bob Filner, Chairman, Committee on Veterans' Affairs to 
      Hon. Eric K. Shinseki, Secretary, U.S. Department of 
      Veterans Affairs, letter dated July 29, 2010, and VA 
      responses..................................................    42
    Hon. Steve Buyer, Ranking Republican Member, Committee on 
      Veterans' Affairs to Hon. Eric K. Shinseki, Secretary, U.S. 
      Department of Veterans Affairs, letter dated July 30, 2010, 
      also forwarding questions from Hon. Cliff Stearns, and VA 
      responses..................................................    55

 
                         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 on p. 
28.]

             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

                   STATEMENT OF SUSAN RAGLAND

    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 on p. 29.]
    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. Will 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 proposed 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? 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

                   STATEMENT OF EDWARD MURRAY

    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 on p. 35.]
    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 authorized uses for the 1358. Such things as 
purchase care fee care, particularly in rural areas, 
beneficiary travel, which Congress recently increased and we 
are very grateful for, prosthetic supplies, pharmaceuticals. 
These are all authorized items for the use of a 1358. We know 
exactly what they are used for.
    Mr. McNerney. So then if that is the case then why is there 
such a ballooning from $5 billion to $12 billion?
    Mr. Kearns. Because it went actually from $6.9 billion in 
2007 to $11 billion in 2008, to $12 billion in 2009. We are on 
track this year to be right at about that same level. The 
number of transactions have actually decreased. The dollar 
amount has increased.
    We know specifically what it is being used for, each of 
them. We can give you a detailed report. Like I said, there are 
certain examples. There are 23 different categories that are 
authorized.
    Mr. McNerney. But I mean, if you know what they are all 
being used for why is there such a disconnect between what the 
auditors are saying?
    Mr. Kearns. The auditors are telling you what is documented 
in the IFCAP system, which is the feeder system. We can then 
get the information out of the financial system. We know who 
has been paid for this, we know what it is for. By the OMB 
categories we categorize that and we can pull it out of the 
financial system.
    It is true what the GAO has said, that the documentation is 
not 100 percent. We have a long way to go. We have made some 
improvements, we still have a long way to go. A lot of it 
requires manual oversight to comply, and we are training our 
people, reinforcing that, but we do know what the spending is 
for and we can report that.
    The fact that the label is miscellaneous does not mean that 
we don't know what we are purchasing, and we can report it with 
transparency.
    Mr. McNerney. Well, I mean, that is what I am getting at. 
If that label is getting us into this problem and it is going 
to--I mean it could end up in the media or whatever, why don't 
we correct that by creating a form that is more transparent?
    Mr. Kearns. I think that is what Mr. Murray was referring 
to. And it is not just to change the name, it is to correctly 
articulate what we are buying. In other words----
    Mr. McNerney. Right, it needs to be more transparent.
    Mr. Kearns [continuing]. Part of these purchases--and we 
can show--are for fee-basis care. You cannot run those through 
a contracting officer. We wouldn't be able to respond to the 
veterans' needs. Part of them are pharmaceuticals, are drugs 
and supplies for a big item. Part of them are beneficiary 
travel where we have to pay each veteran when they come for 
care. The beneficiary travel can't go through a contracting 
officer.
    Mr. McNerney. Now you have recently terminated the 
Financial and Logistics Integrated Technology Enterprise, is 
there a better system that is going to be in place that will 
help track what is missing here?
    Mr. Murray. What we are doing is making a number of changes 
to our subsidiary systems. As the Deputy Assistant Secretary 
for Finance, my office is responsible for internal control. We 
do our year-end financials working with the auditors, and as 
such we constantly work within the paradigm of systems and 
processes we have to make these improvements to be responsive 
to GAO, our auditors, Deloitte, now Clifton Gunderson, and the 
OIG. We are constantly looking at things that could improve the 
state of our financial stewardship of these assets given those 
tools we have now.
    What I am trying to make clear is that we have always had a 
parallel track to make improvements, these are existing 
structures and resources.
    Mr. McNerney. Well, we are running out of time.
    Mr. Buyer. Will the gentleman yield to me for a second?
    Mr. McNerney. Yes.
    Mr. Buyer. You mentioned in response to his question about 
the 23 categories on miscellaneous obligations. How much was 
spent outside of the 23 categories under miscellaneous 
obligations?
    Mr. Murray. Based on the fiscal year 2010 audit, the 
Management Quality Assurance Service sampled 271 transactions 
at 16 different stations. And I might add, that is a judgmental 
sample where they looked for suspicious transactions. I think 
it was one-half of 1 percent of the total revenues that did not 
receive head of contracting authority approval.
    Mr. Buyer. One-half of 1 percent outside of the 23 
categories. Okay. How much money are we talking about?
    Mr. Murray. I have to take that and go back and look.
    [The VA subsequently provided the information in the 
answers to Questions #1 and #2 in the Post-Hearing Questions 
and Responses for the Record submitted by Congressman Buyer, 
which appear on p. 55.]
    Mr. Buyer. One-half of 1 percent. Is it all right for me to 
assume that we are talking about one-half of 1 percent of $12 
billion? This is like real money, okay?
    Mr. Murray. I have to be clear here. They did not do what I 
call a random sample. When the Management Quality Assurance 
Service looks at these stations and pull samples where they are 
looking for suspicious activity. Therefore, you can't actually 
extrapolate the one half of 1 percent to the entire population.
    Mr. Buyer. Okay.
    Mr. Murray [continuing]. Overly high.
    Mr. Buyer. Mr. McNerney, I want to thank you for your line 
of questions, but I want to share with my colleagues, look what 
we have witnessed here in response to the question so far.
    You have VHA responding to the questions. You have the 
Deputy Assistant Secretary of the Office of Acquisition has not 
commented yet. And why would he not comment? Because he doesn't 
have oversight over them.
    Therein lies our great challenge, and therein lies what the 
Administration has given us some proposals on the centralizing 
so we empower you, sir, with greater authority over the health 
side of the business, and they are not going to like that, and 
I understand that. But I think the centralizing of that 
oversight, Mr. Chairman, is going to be pretty important.
    I want to thank Mr. McNerney for yielding to me.
    Mr. McNerney. I yield back.
    The Chairman. Mr. Roe.
    Mr. Roe. I thank the Chairman. And once again, I appreciate 
you taking a look at the amendment that we had. The more I have 
heard today the more I realize that we need to do that.
    I looked at the OIG when we were looking at the entire 
budget of the VA $125 billion, we are talking about .01 percent 
to return 38 times the amount spent on it, and I see now that 
the FLITE Program is gone and we are using basically current 
software and current procedures.
    And let me just get down to the real world. I would get a 
patient sent to me from the VA or for instance in Montana where 
85 percent of the mental health is provided outside of a VA 
system because it is too far to travel. It makes sense to do 
that. What oversight do you have on those dollars, those fee 
service dollars being spent? Can you tell us how many they are?
    Because what that would do for the VA would be able to tell 
you how many personnel, for instance, in a more urban area, 
that you might need to hire where you are short.
    Do you have that information?
    Mr. Kearns. Yes, sir, we do.
    Mr. Roe. And you tell us--in other words you can tell the 
VA right now that with certainty that you need--maybe it is 
psychological help or more psychologists or associate workers 
or whatever?
    Mr. Kearns. We can tell how much we are spending in your 
example in Montana for mental health to what providers and how 
many transactions, you know, how many visits, that type of 
thing.
    The evaluation of whether we would want to put staff in-
house to do would be an economic decision, that it may not be 
cost effective to do it.
    In other words, actually going to civilian providers may be 
the most cost effective way to do it, and also the best for the 
veterans.
    Mr. Roe. No, I agree with that. In some areas in Montana 
you have to travel 6 to 8 hours maybe by car or something or 
train or whatever to get to a facility. I agree with that 100 
percent.
    One of the frustrations that I have had since I have been 
here is that we in the private world, which I spent my entire 
life until 2 years ago here, I don't know how hundreds of 
millions of dollars was spent on this FLITE Program, and $10 
billion I think spent on a medical record program with the 
Department of Defense and the VA and they can't talk to each 
other. We can't do that in the private world. You go out of 
business. You just go broke and you are done.
    And unfortunately here it seems like we spend millions of 
dollars or billions of dollars and we don't know where the 
billions of dollars go. And just the short time I have been 
here I see this panel after panel. And I guess that is some of 
the frustration that we have, that I have, is we can't make the 
same errors and then look back a year from now and say that 
well, we are doing the same thing over and nobody is 
accountable for what happened. I guess that is just a bit of 
frustration I have.
    I won't take anymore time, Mr. Chairman, I yield back.
    The Chairman. Thank you.
    Mr. Boozman, do you have any questions?
    Mr. Boozman. Thank you, Mr. Chairman.
    I guess my question is a couple things. First of all, I 
would like to know how the VA facilities in Arkansas are doing 
in relation to the GAO report? If we could get that sent to us 
at some time that would be really helpful.
    Mr. Kearns. We will provide that for the record, sir.
    Mr. Boozman. Now, my understanding is--so you have the 1358 
Form and then you have these 23 categories that you can use it 
for. And so is it correct in saying that you should 
theoretically list those 23 categories with the dollar amounts 
to each one?
    Mr. Kearns. Yes, sir, we can provide that report.
    [The VA subsequently provided the information in the 
answers to Questions #3 in the Post-Hearing Questions and 
Responses for the Record submitted by Congressman Buyer, which 
appears on p. 56.]
    Mr. Boozman. Okay. I guess, in the interest of 
transparency, I guess I don't understand why you are not doing 
that rather than lumping such a large figure together.
    As we try and figure out what is going on as you all do 
your planning, certainly purchase care is a huge deal, as we 
try and make these decisions. The travel, we have significantly 
increased that it is helpful to know.
    The first thing I look at in a budget is month to month, 
you know what has jumped out, what is out of line, and then 
year to year. But if you don't have that information, and it 
sounds like you do it, okay?
    Mr. Kearns. We do have it, sir. And I think a summary sheet 
was provided to the Committee staff. We have the detail that 
backs that up, probably about a seven-page list for each year 
that breaks it been line item.
    Mr. Boozman. Right. And then our concern is the past that 
is not accounted for.
    Mr. Kearns. I understand, sir.
    Mr. Boozman. You know, which is about you said one-half of 
1 percent, and that is about how much? What does that translate 
to?
    Mr. Kearns. We would have to give you the dollar amount. I 
don't know that it is----
    Mr. Boozman. But you should know that.
    Mr. Kearns. Yes, sir.
    Mr. Boozman. And that is a concern that you can't tell us 
that figure.
    So again you do need to break it down, you do need to--like 
I said, I can't imagine that you couldn't give us that figure, 
because that is important. So that is kind of where we are at.
    And then the other thing is, is that as you follow through, 
what is your follow through mechanism in the sense that you 
said, you identified these that you found you are 200 and some 
odd whatevers that you investigated that were kind of, what 
happens at that point?
    Mr. Murray. What happens, sir, is at a facility where the 
Management Quality Assurance Service does an audit and has 
findings they produce a set of recommendations. The facility 
has to concur with the recommendations and they invariably do. 
They have 30 days to provide an action plan as to how they are 
going to remediate the findings. If they don't we elevate it up 
the chain.
    We receive a report on how they are going to remediate the 
problem at that facility. Then we follow up to make sure that 
it has been remediated and request documentation to show 
remediation.
    Mr. Boozman. So have we ever had to fire anybody or 
prosecute anybody in the course of this in the last few years?
    Mr. Murray. Not that I am aware of, sir.
    Mr. Boozman. Okay. And that is a problem also. Again, not 
in the catch you type situation, but we really are talking 
about a lot of money, and you do have to hold people 
accountable. And certainly if there are things going on that 
shouldn't be going on, but the very basic of that is knowing 
how much money out there is unaccounted for. So again, it is a 
real concern that you can't give us that figure.
    So thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Boozman. We share your 
frustration.
    By the way, if the half percent was based on $12 billion I 
could give you that figure. Then Mr. Murray says we should not 
extrapolate. I don't know why you do a sample if you can't 
extrapolate. What is the point? You may as well do every one. 
You tell me you took a sample, but I extrapolate from it.
    Mr. Boozman. But Mr. Chairman, if you will let me 
interrupt.
    I guess what I want to know is, is that when you do those 
23 categories and you have all of that figured out, it is easy 
to know how many you just subtract. You don't have to 
extrapolate at all.
    The Chairman. But these guys are all at the Secretary and 
Assistant Secretary level, and I guess they don't do that.
    Mr. Buyer.
    Mr. Buyer. You know, Dr. Boozman, I can imagine if you took 
your CFO or a deputy CFO from Wal-Mart just down the street 
from you and brought them and had them listen to this today.
    You know, it is almost as if there has to be an off the 
shelf--a private sector off the shelf accountability system. Is 
there one that you could utilize within the VA, or is our 
procurement such a mess that you couldn't do that? Jan?
    Mr. Frye. I think we are talking about the financial 
accountability system here.
    Mr. Buyer. Yes.
    Mr. Frye. And that is what this is. And I just want to make 
sure that we are clear in that this is a financial 
accountability system, whether it is a 2237 or a 1358, 
miscellaneous obligation, that can be used to fund a FAR-based 
contract. And at least half of this $12 billion in revenue is 
used to fund FAR-based contracts. Those are contracts that are 
put in place by warranted contracting officers, they just 
happen to be funded with miscellaneous obligations.
    Now, I think we could all argue the point that perhaps we 
are shooting ourselves in the foot by funding these FAR-based 
contracts with a miscellaneous obligation vice a 2237, but the 
reason it was done is because of the financial system that is 
currently in place.
    The financial system at the transaction level was designed 
around a 1358 some years ago. Again, FLITE was supposed to come 
in and fix all that. So out of necessity, so to speak, they 
used this antiquated system, this system that we call an aged 
system, to fund these FAR-based contracts.
    There are some issues that have recently come to light in 
the way the contracts are funded by the use of the 1358's that 
we have to look at, but you know, as long as it is a system 
that has been blessed by the financial community, the 
contracting community doesn't care how we finance the 
contracts.
    Mr. Buyer. All right, you are the policy guy, okay? I don't 
care if this is the VA or this is the school board running the 
local school, you don't have the one person identify, 
authorize, and obligate. One person. I guess if I had owned my 
own firm that is what I am going to do, right? I would do that. 
But we don't do that with the taxpayer's money. We bring 
transparency to it so people get to know how we make our 
judgments and how we make decisions and were they the right 
ones done. It is the ultimate of collusion. It is one person. 
From a policy standpoint how do we allow that to happen?
    I don't have a problem--seriously, I don't have a problem 
with them if we say we have gone from $5 billion to $12 billion 
under miscellaneous obligations. You can just throw that out, 
no, no, that is not what my problem is. My problem is the lack 
of transparency and the internal controls, and you don't have 
the ability to identify. My gosh, you know, 25 percent here, 
you don't even know who the vendor was. I mean from a policy 
standpoint, Mr. Frye.
    Mr. Frye. Well, I would agree with you, Mr. Buyer, that 
when a document, a 1358 goes to a contracting officer and the 
contracting officer obligates that document there are supposed 
to be fields that are filled out on that 1358. And technically 
our rules say that it should never even get to the contracting 
officer if those fields aren't filled out. In some cases they 
do, and those should be turned around. They shouldn't be used 
to finance a contract.
    But again, I want to emphasize, the majority of those cases 
I believe are outside of the contractual arena, because as Mr. 
Kearns pointed out, these 1358's are used to finance contracts, 
FAR-based contracts, and they are also used to finance things 
such as fee care for patients, travel, and those types of 
things.
    The Chairman. But that is the point that we are trying to 
make. If you don't have all those filled out and if you don't 
know where they are somebody could be using them for something 
else, right? You keep saying they are all being used for the 
right purpose, but we don't have any proof of that.
    Mr. Frye. Well, again, Mr. Chairman, I am not saying they 
are all being used for the right purpose. I think the GAO 
report has clearly shown that there are some problems. I am 
just trying to draw the distinction between those used for 
contracts and those that aren't used to contracts.
    The Chairman. We understand, and that is the point. You 
must have accountability for those very kinds of transactions, 
and it seems to be missing.
    Mr. Frye. Agreed, sir.
    Mr. Buyer. We recognize that Congress has sought to be 
responsive to the American people's demands to provide medical 
services to your wounded warriors and to do it as efficiently 
and as quickly and as best we possibly can as a Nation, and 
more money has been put into that pipeline to do that, and as 
we stress the system to be responsive we have had an escalation 
in the fee for service.
    Now we recognize that the system is being responsive to the 
public's demand, but you have to have the internal controls, 
you have to do that. I mean Congress is going to continue to 
put more money in, but we have to have these internal controls.
    And so as we--that is why this Acquisition Reform Bill, and 
the Secretary recognizes that, and gentlemen I have spoken with 
you about this, I think it is timely, it is ripe and it is 
timely to do this and empower you and to centralize the system.
    Mr. Murray, of the 23 categories, would you be able to tell 
us where the escalation came from?
    Mr. Murray. We could break it out by facility and by 
category.
    Mr. Buyer. So what is it?
    Mr. Murray. I would have to get back to you. We would have 
to do the analysis.
    [The VA subsequently provided the information in the 
answers to Questions #1 and #2 in the Post-Hearing Questions 
and Responses for the Record submitted by Congressman Filner, 
which appear on p. 42.]
    Mr. Buyer. Has anybody ever looked?
    Mr. Kearns. Yes, sir. I don't have the specific figures 
here, but the areas would be fee care, pharmaceuticals, 
beneficiary travel, home oxygen, those types of things that 
have increased in terms of dollar amounts from 2008 to 2009 to 
half way through 2010 that we have the data for.
    Mr. Buyer. Have you looked at that before?
    Mr. Kearns. Yes. Yes, sir, we have.
    Mr. Buyer. So do you remember--the fee for service, was 
that--tell me what the biggie is?
    Mr. Kearns. That is one of----
    Mr. Buyer. The fee for service has to be.
    Mr. Kearns. Fee is one of them, yes, sir.
    Mr. Buyer. And the pharmaceutical.
    Mr. Kearns. And beneficiary travel.
    Mr. Buyer. And beneficiary travel.
    Mr. Kearns. You know, where we have to----
    Mr. Buyer. Yes.
    Mr. Kearns [continuing]. You know, pay mileage.
    Mr. Buyer. On to per diems.
    Mr. Kearns. In other words, and it is not practical to run 
those types of things through a procurement office. I mean, it 
is not cost effective.
    Mr. Buyer. And I don't have a problem with it.
    Mr. Kearns. Yes.
    Mr. Buyer. See what I am saying, I don't have a problem 
with that.
    Mr. Kearns. So we can----
    Mr. Buyer. Just document it.
    Mr. Kearns [continuing]. Actually give transparency and 
report this. It is just that it is--the document that we use is 
a 1358.
    Now we would be probably smarter to call it beneficiary 
travel, beneficiary travel obligations rather than a 
miscellaneous obligation, because we know exactly what it is 
for. The same thing with pharmaceuticals. We know these, it is 
just that the document that is used is miscellaneous obligation 
document.
    As Mr. Frye said, it was something that was developed years 
ago and has been part of our system the way it is developed.
    Now certainly that can be changed, but as far as 
transparency and reporting and what it is for we can provide 
that information.
    [The VA subsequently provided the information in the 
answers to Questions #1 and #2 in the Post-Hearing Questions 
and Responses for the Record submitted by Congressman Buyer, 
which appear on p. 55.]
    Mr. McNerney. Will the Ranking Member yield?
    Mr. Buyer. Yes. Yes.
    Mr. McNerney. Part of the problem that I perceive is that 
there are several fields in this form that either can't be 
filled out or inherently can't be filled out, or either that or 
they should be required to fill out.
    I mean can we ask you here today to require every form to 
have all the fields filled out or are you going to be able to 
tell me that there are some that we just can't fill out because 
the situation is too specific to the case involved?
    Mr. Kearns. No, sir, I would tell you we will attempt to 
have them all filled out, but our system right now will process 
a document without all those fields being filled out. What it 
does, it then generates an after the fact report of this 
exception. Locally we have to then go in and review that, and 
the only way to fix it in the system is to cancel the order and 
re-issue the order.
    So one of our problems right now is the way our automated 
systems are designed they won't reject the transaction if all 
those fields aren't filled. That is the ideal that we would 
like to have.
    Mr. McNerney. So you can't right now, if you go back to the 
office you can't say okay, anyone that fills out a form 1358, 
we will reject your form if you don't fill out every field? You 
can't do that today.
    Mr. Kearns. Our system will not allow us. It will report to 
us after the fact, after it is done. We have report generators 
that will say you have submitted this document and all the 
fields aren't filled, or fewer than four people--the separation 
of duties didn't comply with----
    Mr. McNerney. It seems like that ought to be a priority.
    I yield back.
    Mr. Buyer. You know, it is the Administration that is 
asking for the contracting authority on the fee for service. 
You asked us. So we are going to do that so you don't use this 
form for it.
    One of the things we don't realize is, you know, you have a 
medical center--break this down, bubba-size it. I mean, I am a 
bubba, okay? If you bubba-size it, you say all right, you have 
that wounded warrior, you have a particular--sometimes I wish I 
were a doctor--some medical procedure needs to be done and it 
is highly technical and they are going to refer it out in the 
community. You know, sometimes we don't have the internal to 
say, okay let us look at what is the provider network, what is 
the TRICARE provider, what is the--you know, the negotiated 
price? Sometimes we move quickly, we don't even do that, 
immediately fill out your form, and the particular doc just 
down the road is going to do it, and he is charging what he 
wants to charge, and we don't have anybody that then even looks 
at the contract. You know, 50 percent of them getting looked 
at.
    Mr. Kearns? I mean, so I can understand why you are asking 
us to say hey we are going to do this fee for service by 
contract.
    Mr. Kearns. No, the fee care, sir, is specifically 
authorized.
    Now normally the first priority is to make sure we have a 
quality provider, then it is a cost effective. In other words, 
cost isn't the first consideration, it is the quality of the 
provider and the care and the access.
    But we look at all of those things in authorizing care to 
be provided in the civilian community.
    Mr. Buyer. All right. Mr. Kearns, I created TRICARE for 
Life, you don't have to explain that to me. When I created 
these programs you create these networks. And I agree, you look 
at quality. But by golly it is quality and its price, and you 
just don't say we give you a blank check.
    Mr. Kearns. Oh, absolutely, sir, no, I agree with you.
    Mr. Buyer. Okay.
    Mr. Kearns. I am saying it is not just price though.
    Mr. Buyer. Right, I agree.
    The Chairman. Thank you, Mr. Buyer, and Mr. McNerney for 
being here. We also thank the panel.
    I must say I hope you will report back to the Secretary 
that we did not find the testimony to be very responsive. You 
didn't respond to the anger that was up here, you didn't 
respond to specific questions that our colleagues asked and you 
didn't give us any real assurance that things are being taken 
care of. You have a form that may change and you may change the 
name of the categories.
    This was not a good response to the issues, and we are 
going to pursue them. If we have to have your bosses here to 
get answers, we are going to do that.
    I want you to report back to the Secretary that we did not 
find your testimony responsive and that we are going to 
continue to look at this.
    This hearing is adjourned.
    [Whereupon, at 11:28 a.m., the Committee was adjourned.]



                            A P P E N D I X

                              ----------                              

            Prepared Statement of Hon. Bob Filner, Chairman,
                     Committee on Veterans' Affairs

    Good morning. The U.S. Department of Veterans Affairs 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 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 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 Financial and 
Logistics Integrated Technology Enterprise (FLITE) program, which was 
intended to integrate and standardize the agency's financial and asset 
management processes across all offices of the Department by 2014 at an 
estimated 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 the process.
    In fiscal year 2009, the VA spent almost $12 billion on 
miscellaneous obligations, up nearly $6 billion from reported fiscal 
year 2007 levels.
    The Government Accountability Office reviewed VA's financial 
reporting system and cited that the Department has made some 
improvements, but they 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: improved oversight of miscellaneous obligations by 
contracting officials; segregation of duties; improved supporting 
documentation of miscellaneous obligations; and, oversight mechanisms 
to ensure control policies and procedures are fully and effectively 
implemented.
    We will hear today that the VA is making significant strides in its 
financial accounting employing policies and procedures to improve its 
oversight of miscellaneous obligations and implement GAO's 
recommendations. However, I am anxious to hear from the VA when they 
plan to 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 in miscellaneous obligations, the VA is at a significant risk 
of fraud, and effectively designed internal controls would help 
mitigate these 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 also ensure proper use of taxpayer money, and financial 
accountability.

                                 
Prepared Statement of Susan Ragland, Director, Financial Management and 
            Assurance, U.S. Government Accountability Office
      DEPARTMENT OF VETERANS AFFAIRS: Long-standing Weaknesses in 
       Miscellaneous Obligation and Financial Reporting Controls
                             GAO Highlights
Why GAO Did This Study
    In September 2008, GAO reported internal control weaknesses over 
the Veteran Health Administration's (VHA) use of $6.9 billion in 
miscellaneous obligations in fiscal year 2007. In November 2009, GAO 
reported on deficiencies in corrective action plans to remediate 
financial reporting control deficiencies. This testimony is based on 
these previous reports that focused on (1) VHA miscellaneous obligation 
control deficiencies and (2) Department of Veterans Affairs (VA) 
financial reporting control deficiencies and VA plans to correct them.
    For its review of VHA miscellaneous obligations, GAO evaluated VA's 
policies and procedures and documentation, interviewed cognizant agency 
officials, and conducted case studies at three VHA medical centers. For 
its review of financial reporting control deficiencies, GAO evaluated 
VA financial audit reports from fiscal years 2000 to 2008 and analyzed 
related corrective action plans.
What GAO Recommends
    In its September 2008 report, GAO made four recommendations to 
improve VA's internal controls over miscellaneous obligations. In its 
November 2009 report, GAO made three recommendations to improve VA 
corrective action plans to remediate financial reporting control 
deficiencies. VA generally concurred with these recommendations and has 
since reported taking actions to address the recommendations.
What GAO Found
    In September 2008, we reported that VHA recorded over $6.9 billion 
of miscellaneous obligations for the procurement of mission-related 
goods and services in fiscal year 2007. We also reported that VA 
policies and procedures were not designed to provide adequate controls 
over the authorization and use of miscellaneous obligations, placing VA 
at significant risk of fraud, waste, and abuse. We made four 
recommendations with respect to (1) oversight by contracting officials, 
(2) segregation of duties, (3) supporting documentation for the 
obligation of funds, and (4) oversight mechanisms. In January 2009, VA 
issued new policies and procedures aimed at addressing the deficiencies 
identified in GAO's September 2008 report.
    In November of 2009, we reported that VA's independent public 
auditor had identified two of VA's three fiscal year 2008 material 
weaknesses--in financial management system functionality and IT 
security controls--every year since fiscal year 2000 and the third--
financial management oversight--each year since fiscal year 2005. While 
VA had corrective action plans in place that intended to result in 
near-term remediation of its internal 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. For example, 8 of 13 plans lacked key information about 
milestones for steps to achieve the corrective action and how VA would 
validate that the steps taken had actually corrected the deficiency. 
While VA began to staff a new office responsible for, in part, 
assisting VA and the three administrations in executing and monitoring 
corrective action plans, we made three recommendations to improve 
corrective action plan development and oversight. VA concurred with our 
recommendations and took some steps to address them.
    In fiscal year 2009, VA's own internal VA inspections and financial 
statement audit determined that the internal control deficiencies 
identified in our prior reports on miscellaneous obligations and 
material weaknesses identified in prior financial audits continued to 
exist. VA conducted 39 inspections, which identified problems with how 
VHA facilities had implemented VA's new miscellaneous obligation 
policies and procedures. Similarly, VA's independent auditor reported 
that VA continued to have material weaknesses in financial management 
system functionality, IT security controls, and financial management 
oversight in fiscal year 2009. To the extent that the deficiencies we 
identified continue, it will be critical that VA have an effective 
``tone at the top'' and mechanisms to monitor corrective actions 
related to deficient internal controls.

                               __________
Mr. Chairman and Members of the Committee:

    I am pleased to be here today to discuss the findings from our 
prior work that are relevant to the subject of this hearing on VA 
internal controls. Specifically, I will highlight findings from our 
reports on (1) Veterans Health Administration's (VHA) use of 
miscellaneous obligations,\1\ and (2) the Department of Veterans 
Affairs (VA) plans to correct financial reporting control deficiencies. 
In September 2008, we reported on VHA's use of miscellaneous 
obligations and identified related control deficiencies.\2\ Although 
the VA developed new policies and procedures in response to our 
recommendations, recent internal VA inspections indicate that the 
deficiencies we identified have not yet been corrected. In November 
2009, we reported that VA had long-standing financial reporting control 
deficiencies.\3\ These deficiencies continue to be reported by VA's 
independent public auditor.
---------------------------------------------------------------------------
    \1\ An obligation is a definite commitment that creates a legal 
liability of the government for the payment of goods and services 
ordered or received, or a legal duty on the part of the United States 
that could mature into a legal liability by virtue of actions on the 
part of the other party beyond the control of the United States. 
Payment may be made immediately or in the future.
    \2\ GAO, Veterans Health Administration: Improvements Needed in 
Design of Controls over Miscellaneous Obligations, GAO-08-976 
(Washington, D.C., Sept. 11, 2008).
    \3\ GAO, Department of Veterans Affairs: Improvements Needed in 
Corrective Action Plans to Remediate Financial Reporting Material 
Weaknesses, GAO-10-65 (Washington, D.C., Nov. 16, 2009).
---------------------------------------------------------------------------
    My testimony today summarizes findings of these prior two 
engagements. I will also provide an update regarding the information we 
have obtained from VA concerning recent internal inspections on the use 
of miscellaneous obligations and pertinent sections of VA's fiscal year 
2009 financial audit report.
    For our prior work regarding VHA's use of miscellaneous 
obligations, we obtained and analyzed a copy of VHA's Integrated Funds 
Distribution, Control Point Activity, Accounting and Procurement 
(IFCAP) database of miscellaneous obligations.\4\ We also reviewed VA 
policies and procedures, interviewed financial management and 
procurement officials, and conducted case studies at three VHA medical 
centers. For our review of VA corrective actions to remediate financial 
reporting control deficiencies, we analyzed financial statement audit 
reports from fiscal years 2000 to 2008, interviewed VA and Office of 
Inspector General (OIG) officials and VA's independent auditor, and 
reviewed VA documents and independent auditor work papers. We also 
analyzed VA corrective action plans to remediate significant 
deficiencies underlying two of the three financial reporting material 
weaknesses. Appendixes to our prior reports provide additional details 
on our scope and methodologies.
---------------------------------------------------------------------------
    \4\ IFCAP is used to create miscellaneous obligations at VA and 
serves as a feeder system for VA's Financial Management System, the 
department's financial reporting system of record used to generate VA 
financial statements and other reports.
---------------------------------------------------------------------------
    We conducted the work for the report on VHA miscellaneous 
obligations from November 2007 through July 2008, and the work for the 
report on VHA corrective action plans to remediate financial reporting 
control deficiencies from November 2008 to November 2009, in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audits to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. We also summarize information VA 
provided us on its actions to address our recommendations in these two 
reports, as well as pertinent sections from VA's independent public 
auditor's report on the VA fiscal year 2009 financial statements. 
Because of the relatively short time between the request to testify and 
the hearing date, we did not have sufficient time to validate VA's 
information on the status of actions taken to address our prior 
recommendations.
Background
    VHA provides a broad range of primary and specialized health care, 
as well as related medical and social support services through a 
network of more than 1,200 medical facilities. In carrying out its 
responsibilities, VHA uses ``miscellaneous obligations'' to obligate 
(or administratively reserve) estimated funds against appropriations 
for the procurement of a variety of goods and services when specific 
quantities and time frames are uncertain.\5\ According to VA policy,\6\ 
miscellaneous obligations can be used to record estimated obligations 
to facilitate the procurement of goods and services, such as fee-based 
medical and nursing services and beneficiary travel.
---------------------------------------------------------------------------
    \5\ A miscellaneous obligation can be used as a funds control 
document to commit (reserve) funds that will be obligated under a 
contract or other legal obligation at a later date. VA Office of 
Finance Directive, VA Controller Policy MP-4, part V, chapter 3, 
section A, paragraph 3A.01 states in pertinent part that ``it will be 
noted that in many instances an estimated miscellaneous obligation (VA 
Form 4-1358) is authorized for use to record estimated monthly 
obligations to be incurred for activities which are to be specifically 
authorized during the month by the issuance of individual orders, 
authorization requests, etc. These documents will be identified by the 
issuing officer with the pertinent estimated obligation and will be 
posted by the accounting section to such estimated obligation.''
    \6\ Department of Veterans Affairs, VA Financial Policies and 
Procedures, Volume II, Chapter 6--Miscellaneous Obligations (January 
2009).
---------------------------------------------------------------------------
    In fiscal year 2007, VHA recorded over $6.9 billion of 
miscellaneous obligations for the procurement of mission-related goods 
and services. According to VHA fiscal year 2007 data, almost $3.8 
billion (55.1 percent) of VHA's miscellaneous obligations was for fee-
based medical services 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.
Miscellaneous Obligation Control Deficiencies
    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 with respect to (1) oversight by 
contracting officials, (2) segregation of duties, and (3) supporting 
documentation for the obligation of funds. Collectively, these flaws 
increased the risk of fraud, waste, and abuse. Our case studies at 
three medical centers showed, for example, that VA did not have 
procedures in place to document any review by contracting officials, 
and none of the 42 obligations we reviewed had such documented 
approval. Effective oversight and review by trained, qualified 
officials is a key factor in helping to ensure that funds are used for 
their intended purposes. Without control procedures to help ensure that 
contracting personnel review and approve miscellaneous obligations 
prior to their creation, VHA is at risk that procurements do not have 
the necessary safeguards. In addition, our analysis of VA data 
identified 145 miscellaneous obligations, amounting to over $30.2 
million, that appeared to have been used in the procurement of such 
items as passenger vehicles; furniture and fixtures; office equipment; 
and medical, dental and scientific equipment. VA officials told us, 
however, that the acquisition of such assets should be done by 
contracting rather than through miscellaneous obligations.
    Our 2008 report also cited inadequate segregation of duties. 
Federal internal control standards provide that for an effectively 
designed control system, key duties and responsibilities need to be 
divided or segregated among different people to reduce the risk of 
error or fraud.\7\ These controls should include separating the 
responsibilities for authorizing transactions, processing and recording 
them, reviewing the transactions, and accepting any acquired assets. In 
30 of the 42 obligations reviewed, one official performed two or more 
of the following functions: requesting, approving, or recording the 
miscellaneous obligation of funds, or certifying delivery of goods and 
services and approving payment. In two instances involving employee 
grievance settlements, one official performed all four of these 
functions. In 2007, the VA OIG noted a similar problem in its review of 
alleged mismanagement of funds at the VA Boston Health care System.\8\ 
For example, according to OIG officials, they obtained documents 
showing that a miscellaneous obligation was used to obligate $200,000. 
This miscellaneous obligation was requested, approved, and obligated by 
one fiscal official. The OIG concluded that Chief of the Purchasing and 
Contracting Section and four other contracting officers executed 
contract modifications outside the scope of original contracts and the 
Chief of the Fiscal Service allowed the obligation of $5.4 million in 
expired funds. In response to the OIG recommendations, VA officials 
notified contracting officers that the practice of placing money on a 
miscellaneous obligation for use in a subsequent fiscal year to fund 
new work was a violation of appropriations law, and that money could no 
longer be ``banked'' on a miscellaneous obligation absent a contract to 
back it up. Similarly, an independent public accountant's July 2007 
report found, among other things, that the segregation of duties for 
VA's miscellaneous obligation process was inadequate.\9\ Without the 
proper segregation of duties, risk of errors, improper transactions, 
and fraud increases.
---------------------------------------------------------------------------
    \7\ GAO, Standards for Internal Control in the Federal Government, 
(Washington, D.C.: November 1999).
    \8\ Department of Veterans Affairs, Office of Inspector General, 
Audit of Alleged Mismanagement of Government Funds at the VA Boston 
Healthcare System, Report No 06-00931 (Washington, D.C.: May 31, 2007).
    \9\ Grant Thornton, Department of Veterans Affairs, OMB Circular A-
123, Appendix A--Findings and Recommendations Report (Procurement 
Management) (July 18, 2007).
---------------------------------------------------------------------------
    Our 2008 case studies also identified a lack of adequate supporting 
documentation at the three medical centers we visited. Specifically, VA 
policies and procedures were not sufficiently detailed to require the 
type of information needed such as purpose, vendor, and contract number 
that would provide crucial supporting documentation for the obligation. 
In 8 of 42 instances, we could not determine the nature, timing, or the 
extent of the goods or services being procured from the description in 
the purpose field. As a result, we could not confirm that the 
miscellaneous obligations were for bona fide needs or that the invoices 
reflected a legitimate use of Federal funds.
    Our report concluded that without basic controls in place over 
billions of dollars in miscellaneous obligations, VA is at significant 
risk of fraud, waste, and abuse. In the absence of effectively designed 
key funds and acquisition controls, VA has limited assurance that its 
use of miscellaneous obligations is kept to a minimum, for bona fide 
needs, and in the correct amounts. We made four recommendations, 
concerning review by contracting officials, segregation of duties, 
supporting documentation, and oversight mechanisms. These 
recommendations aimed at reducing the risks associated with the use of 
miscellaneous obligations.
    In response to our recommendations, in January of 2009, VA issued 
Volume II, Chapter 6, of VA Financial Policies and Procedures--
Miscellaneous Obligations, which outlines detailed policies and 
procedures aimed at addressing control deficiencies identified in our 
September 2008 report. Key aspects of the policies and procedures VA 
developed in response to our four recommendations included:

      Review of miscellaneous obligations by contracting 
officials--The request and approval of miscellaneous obligations are to 
be reviewed by contracting officials, and the contracting reviews are 
to be documented.\10\
---------------------------------------------------------------------------
    \10\ Review is required except for those miscellaneous obligations 
used for previously approved purposes listed on an Exception List 
attached to the new policies and procedures.
---------------------------------------------------------------------------
      Segregation of duties--No one official is to perform more 
than one of the following key functions: requesting the miscellaneous 
obligation; approving the miscellaneous obligation; recording the 
obligation of funds; or certifying the delivery of goods and services 
or approving payment.
      Supporting documentation for miscellaneous obligations--
New procedures require providing the purpose, vendor, and contract 
number fields before processing obligation transactions, including 
specific references, the period of performance, and the vendor name and 
address.\11\
---------------------------------------------------------------------------
    \11\ The vendor name and address must be provided, except in the 
case of multiple vendors; and the contract number must be included on 
the miscellaneous obligation document.
---------------------------------------------------------------------------
      Oversight mechanism to ensure control policies and 
procedures are fully and effectively implemented--Each facility is now 
responsible for performing independent quarterly oversight reviews of 
the authorization and use of miscellaneous obligations. Further, the 
results of the independent reviews are to be documented and 
recommendations tracked by facility officials. The policies and 
procedures also note that the Office of Financial Policy is to conduct 
quarterly reviews of VA miscellaneous obligation usage to ensure 
compliance with the new requirements.
Recent VA Inspections Identify Continuing Control Problems
    As part of its fiscal year 2009 review activities, VA's Office of 
Business Oversight (OBO) \12\ Management Quality Assurance Service 
(MQAS) evaluated VA compliance with new VA policies and procedures 
concerning the use of miscellaneous obligations--Financial Policies and 
Procedures, Volume II, Chapter 6, Miscellaneous Obligations. According 
to its executive summary report, the MQAS reviewed 476 miscellaneous 
obligations at 39 different medical centers, health care systems, and 
regional offices in fiscal year 2009. The MQAS found 379 instances of 
noncompliance with the new policies and procedures. Examples include:
---------------------------------------------------------------------------
    \12\ The OBO, created in February 2004, consolidated VA review 
organizations and functions that once existed across the department. 
The OBO has a Director's Office, located in Washington, D.C., and three 
supporting services located in Austin, Texas: (1) the Management 
Quality Assurance Service (MQAS), (2) the Systems Quality Assurance 
Service (SQAS), and (3) the Internal Controls Service (ICS). The MQAS 
has oversight responsibility, under the purview of the Assistant 
Secretary for Management, to ensure VA officials comply with laws, 
policies, and directions from OMB, the Treasury, GAO, and the Congress. 
MQAS is to perform quality assurance oversight for the financial, 
capital asset management, contracting, logistics, and inventory 
operations. The SQAS serves as the primary office for managing and 
overseeing the independent verification and validation of internal 
control areas for financial and interfacing automated information 
systems within VA. The ICS is to plan and conduct departmentwide 
reviews of internal controls over financial reporting and 
departmentwide financial management system reviews. This includes 
testing internal controls over financial reporting, which forms the 
basis for VA's annual statement of assurance on the effectiveness of 
internal controls.

      Inadequate oversight of miscellaneous obligations by 
contracting officials--Many miscellaneous obligations were not 
submitted for the required approval by the Head of Contracting 
Activity. Further, some miscellaneous obligation were used for invalid 
purposes, including employee tuition, utilities, general post, lab 
tests, and blood products.
      Segregation of duties--Many miscellaneous obligations had 
inadequate segregation of duties concerning the requesting, approving, 
and recording of miscellaneous obligations, and the certifying receipt 
of goods and services and approving payment. For example, the MQAS 
identified 48 instances where two individuals performed all four of 
these functions.
      Supporting documentation for miscellaneous obligations--
Some miscellaneous obligations also lacked adequate supporting 
documentation concerning the vendor name, performance period, and the 
contract number.

    These noncompliance issues were similar to those we identified in 
our September 2008 report on VHA miscellaneous obligations.
    Overall, MQAS found that there was a lack of timely dissemination 
of the new miscellaneous obligation policy, and issued 34 
recommendations to VA facility officials. Fiscal year 2010 facility-
level recommendations included the need to develop standard operating 
procedures for implementing the policy, to provide training for new 
accounting personnel, to require documentation establishing segregation 
of duties, and to institute facility-level quarterly reviews. According 
to the MQAS Associate Director, VHA facilities are in the process of 
taking corrective actions to address the MQAS recommendations.
VA Has Had Long-standing Material Weaknesses in Financial Reporting
    In November of 2009, we reported that VA had three long-outstanding 
material weaknesses \13\ in internal control over financial reporting 
identified during VA's annual financial audits.\14\
---------------------------------------------------------------------------
    \13\ A material weakness is a significant deficiency, or a 
combination of significant deficiencies, that results in more than a 
remote likelihood that a material misstatement of the financial 
statements will not be prevented or detected by the entity's internal 
control.
    \14\ GAO, Department of Veterans Affairs: Improvements Needed in 
Corrective Action Plans to Remediate Financial Reporting Material 
Weaknesses, GAO-10-65 (Washington, D.C.: Nov. 16, 2009).

      Financial management oversight--reported as a material 
weaknesses since fiscal year 2005. This issue was also identified as a 
significant deficiency \15\ in fiscal years 2000 through 2004. This 
weakness stemmed from a variety of control deficiencies, including the 
recording of financial data without sufficient review and monitoring, a 
lack of sufficient human resources with the appropriate skills, and a 
lack of capacity to effectively process a significant volume of 
transactions.
---------------------------------------------------------------------------
    \15\ A significant deficiency is a control deficiency, or a 
combination of control deficiencies, that adversely affects the 
entity's ability to initiate, authorize, record, process, or report 
financial data reliably in accordance with generally accepted 
accounting principles such that there is more than a remote likelihood 
that a misstatement of the entity's financial statements that is more 
than inconsequential will not be prevented or detected by the entity's 
internal control.
---------------------------------------------------------------------------
      Financial management system functionality--reported since 
fiscal year 2000--is linked to VA's outdated legacy financial systems 
affecting VA's ability to prepare, process, and analyze financial 
information that is timely, reliable, and consistent. Legacy system 
deficiencies necessitated significant manual processing of financial 
data and a large number of adjustments to the balances in the system.
      IT security controls--also reported since fiscal year 
2000--resulted from the lack of effective implementation and 
enforcement of an agencywide information security program. Security 
weaknesses were identified in the areas of access control, segregation 
of duties, change control, and service continuity.

    We also found that while VA had corrective action plans in place 
intended to result in near-term remediation of its significant 
deficiencies, many corrective action plans did not contain the detail 
needed to provide VA officials with assurance that the plans could be 
effectively implemented on schedule. Eight of the 13 plans we reviewed 
lacked key information regarding milestones for completion of specific 
action steps and/or validation activities. Consequently, VA managers 
could not readily identify and address slippage in remediation 
activities, exposing VA to continued risk of errors in financial 
information and reporting. VA recognized the need to better oversee and 
coordinate agencywide oversight activities for financial reporting 
material weaknesses, and began to staff a new office responsible for, 
in part, assisting VA and the three administrations and staff offices 
in executing and monitoring corrective actions plans. Our report 
concluded that actions to provide a rigorous framework for the design 
and oversight of corrective action plans will be essential to ensuring 
the timely remediation of VA's internal control weaknesses, and that 
continued support from senior VA officials and administration CFOs 
would be critical to ensure that key corrective actions are developed 
and implemented on schedule. We made three recommendations to help 
improve corrective action plan development and oversight. VA concurred 
with the recommendations and said that it took some actions to address 
the recommendations, including developing a manual with guidance on 
corrective action planning and monitoring, creating a corrective action 
plan repository, and establishing a Senior Assessment Team of senior VA 
officials as the coordinating body for corrective action planning, 
monitoring, reporting, and validation of deficiencies identified during 
financial audits.
Recent VA Financial Reporting Indicates Continuing Material Weaknesses
    VA's independent auditor fiscal year 2009 financial audit report 
included the three material weaknesses that have been reported as 
deficiencies since 2000. In addition, it also included a new material 
weakness concerning compensation, pension, and burial liabilities.\16\ 
Furthermore, VA's reporting indicated remediation timetables for the 
previously reported material weaknesses appear to be slipping. In the 
fiscal year 2009 Performance and Accountability Report, VA officials 
noted that in fiscal year 2009 they had closed 10 of the underlying 
significant deficiencies reported in fiscal year 2008, but that their 
timetables had slipped for remediating the IT security controls and 
financial management oversight material weaknesses to 2010 and 2012, 
respectively.\17\ In addition, milestones for remediating the new 
material weakness--compensation, pension, and burial liabilities--had 
yet to be determined.
---------------------------------------------------------------------------
    \16\ Department of Veterans Affairs, Department of Veterans Affairs 
Fiscal Year 2009 Performance and Accountability Report, (Washington, 
D.C, Nov. 16, 2009).
    \17\ In its fiscal year 2008 Performance and Accountability Report, 
VA reported that it planned to remediate the IT security controls and 
financial management oversight material weaknesses in 2009.
---------------------------------------------------------------------------
    According to the independent auditor, the causes for the fiscal 
year 2009 material weaknesses related to

      outdated systems,
      challenges to implement security policies and procedures,
      a lack of sufficient personnel with the appropriate 
knowledge and skills,
      a significant volume of transactions, and
      decentralization.

    These findings are consistent with those we identified in our 2009 
report and are all long-standing issues at the VA. The auditor noted 
that VA did not consistently monitor, identify, and detect control 
deficiencies. The auditor recommended that VA assess the resource and 
control challenges associated with operating in a highly decentralized 
accounting function, and develop an immediate interim review and 
monitoring plan to detect and resolve deficiencies.
    In summary, while we have not independently validated the status of 
VA's actions to address our 2008 and 2009 reports' findings concerning 
VA's controls over miscellaneous obligations and financial reporting, 
VA's recent inspections and financial audit report indicate that the 
serious, long-standing deficiencies we identified are continuing. 
Effective remediation will require well-designed plans and diligent and 
focused oversight by senior VA officials. Further, the extent to which 
such serious weaknesses continue raises questions concerning whether VA 
management has established an appropriate ``tone at the top'' necessary 
to ensure that these matters receive the full, sustained attention 
needed to bring about their full and effective resolution. Until VA's 
management fully addresses our previous recommendations, VA will 
continue to be at risk of improper payments, waste, and mismanagement.
    Mr. Chairman, this concludes my prepared statement. I would be 
happy to respond to any questions you or other Members of the Committee 
may have at this time.
GAO Contact and Staff Acknowledgments
    For further information about this testimony, please contact Susan 
Ragland, Director, Financial Management and Assurance at (202) 512-
9095, or [email protected]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this testimony. Major contributors to this testimony included 
Glenn Slocum, Assistant Director; Richard Cambosos; Debra Cottrell; 
Daniel Egan; Patrick Frey; W. Stephen Lowrey; David Ramirez; Robert 
Sharpe; and George Warnock.

                                 
  Prepared Statement of Edward Murray, Deputy Assistant Secretary for 
              Finance, U.S. Department of Veterans Affairs

    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. Today, I will discuss what we use currently 
to obligate VA funds, the policies that apply to use of miscellaneous 
obligations, and the ongoing work to improve accountability of the 
miscellaneous obligations process. As the Committee knows, these issues 
are cross-cutting, corporate issues that affect multiple VA 
organizations, as reflected in the witnesses invited to appear today. I 
am pleased to be accompanied today by Mr. Fred Downs, Chief Procurement 
and Logistics Officer, and Mr. Paul Kearns, Chief Financial Officer, 
both of the Veterans Health Administration (VHA); and Mr. Jan Frye, 
Deputy Assistant Secretary for Acquisition and Logistics.
Overview of Documents Used to Obligate Funds
    VA primarily uses two different document types to obligate funding 
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 clearly know the source of the actions 
using these obligation documents. They are usually for a specific 
purpose and apply to a specific vendor. These are not arbitrary 
obligations being created in the financial system; VA acts based on 
validated requirements.
    I will note, however, that the process to execute a Form 1358 is 
generally considered less stringent than using Form 2237. The 
procedures for using Form 1358 do not apply as rigorous and proactive 
internal controls as strictly as those used with Form 2237. Thus, Form 
1358 compliance must rely on data to track violations, reports based on 
those data, and the willingness of managers to review them. Recent 
policy changes have strengthened internal controls used with Form 1358.
Status of Corrective Actions
    The Government Accountability Office's September 2008 report (GAO-
08-976) identified two key findings about Form 1358. They were 
inadequate segregation of duties, and insufficient documentation of 
approval by contracting officials. To address these findings VA has 
strengthened policies and procedures, and provided new tools for 
management and staff use.
    VA has modified its Integrated Funds Distribution Control Point 
Activity (IFCAP) system to identify whether a given purchasing 
transaction uses Form 1358 or Form 2237. As of September 2009, these 
data are now sent to VA's Financial Management System (FMS) to 
distinguish between these two types of transactions. This new 
capability identifies transactions originated on a Form 1358 and helps 
VA monitor the use of this form.
    To assist field activities with monitoring compliance with policy, 
VA has developed two new IFCAP reports to help facilities accomplish 
their oversight responsibilities:

      A Segregation of Duties Violations Report is available 
for management in order to ensure appropriate segregation of duties 
between the approval functions involved in using a Form 1358, as 
described below; and
      An additional report identifies fields (vendor, contract 
number, purpose) that have not been completed as required.

    With respect to segregation of duties, in January 2009, VA's Chief 
Financial Officer's Office of Finance reissued policy for use of 
miscellaneous obligations,\1\ including a prohibition of any individual 
performing more than one of the following key approval functions:
---------------------------------------------------------------------------
    \1\ VA Financial Policies and Procedures, Volume II, Chapter 6, 
``Miscellaneous Obligations.''

      Requesting the miscellaneous obligation.
      Approving the miscellaneous obligation.
      Recording the obligation of funds.
      Certifying delivery of goods or services and approving 
payment.

    This policy also requires the originating office obtain contracting 
approval for a miscellaneous obligation that is outside the narrow list 
of approved uses for Form 1358, and VHA updated their guidance 
accordingly. This policy clearly specifies that a miscellaneous 
obligation shall not be used unless the Head of Contracting Activity 
(HCA) has determined that a purchase order or contract is specifically 
not required, or the obligation is for a specifically defined purpose 
determined to be acceptable for this type of obligation. However, 
because Form 1358 is not generated by a contracting official, the HCAs 
have no knowledge when such a document is being used. Currently, they 
must rely on the offices creating the document to determine if the Form 
1358 is to be used for other than predetermined purposes and HCA 
approval is required.
    We have prohibited the use of miscellaneous obligations for other 
uses, and we are certain the policies are clear.
Policy Adherence and Enforcement
    Although we are certain VA's policies are clear, we must take the 
needed steps to assure that compliance with the policies is applied 
consistently throughout VA. In FY 2009, the Management Quality 
Assurance Service (MQAS) reviewed 476 individual miscellaneous 
obligations processed at 39 field stations and found 51 percent of the 
actions did not comply with the segregation of duties requirement set 
forth in VA policy.
    In addition, because VA systems are aging, it is difficult to 
modify them to automate and enforce internal controls on segregation of 
duties requirements. VA has already completed the analysis and 
identified the system requirements necessary to affect needed changes 
and is aggressively pursuing the modification of IFCAP to eliminate 
this shortfall.
    VA has and will continue to address these through technological 
changes as well as enforcement practices such as the Secretary of 
Veterans' Affairs recent mandate, described further below.
System Changes
    These changes include modifying IFCAP to enforce systematically the 
segregation of duties, verifying that a system user has only one 
distinct role in each key action required to process a miscellaneous 
obligation. Changes will also require data elements such as Purpose, 
Vendor, and Contract Number to be documented on all miscellaneous 
obligations. The IFCAP system will also be modified to route any 
miscellaneous obligations to the contracting office for determination 
of proper use if other than those pre-approved.
    We are also considering a programming change that would provide a 
``drop down'' menu of the allowable exceptions for using a 
miscellaneous obligation, as detailed in VA policies, requiring an 
entry that would specifically identify the type of miscellaneous 
obligation. This change is important as it would essentially remove the 
``miscellaneous'' aspect of these obligations and provide for easier 
reporting of obligations by category.
    In August 2009, we implemented a change in our systems to clearly 
flag miscellaneous obligations that are processed for later review or 
tabulation. This important change allows us to target our review of 
these transactions, determine total spend, and enhances oversight by 
identifying miscellaneous obligation transactions in our core financial 
system.
    Until VA policies on segregation of duties and adequacy of 
documentation can be fully enforced by computer programming changes, VA 
has taken other measures to mitigate the risks involved with 
miscellaneous obligations and to ensure that adequate oversight and 
reviews are regularly performed.
Risk Mitigation and Oversight
    VA has established two review programs to mitigate the risks 
involved with miscellaneous obligations and to ensure adequate 
oversight and reviews are regularly performed:

    1.  MQAS has expanded their site visit reviews to include a review 
of miscellaneous obligations; and
    2.  VHA's Financial Quality Assurance Managers at each network 
review a percentage of all VHA stations miscellaneous obligations for 
segregation of duties and documentation of purpose, vendor, and 
contract number.

    Both of these activities will continue for the indefinite future.
Current Trends
    Current FY 2010 Year To Date (YTD) results from MQAS reviews show 
an overall trend of substantial improvement over the initial GAO 
findings in FY 2008. For example:

      In FY 2010 YTD, 4 percent of 1358s did not have the 
purpose field completed compared to 19 percent in FY 2008.
      In FY 2010 YTD, 13 percent of 1358s did not have the 
vendor field completed compared to 48 percent in FY 2008.
      In FY 2010 YTD, 10 percent of 1358s did not have the 
contract field completed compared to 38 percent in FY 2008.

    Segregation of Duties violations continue to decrease. In FY 2008 
the percentage was 71 percent; in FY 2009 it dropped to 51 percent; and 
in FY 2010 YTD, it has continued to decrease to 29 percent.
    For FY 2010 YTD, miscellaneous obligations that require but were 
not submitted for HCA review show a continued decrease. For FY 2010, 
MQAS has reviewed 271 miscellaneous obligation actions. Of those, 257 
were an authorized use of the Form 1358 instrument and did not require 
HCA review. The remaining 14 were required to have such review, and of 
these, 7 forms (50 percent) were not appropriately reviewed by 
contracting. By comparison, in FY 2008 the percentage was 100 percent 
not properly reviewed; in FY 2009 it dropped to 84 percent--so these FY 
2010 YTD results demonstrate a continued improvement in compliance with 
policy.
    These results demonstrate that VA's efforts to date have resulted 
in an overall improvement of the situation from the 2008 GAO review.
Additional Efforts
    Recognizing that efforts to date were not improving the situation 
quickly enough, VA is taking interim action to strengthen oversight of 
the segregation of duties requirement. On June 29, 2010, the Secretary 
of Veterans Affairs mandated that facility directors certify quarterly 
that their facility meets the four levels for segregating duties 
(described above) as defined by VA policy. For the quarter ending 
September 30, 2010, and every quarter thereafter, each facility 
director will be required to verify that the four functions have been 
separated.
    The Information Security Officer is also required to certify the 
report. As a result of the Secretary's certification mandate, VA is 
currently enhancing its miscellaneous obligations policies \2\ to 
provide facilities with guidance for implementation, to ensure that the 
quarterly certification requirements are met and reported timely. We 
expect this policy will be completed in August, 2010. Concurrently, 
VA's MQAS and VHA's Financial Quality Assurance Managers will continue 
to review miscellaneous obligations to measure field facilities' 
compliance with policy. The Secretary of Veterans Affairs also directed 
that a long-term plan be developed by September 1, 2010, to provide a 
longer-term IFCAP system solution, requiring the software changes 
(discussed previously) necessary to enforce the segregation of duties 
and other findings. The Office of Information and Technology will lead 
this effort, collaborating closely with VHA, VA's Chief Financial 
Officer, and the Office of Acquisition, Logistics, and Construction.
---------------------------------------------------------------------------
    \2\ VA Financial Policies and Procedures, ibid.
---------------------------------------------------------------------------
    Mr. Chairman and Members of the Committee, VA has made significant 
policy changes to address the concerns you have raised about our use 
and oversight of miscellaneous obligations. VA has tightened 
requirements to enforce segregation of duties and to ensure proper 
review of Form 1358. New reports and data are available to help 
managers conduct the proper oversight, and the Secretary's mandate 
requires them to exercise this oversight quarterly and certify the 
results for every facility. VA will continue to pursue technological 
solutions as well, but I am pleased to report that VA has made 
significant improvements, as recent data show.
    Thank you for the opportunity to share this report of VA's progress 
in this area. This concludes my statement. I would be pleased to answer 
any questions you may have.





                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                      July 29, 2010

Gene L. Dodaro
Acting Comptroller General
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548

Dear Gene:

    In reference to our Full Committee hearing entitled ``Continued 
Oversight of Inadequate Cost Controls at the U.S. Department of 
Veterans Affairs'' on July 28, 2010, I would appreciate it if you could 
answer the enclosed hearing questions by the close of business on 
September 10, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,

                                                         BOB FILNER
                                                           Chairman
MH:ds
                               __________
                     United States Government Accountability Office
                                                    Washington, DC.
                                                  September 9, 2010

The Honorable Bob Filner
Chairman
House Committee on Veterans' Affairs
335 Cannon House Office Building
Washington, DC 20515

Dear Chairman Filner:

    As requested in your letter of July 29, 2010, enclosed are 
responses to follow-up questions from your committee's hearing, 
``Continued Oversight of Inadequate Cost Controls at the U.S. 
Department of Veterans Affairs'' held July 28, 2010. As noted in our 
testimony before your committee, and in the enclosed responses, the 
Department has not yet remediated its financial reporting and internal 
control weaknesses. Until VA fully addresses our recommendations in 
this area, it will not have the quality financial information managers 
need on a day-to-day basis, and VA's use of miscellaneous obligations 
will be at an increased risk of improper payments and mismanagement.
    Thank you for your continued interest in these matters. We will 
continue to follow up on VA's actions to implement our recommendations. 
Please contact me at (202) 512-8486 or [email protected] if you have 
questions or if I can be of further assistance.

            Sincerely yours,

                                                      Susan Ragland
                       Director, Financial Management and Assurance

Enclosure

cc: Brian Mullins

                               __________
    Question 1: Please explain why VA has a clean financial statement 
yet they have four material weaknesses?

    Response: In fiscal year 2009, VA received a clean opinion on its 
financial statements, signifying that they were fairly presented in all 
material respects. Although VA's financial statements were fairly 
presented, VA still had serious problems in its ability to initiate, 
authorize, record, process or report financial data reliably in 
accordance with generally accepted accounting principles. Such problems 
can at times necessitate near ``heroic'' efforts to get financial 
statements to a ``clean'' condition. Furthermore, until these 
weaknesses are corrected, VA officials will not have the quality 
financial information they need on a day-to-day basis--the end goal of 
the Chief Financial Officer's Act (CFO Act) of 1990. \1\
---------------------------------------------------------------------------
    \1\ Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990).

    Question 2: In November 2009, GAO reported that VA had long-
standing financial reporting control deficiencies. These deficiencies 
continue to be reported by VA's independent public auditor. Why do you 
---------------------------------------------------------------------------
think these deficiencies continue?

    Response: VA's serious, long-standing material weaknesses in 
financial reporting, that significantly increase the risk of 
misstatements in financial information reported to Congress and used by 
VA to manage its operations, are at times the result of a combination 
of outdated systems and a lack of mechanisms in place to consistently 
monitor, identify and detect control deficiencies. Furthermore, the 
extent to which these serious weaknesses continue raises questions 
concerning whether VA management has established an appropriate ``tone 
at the top'' necessary to ensure that these matters receive the full, 
sustained attention needed to bring about their full and effective 
resolution. Remediation of these material weaknesses will require a 
rigorous framework and a sustained commitment to the design and 
oversight of corrective action plans, including continued support and 
oversight from senior VA officials and administration CFOs. The VA 
framework should (1) include a periodic analysis of audit 
recommendations and corrective action to determine trends and system-
wide problems, (2) assure that performance appraisals of appropriate 
officials reflect their effectiveness in resolving and implementing 
audit recommendations, and (3) provide for an evaluation of VA's audit 
follow-up system.

    Question 3: In your testimony, you state that in the absence of 
effectively designed key funds and acquisition controls, VA has limited 
assurance that its use of miscellaneous obligations is kept to a 
minimum, for bona fide needs, and in the correct amounts. Should this 
be a concern for VA?

    Response: Yes. According to VA policy, \2\ except for specifically 
delineated purposes, miscellaneous obligations should not be used as an 
obligation control document unless the Head of Contracting Activity has 
determined that a purchase order or contract is not required. In fiscal 
year 2007, VA recorded nearly $9.8 billion in miscellaneous obligations 
(with $6.9 billion recorded by VHA). Also, VA policies and procedures 
were not designed to provide adequate controls over the authorization 
and use of miscellaneous obligations. In particular, we identified 
deficiencies in oversight by contracting officials, segregation of 
duties, and supporting documentation for the obligation of funds. Taken 
together, these miscellaneous obligation control deficiencies increase 
the risk of fraud, waste and abuse. In fiscal year 2009, according to 
documents provided by VA to GAO, VA increased its use of miscellaneous 
obligations to nearly $12.5 billion. Meanwhile, inspections by the VA 
Office of Business Oversight Management Quality Assurance Service that 
year showed that internal control deficiencies continued. Until VA's 
management fully addresses our recommendations, VA use of miscellaneous 
obligations will be at increased risk of improper payments, waste, and 
mismanagement.
---------------------------------------------------------------------------
    \2\ Department of Veterans Affairs, VA Financial Policies and 
Procedures, Volume II, Chapter 6--Miscellaneous Obligations, 
(Washington, D.C.: January 2009).

    Question 3(a): What are the real world consequences that can 
adversely impact VA if these effectively designed key fund and 
---------------------------------------------------------------------------
acquisition controls remain absent?

    Response: The problems with inadequate review by contracting 
officials, segregation of duties, and documentation identified in our 
2008 report and confirmed by the recent VA inspections can have real 
world consequences. For example,

      Without control procedures to help ensure that 
contracting personnel review and approve miscellaneous obligations 
prior to their creation, VHA will be unable to ensure that all 
procurements are competitively priced and that VA gets the best value 
for its money. For example, in one case study at the VA Pittsburgh 
Medical Center, we found 12 miscellaneous obligations, totaling about 
$673,000, used to pay for laboratory services provided by the 
University of Pittsburgh Medical Center (UPMC), which should have been 
procured through purchase orders backed by reviewed and competitively 
awarded contracts. The Chief of Acquisition and Materiel Management for 
the VA Pittsburgh Medical Center stated that she was not aware of the 
UPMC laboratory testing service procurements and would review these 
testing services to determine whether a contract should be established 
for these procurements. Subsequent to our review, VA changed its 
policies and procedures in January 2009 to require officials to procure 
laboratory testing services through purchase orders backed by reviewed 
and competitively awarded contracts.
      Without adequate segregation of duties for key steps 
associated with miscellaneous obligation transactions, VA is at risk of 
error, fraud, and mismanagement. Segregation of duties helps ensure 
that transactions are properly authorized and reviewed, and helps guard 
against mismanagement. For example, there was an inadequate segregation 
of duties with miscellaneous obligations in one case reported by the VA 
OIG involving the mismanagement of funds at the Boston Health care 
System from 2002 to 2006. \3\ The OIG concluded that VA officials had 
used expired funds in violation of appropriations law, and that 
contracting officials had executed contract modifications outside the 
scope of original contracts. According to VA OIG officials, 
documentation showed that a miscellaneous obligation for $200,000 at 
the VA Boston Health care System was requested, approved, and obligated 
by the same fiscal official. In our 2008 report, we identified 11 
instances where the same official requested and approved a 
miscellaneous obligation, and then certified receipt of goods and 
services.
---------------------------------------------------------------------------
    \3\ Department of Veterans Affairs, Office of Inspector General, 
Audit of Alleged Mismanagement of Government Funds at the VA Boston 
Health care System, Report No. 06-00931-139 (Washington, D.C.: May 31, 
2007).
---------------------------------------------------------------------------
      Another tenet of an effectively designed control system 
is that all transactions need to be clearly documented and all 
documentation and records should be properly managed and maintained. 
Adequate documentation is essential to support an effective funds 
control system. During our case studies, we found many instances where 
VA did not have records supporting key elements of miscellaneous 
obligation transactions--such as the purpose, vendor, and contract 
number As a result, VA could not effectively demonstrate that these 
miscellaneous obligations were for bona fide needs, that estimated 
obligation amounts were properly calculated, that the authorized vendor 
was paid, or whether VA received the appropriate type and quantity of 
goods and services at the correct price.

    Question 4: In 2009, the VA's Office of Business Oversight 
Management Quality Assurance Service found that out of 476 
miscellaneous obligations at 39 different medical centers, health care 
systems, and regional offices there were 379 instances of noncompliance 
with the new policies and procedures. These noncompliance issues were 
similar to those GAO identified in your September 2008 report on VHA 
miscellaneous obligations. Why did the Office of Business Oversight 
report similar findings?

    Response: The VA Office of Business Oversight Management Quality 
Assurance Service (MQAS) 2009 report identified several causes for the 
continuing noncompliance issues it identified concerning the use of 
miscellaneous obligations that were similar to problems we identified 
in our September 2008 report. First, the MQAS report identified a lack 
of timely dissemination of the new miscellaneous obligation policy. 
Consequently, the VA had little assurance that all VA's widespread 
locations received notification of the new policies and procedures in 
force concerning the use of miscellaneous obligations. The MQAS noted 
that this cause had often been identified in other MQAS review areas, 
indicating a potential systemic issue associated with the general 
dissemination of policies throughout VHA. In addition, the MQAS report 
disclosed that some VHA facilities had not yet developed standard 
operating procedures for implementing the new miscellaneous obligation 
policy, provided training for new accounting personnel, required 
documentation establishing segregation of duties, and instituted 
facility-level quarterly reviews.

                                 

                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                      July 29, 2010

Honorable Eric K. Shinseki
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

Dear Mr. Secretary:

    In reference to our Full Committee hearing entitled ``Continued 
Oversight of Inadequate Cost Controls at the U.S. Department of 
Veterans Affairs'' on July 28, 2010, I would appreciate it if you could 
answer the enclosed hearing questions by the close of business on 
September 10, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax to Debbie at 202-225-2034. If you have any 
questions, please call 202-225-9756.

            Sincerely,

                                                         BOB FILNER
                                                           Chairman

MH:ds

                               __________
                        Questions for the Record
   The Honorable Bob Filner, Chairman, House Committee on Veterans' 
   Affairs, ``Continued Oversight of Inadequate Cost Controls at VA''
                             July 28, 2010

    Question 1: Why has VA gone from $6.9 billion in recorded 
miscellaneous obligations during fiscal year 2007 to around $12 billion 
currently?

    Response: The $6.9 billion of recorded miscellaneous obligations in 
FY 2007 was the amount reported by the GAO in their report No. 08-976, 
dated, September 2008, and was attributable to the 21 VISNs (No. 1 thru 
23) but did not include amounts attributable to other VHA and VA 
organizations. The $12 billion of recorded miscellaneous obligations in 
FY 2009 was the amount attributable to the 21 VISNs plus the other VHA 
and VA organizations. The attached spreadsheet report shows the details 
of the recorded miscellaneous obligations by budget object code (BOC) 
for FY 2007 compared to FY 2009. The first comparison shows the amounts 
recorded by the 21 VISNs: $6.905 billion in FY 2007 compared to $8.480 
billion in FY 2009. The second comparison shows amounts recorded by the 
other VHA/VA organizations: $2.876 billion in FY 2007 compared to 
$3.982 billion in FY 2009. The final comparison shows the total 
recorded amounts: $9.782 billion in FY 2007 compared to $12.476 billion 
in FY 2009.

    Question 2: Regarding corrective actions planned, VA implemented 
several policies to combat material weakness deficiency, yet 
implementation of these policies continues to be a troubling issue at 
the VA. For example, the VA's Management Quality Assurance Service 
found that 51 percent of VA's actions did not comply with the 
segregation of duties requirement set forth in VA policy. What 
consequences do violators of VA policy face, if any?

    Response: Enforcement of VA policy is a shared leadership 
responsibility. Violations of VA policies within a medical center would 
be dealt with at the local medical center level in collaboration with 
their Human Resources Department (H.R.). Violations by medical center 
directors would be dealt with at the Veterans Integrated Service 
Network (VISN) level, and the Network Director is held accountable to 
the Deputy Under Secretary for Health for Operations and Management. 
H.R. refers to the Table of Disciplinary Offenses and Penalties when 
advising supervisors, managers, and directors.
    For the example cited, the segregation of duties within 
miscellaneous obligations is audited by the Financial Quality Assurance 
Managers and reported to Network and Facility Directors. This oversight 
responsibility became part of the Network Director's Performance Plan 
in 2010.

    Question 3: The Secretary has recently decided to cancel the 
Integrated Financial Accounting System (IFAS). This effectively 
eliminates the Financial and Logistics Integrated Technology Enterprise 
(FLITE) program. What impact does the cancellation of FLITE have on 
ensuring the integrity of the VA's ability to fulfill the critical need 
for a modernized and integrated financial and asset management process?

    Response: VA will implement lower-cost, short-term improvements to 
VA's current financial management system (FMS). This system has 
resulted in a clean audit opinion on our financial statements for 11 
years in a row. It only costs $15 million to operate. There is relative 
low risk with maintaining the system for the foreseeable future. On the 
other hand, the FLITE/IFAS solution would have cost an estimated $500 
million and carried very high implementation risks. We will reevaluate 
our financial system environment in another 2 to 3 years and then 
decide whether to undertake a replacement of FMS.

    Question 4: On June 29, 2010, the Secretary mandated that facility 
directors certify quarterly that their facility meet the four levels 
for segregating duties as defined by VA policy. Why is the Information 
Security Officer also required to certify the report?

    Response: The Information Security Officer (ISO) is required to 
certify the report along with the facility director for two reasons. It 
gives each security officer visibility into the state of compliance at 
their assigned facility. The ISOs are generally more familiar with this 
type of certification and can look for patterns or trends that need 
correction. ISO certification is also appropriate because a key 
function of the ISO is to ensure the integrity of information 
technology systems, including system segregation of duties and access 
controls. These individuals serve locally and provide oversight over an 
assigned facility(ies); however, they report to the Department's IT 
organization. This separate chain of command further enhances the 
integrity of the certification.

                                                 Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   Personal
                  Services &
                   Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1101            Regular Pay            $28,057           $17,789          ($10,268)                         $2,841,009        $2,841,009           $28,057         $2,858,798        $2,830,741
                 (Includes
                 merit pay)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1122            RETENTION                                 $3,680            $3,680                                  $0                $0                $0             $3,680            $3,680
                 ALLOWANCE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1128            Incentive                                                                                       $1,500            $1,500                $0             $1,500            $1,500
                 Awards, Cash
                 or Non-Cash
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1204            Office of          $43,729,171       $60,682,464       $16,953,294        $1,751,204        $5,493,957        $3,742,753       $45,480,375        $66,176,421       $20,696,046
                 Workers
                 Compensation
                 Program
                 Payments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1208            Subsistence             $4,284                             ($4,284)                                 $0                $0            $4,284                              ($4,284)
                 and
                 Temporary
                 Miscellaneou
                 s Moving
                 Expenses
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1215            FSA-Adm Fees-          $55,030           $85,970           $30,940            $1,885            $1,981               $96           $56,915            $87,951           $31,036
                 Dep Care
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1217            Flexible              $452,109        $1,090,943          $638,835           $14,285           $31,338           $17,053          $466,394         $1,122,281          $655,887
                 Spending
                 Account
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1218            Federal                                  $13,125           $13,125                                 ($0)              ($0)               $0            $13,125           $13,125
                 Employees
                 Health
                 Benefits--VA
                 Share
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1221            STUDENT LOAN                             $27,087           $27,087                                  $0                $0                $0            $27,087           $27,087
                 REPAYMENT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1283            Childcare                                                                 $5,446,134        $3,636,533       ($1,809,601)       $5,446,134         $3,636,533       ($1,809,601)
                 Subsidy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1284            TRANSIT                                 $372,200          $372,200                                  $0                $0                $0           $372,200          $372,200
                 BENEFIT
                 PRETAX
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1285            Direct              $3,620,880        $7,067,169        $3,446,290        $2,544,153       $14,405,233       $11,861,080        $6,165,033        $21,472,402       $15,307,369
                 Subsidy
                 Transit
                 Benefit
                 Program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1286            Liability              $19,715           $16,978           ($2,737)           $1,662           $14,207           $12,545           $21,377            $31,185            $9,808
                 Insurance
                 Reimbursemen
                 t Program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1287            EDRP                $6,959,080        $8,465,768        $1,506,687                                  $1                $1        $6,959,080         $8,465,768        $1,506,688
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1302            Unemployment                                                                                                                                      $11,210,885       $11,210,885
                 Compensation
                 Payments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                   $54,868,325       $77,843,174       $22,974,848        $9,759,323       $26,425,757       $16,666,434       $64,627,648       $115,479,816       $50,852,168
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  Travel and
                 Transportati
                     on of
                    Persons
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2101            Permanent               $6,307              $583           ($5,725)                                 $0                $0            $6,307               $583           ($5,724)
                 Duty Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2102            PCS House                  $52               $90               $38                                  $0                $0               $52                $90               $38
                 Hunting
                 Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2103            Employee              $360,868          $401,869           $41,001            $5,036           $80,000           $74,964          $365,904           $481,869          $115,965
                 Training or
                 Temporary
                 Duty Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2104            Employee              $342,876          $326,400          ($16,476)         $121,314          $377,755          $256,441          $464,190           $704,155          $239,965
                 Administrati
                 ve Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2111            Employee              $635,922          $506,765         ($129,157)                                 $0                $0          $635,922           $506,765         ($129,157)
                 Medical
                 Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2112            Inter-             $37,723,748       $40,167,301        $2,443,552            $7,000                $0           ($7,000)      $37,730,748        $40,167,301        $2,436,553
                 Facility
                 Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2119            Beneficiary       $158,624,532      $130,093,662      ($28,530,869)                                ($0)              ($0)     $158,624,532       $130,093,662      ($28,530,870)
                 Travel--Othe
                 r than
                 Mileage
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2120            Beneficiary        $62,148,628      $285,823,505      $223,674,876                            $341,061          $341,061       $62,148,628       $286,164,566      $224,015,938
                 Travel--Mile
                 age
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2121            Local                 $992,087          $835,314         ($156,773)           $1,329            $8,715            $7,386          $993,416           $844,029         ($149,387)
                 Transportati
                 on of
                 Employees
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2128            Non-medical            $29,354           $12,390          ($16,964)                                ($0)              ($0)          $29,354            $12,390          ($16,964)
                 Beneficiary
                 Travel
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2130            Rental of GSA      $24,278,045       $30,942,261        $6,664,216        $1,352,847        $1,423,872           $71,025       $25,630,892        $32,366,133        $6,735,241
                 Passenger
                 Vehicles
                 from
                 Government
                 Motor Pools
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2140            Commercial            $272,889          $100,148         ($172,741)                                 $0                $0          $272,889           $100,148         ($172,741)
                 Transportati
                 on Charges
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2150            Reimbursable          $331,093           $24,333         ($306,760)                            $16,097           $16,097          $331,093            $40,430         ($290,663)
                 Travel
                 Expense
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  $285,746,401      $489,234,620      $203,488,219        $1,487,526        $2,247,501          $759,975      $287,233,927       $491,482,121      $204,248,194
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                Transportatio
                  n of Things
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2210            Shipment of            $64,363              $261          ($64,103)         $253,646                $0         ($253,646)         $318,009               $261         ($317,748)
                 Bodies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2220            Other               $1,769,284          $337,401       ($1,431,883)       $2,990,662         ($337,401)      ($3,328,063)       $4,759,946                          ($4,759,946)
                 Shipments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2230            Shipment of             $1,500                             ($1,500)                                 $0                $0            $1,500                              ($1,500)
                 Household
                 Goods and
                 Personal
                 Effects
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2240            Parcel Post           $280,411          $251,334          ($29,077)               $1                $0               ($1)         $280,412           $251,334          ($29,078)
                 Service
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2250            Rental of          $12,864,641       $13,683,907          $819,266          $603,658          $818,641          $214,983       $13,468,299        $14,502,548        $1,034,249
                 Trucks from
                 Government
                 Motor Pools
                 (GSA)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2298            Service &                                                                                   $1,533,361        $1,533,361                $0         $1,533,361        $1,533,361
                 Distribution
                 Transportati
                 on
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2299            Transportatio          $88,050                            ($88,050)                           $600,000          $600,000           $88,050           $600,000          $511,950
                 n--Other
                 than Service
                 and
                 Distribution
                 Center
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                   $15,068,249       $14,272,902         ($795,348)       $3,847,967        $2,614,602       ($1,233,365)      $18,916,216        $16,887,504       ($2,028,712)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Rent,
                 Communicatio
                    ns, and
                   Utilities
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2301            Telephone--Lo       $3,448,185        $2,045,447       ($1,402,738)       $1,646,190          $852,706         ($793,484)       $5,094,375         $2,898,153       ($2,196,222)
                 ng Distance--
                 Commercial
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2302            Telephone--Lo       $8,796,965        $6,814,773       ($1,982,191)      $10,384,608        $1,079,500       ($9,305,108)      $19,181,573         $7,894,273      ($11,287,300)
                 ng Distance--
                 GSA-Federal
                 Telecommunic
                 ations
                 Service
                 (FTS)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2303            Telephone--Re      $38,799,405       $13,902,505      ($24,896,900)       $4,380,015        $1,784,178       ($2,595,837)      $43,179,420        $15,686,683      ($27,492,737)
                 curring
                 Costs--Comme
                 rcial
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2304            Telephone--Re       $1,009,739        $1,044,952           $35,213          $876,092        $2,181,697        $1,305,605        $1,885,831         $3,226,649        $1,340,818
                 curring
                 Costs--GSA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2305            Telephone--No       $5,920,529          $742,912       ($5,177,618)         $141,832            $7,792         ($134,040)       $6,062,361           $750,704       ($5,311,657)
                 n-recurring
                 Costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2307            Data                $6,325,727        $2,769,279       ($3,556,449)      $34,087,238       $42,487,970        $8,400,732       $40,412,965        $45,257,249        $4,844,284
                 Communicatio
                 ns Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2310            Wireless            $4,167,828        $2,297,692       ($1,870,137)         $538,312          $712,872          $174,560        $4,706,140         $3,010,564       ($1,695,576)
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2312            Communication       $1,403,450           $16,836       ($1,386,614)         $263,631            $2,000         ($261,631)       $1,667,081            $18,836       ($1,648,245)
                 s--Other
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2313            Integrated                                                                   $42,092                            ($42,092)          $42,092                             ($42,092)
                 Data
                 Communicatio
                 n Utility
                 (IDCU)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2320            Regular Mail       $13,427,289        $3,073,912      ($10,353,377)     $109,783,949      $147,564,140       $37,780,191      $123,211,238       $150,638,052       $27,426,814
                 Service
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2321            Express Mail       $10,911,696        $1,961,922       ($8,949,774)      $13,168,109       $14,947,523        $1,779,414       $24,079,805        $16,909,445       ($7,170,360)
                 Service
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2324            Software                                                                     $30,000          $444,703          $414,703           $30,000           $444,703          $414,703
                 rental and
                 License Fees
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2330            Real Property      $12,270,569        $1,093,770      ($11,176,799)       $7,796,711       $13,340,645        $5,543,934       $20,067,280        $14,434,415       ($5,632,865)
                 Rental--Comm
                 ercial
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2331            Rental              $2,668,335        $3,101,222          $432,887       $53,775,780       $86,115,718       $32,339,938       $56,444,115        $89,216,940       $32,772,825
                 Property
                 Rental--GSA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2334            Rent,                 $294,420          $207,912          ($86,508)                           $291,077          $291,077          $294,420           $498,989          $204,569
                 Communicatio
                 ns, and
                 Utilities--M
                 arketing--Fr
                 anchise Fund
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2341            Equipment          $22,899,204        $3,547,443      ($19,351,761)          $64,588           $20,646          ($43,942)      $22,963,792         $3,568,089      ($19,395,703)
                 Rentals
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2345            Telecommunica          $16,403                            ($16,403)             $338                $0             ($338)          $16,741                             ($16,741)
                 tions
                 Equipment
                 Rental
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2350            Audio/Video             $1,128                             ($1,128)                                 $0                $0            $1,128                              ($1,128)
                 Media
                 Rentals
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2389            Purchased           $1,615,275        $3,808,454        $2,193,179            $1,873               ($0)          ($1,873)       $1,617,148         $3,808,454        $2,191,306
                 Chilled
                 Water
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2390            Utility            $31,652,712        $2,939,736      ($28,712,977)         $103,751           $33,493          ($70,258)      $31,756,463         $2,973,229      ($28,783,234)
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2391            Electricity--     $248,491,319      $255,722,609        $7,231,289        $2,435,769        $2,787,675          $351,906      $250,927,088       $258,510,284        $7,583,196
                 Buildings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2392            Water              $23,156,266       $25,439,358        $2,283,092        $1,938,566        $2,243,132          $304,566       $25,094,832        $27,682,490        $2,587,658
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2393            Purchased          $27,269,812       $24,281,877       ($2,987,935)                                 $1                $1       $27,269,812        $24,281,877       ($2,987,935)
                 Steam, Heat,
                 and Hot
                 Water
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2394            Natural Gas--     $145,440,716      $119,738,523      ($25,702,193)         $317,847          $306,703          ($11,144)     $145,758,563       $120,045,226      ($25,713,337)
                 Buildings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2395            Sewer              $17,747,038       $21,546,888        $3,799,851           $46,729           $56,416            $9,687       $17,793,767        $21,603,304        $3,809,537
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2396            Purchased               $3,250            $3,421              $171                                  $0                $0            $3,250             $3,421              $171
                 Renewable
                 Electric
                 Energy--Buil
                 dings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2399            Other                                    $64,534           $64,534                                 ($0)              ($0)               $0            $64,534           $64,534
                 Purchased
                 Renewable
                 Energy--Buil
                 dings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  $627,737,260      $496,165,976     ($131,571,285)     $241,824,020      $317,260,587       $75,436,567      $869,561,280       $813,426,563      ($56,134,717)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Printing and
                 Reproduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2423            Forms and                 $150                               ($150)                                 $0                $0              $150                                ($150)
                 Form Letters
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2424            Other                 $668,744          $591,335          ($77,409)          $30,381           $18,790          ($11,591)         $699,125           $610,125          ($89,000)
                 Printing and
                 Reproduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      $668,894          $591,335          ($77,559)          $30,381           $18,790          ($11,591)         $699,275           $610,125          ($89,150)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Other
                  Contractual
                   Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2507            Data                $3,438,387          $388,849       ($3,049,538)       $5,305,278       $11,076,572        $5,771,294        $8,743,665        $11,465,421        $2,721,756
                 Processing
                 Services and
                 Information
                 Technology
                 Services--Ot
                 her Than
                 Federal
                 Executive
                 Branch
                 Agency
                 Suppliers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2510            Data                  $105,220                           ($105,220)      $20,436,795      $235,433,321      $214,996,526       $20,542,015       $235,433,321      $214,891,306
                 Processing
                 Services and
                 Information
                 Technology
                 Support
                 Services
                 (Federal
                 Executive
                 Branch
                 Agency
                 Supplier)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2511            Automated             $234,128            $3,621         ($230,507)          $49,274          $103,000           $53,726          $283,402           $106,621         ($176,781)
                 Data
                 Processing
                 Equipment
                 Time/Data
                 Processing
                 Service
                 (Commercial
                 Supplier)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2512            Other                                        $30               $30          $486,697          $150,000         ($336,697)         $486,697           $150,030         ($336,667)
                 Contractual
                 Services--Ma
                 rketing--Ent
                 erprise
                 Business
                 Center Fund
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2513            ADP                   $870,916          $117,489         ($753,427)       $1,489,307       $20,188,224       $18,698,917        $2,360,223        $20,305,713       $17,945,490
                 Operations
                 and
                 Maintenance
                 Support
                 Services
                 (Commercial
                 Supplier)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2515            Systems            $10,795,280                        ($10,795,280)      $33,630,164       $41,299,511        $7,669,347       $44,425,444        $41,299,511       ($3,125,933)
                 Analysis and
                 Programming
                 (Commercial
                 Supplier)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2520            Repair of           $1,817,334           $33,474       ($1,783,860)          $21,184           $18,411           ($2,774)       $1,838,518            $51,884       ($1,786,634)
                 Furniture
                 and
                 Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2521            Interest              $687,232           $50,194         ($637,038)                             $4,728            $4,728          $687,232            $54,922         ($632,310)
                 Payments--Ba
                 ck Pay
                 Settlements
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2523            FEE BASIC             $165,740          $127,489          ($38,250)                                ($0)              ($0)         $165,740           $127,489          ($38,251)
                 PURC CARD
                 PMT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2528            Security               $22,490           $32,143            $9,653       $10,764,830       $12,202,047        $1,437,217       $10,787,320        $12,234,190        $1,446,870
                 service
                 other than
                 2580
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2529            GOODS &                $53,782        $1,192,575        $1,138,793        $3,298,045        $9,582,282        $6,284,237        $3,351,827        $10,774,857        $7,423,031
                 SERVICES--1V
                 A + FUND
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2532            Special                $77,776            $1,112          ($76,664)       $1,037,515        $1,852,484          $814,969        $1,115,291         $1,853,596          $738,305
                 services
                 provided by
                 GSA
                 services,
                 over and
                 above the
                 basic SLUC
                 rental
                 charges
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2535            Interior              $174,363                           ($174,363)          $14,555                $0          ($14,555)         $188,918                            ($188,918)
                 Decorating
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2536            Deactivated                 $0                                  $0                                  $0                $0                $0                                   $0
                 10/1/05
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2540            Laundry and         $5,428,355            $1,691       ($5,426,663)          $13,250               ($0)         ($13,250)       $5,441,605             $1,691       ($5,439,914)
                 Dry-cleaning
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2542            Cleaning and        $7,080,784        $6,452,275         ($628,509)         $207,274           $91,191         ($116,083)       $7,288,058         $6,543,466         ($744,592)
                 Janitorial
                 Services for
                 Buildings
                 and Other
                 Items
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2543            Recurring           $3,599,487          $765,345       ($2,834,142)         $252,715          $171,262          ($81,453)       $3,852,202           $936,607       ($2,915,595)
                 Maintenance
                 and Repair
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2544            ADP Equipment       $1,492,298          $538,335         ($953,963)                           $969,965          $969,965        $1,492,298         $1,508,300           $16,002
                 and Computer
                 Maintenance
                 Contracts--C
                 ommercial
                 Supplier
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2548            Utility Plant          $58,741          $185,920          $127,179                                 ($0)              ($0)          $58,741           $185,920          $127,179
                 Operations
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2549            Roads and             $156,001          $178,570           $22,568          $359,865          $257,595         ($102,271)         $515,866           $436,164          ($79,702)
                 Grounds
                 Maintenance
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2551            Prosthetic          $9,176,798        $9,196,078           $19,280              $102       $15,646,750       $15,646,648        $9,176,900        $24,842,828       $15,665,928
                 Repair-
                 Contract
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2552            Repair                                      $100              $100                                  $0                $0                $0               $100              $100
                 Services to
                 Home
                 Dialysis
                 Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2553            Miscellaneous         $194,626          $191,955           ($2,671)                                 $0                $0          $194,626           $191,955           ($2,671)
                 Contractual
                 Services for
                 Indigent
                 Veterans
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2560            Medical Care    $1,087,173,771    $1,399,761,144      $312,587,373       $38,026,578       $47,908,136        $9,881,558    $1,125,200,349     $1,447,669,280      $322,468,931
                 Contracts
                 and
                 Agreements
                 with
                 Institutions
                 and
                 Organization
                 s
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2561            Fee Basis--        $26,661,723        $8,035,450      ($18,626,273)       $2,030,000        $1,739,346         ($290,654)      $28,691,723         $9,774,796      ($18,916,927)
                 Physician
                 Services (On-
                 Station
                 Only)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2562            Non-VA            $754,590,259    $1,357,142,565      $602,552,307                         $73,371,652       $73,371,652      $754,590,259     $1,430,514,217      $675,923,958
                 Medical and
                 Nursing
                 Service (Off-
                 Station
                 Only)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2563            Enhanced            $8,491,593                         ($8,491,593)                                 $0                $0        $8,491,593                          ($8,491,593)
                 Sharing--Nur
                 sing (38 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2564              Nursing             $100,122                           ($100,122)                                 $0                $0          $100,122                            ($100,122)
                 Services (On-
                 Station
                 only)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2566            FEE BASIS             $320,722                           ($320,722)                                 $0                $0          $320,722                            ($320,722)
                 OTHER THAN
                 PHYSICIAN
                 AND NURSING
                 SERVICES
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2567            ENHANCED              $313,737           $28,713         ($285,024)                                ($0)              ($0)         $313,737            $28,713         ($285,024)
                 SHARING
                 OTHER HEALTH
                 CARE
                 SERVICES
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2569            Emergency         $192,766,066      $302,356,227      $109,590,161                                 ($0)              ($0)     $192,766,066       $302,356,227      $109,590,161
                 Treatment of
                 Veterans
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2570            Non-VA Dental      $74,555,913       $90,118,166       $15,562,253                                 ($0)              ($0)      $74,555,913        $90,118,166       $15,562,253
                 Services--Of
                 f-Station
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2571            Fee Dental            $909,186          $712,423         ($196,763)                                 $0                $0          $909,186           $712,423         ($196,763)
                 Service, On-
                 Station
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2572            Services              $690,992          $458,323         ($232,669)                                 $0                $0          $690,992           $458,323         ($232,669)
                 Purchased or
                 Sold by a
                 VHA Special
                 Clinical
                 Resource
                 Center
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2573            SERVICES                $2,924           $27,484           $24,560                         $15,143,749       $15,143,749            $2,924        $15,171,233       $15,168,309
                 PURCHASED OR
                 SOLD BY VHA
                 SPECIAL
                 ADMIN
                 RESOURCE CTR
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2574            Home Oxygen--      $10,914,954       $15,143,749        $4,228,795                        ($15,143,749)     ($15,143,749)      $10,914,954                         ($10,914,954)
                 Contractual
                 Agreement
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2575            Other             $100,455,112      $136,176,396       $35,721,283                                  $0                $0      $100,455,112       $136,176,396       $35,721,284
                 Contract
                 Hospitalizat
                 ion
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2576            Consultants           $861,151          $265,392         ($595,759)      $14,799,193       $13,038,940       ($1,760,253)      $15,660,344        $13,304,332       ($2,356,012)
                 and
                 Attendings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2579            Scarce            $121,075,482       $23,642,634      ($97,432,848)         $442,821          $108,550         ($334,271)     $121,518,303        $23,751,184      ($97,767,119)
                 Medical
                 Specialist
                 Contracts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2580            Non-Medical       $254,609,738      $179,147,047      ($75,462,691)     $228,301,758      $318,936,733       $90,634,975      $482,911,496       $498,083,780       $15,172,284
                 Contracts
                 and
                 Agreements
                 with
                 Institutions
                 and
                 Organization
                 s
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2581            Contracts and      $44,177,304       $48,244,758        $4,067,454        $1,139,008          $495,682         ($643,326)      $45,316,312        $48,740,440        $3,424,128
                 Agreements
                 with
                 Individuals
                 for Personal
                 Services
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2582            Incentive           $6,422,235        $6,946,780          $524,544                                  $0                $0        $6,422,235         $6,946,780          $524,545
                 Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2583            Tuition and         $1,646,723          $990,382         ($656,341)         $416,195          $545,599          $129,404        $2,062,918         $1,535,981         ($526,937)
                 Registration
                 within the
                 Government
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2584            Tuition and        $13,523,939       $24,817,432       $11,293,493          $169,057          $445,425          $276,368       $13,692,996        $25,262,857       $11,569,861
                 Registration
                 outside the
                 Government
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2585            College Work-         $308,198          $280,859          ($27,339)                             $1,071            $1,071          $308,198           $281,930          ($26,268)
                 Study
                 Program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2586            Enhanced           $50,967,154       $26,297,159      ($24,669,995)                                ($0)              ($0)      $50,967,154        $26,297,159      ($24,669,995)
                 Sharing--Phy
                 sicians in
                 VA
                 Facilities
                 (38 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2587            House Staff       $391,306,664      $457,471,644       $66,164,980            $7,202               ($0)          ($7,202)     $391,313,866       $457,471,644       $66,157,778
                 Contracts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2589            Compensated        $43,530,386       $60,011,087       $16,480,700          $564,099          $963,151          $399,052       $44,094,485        $60,974,238       $16,879,753
                 Work Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2590            VA/DoD             $33,925,026       $49,429,837       $15,504,811                            $157,163          $157,163       $33,925,026        $49,587,000       $15,661,974
                 Sharing
                 Agreement--3
                 8 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2591            Enhanced              $575,321        $1,297,204          $721,883                                 ($0)              ($0)         $575,321         $1,297,204          $721,883
                 Sharing--Phy
                 sicians
                 Outside the
                 VA Facility
                 (38 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2592            Enhanced            $4,847,953        $7,072,830        $2,224,877                                  $0                $0        $4,847,953         $7,072,830        $2,224,877
                 Sharing--Cli
                 nicians (Non-
                 physicians)
                 (38 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2593            IRS                                       $2,014            $2,014                                  $0                $0                $0             $2,014            $2,014
                 COLLECTION
                 FEE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2594            C&P MEDICAL                           $4,268,645        $4,268,645                                 ($0)              ($0)               $0         $4,268,645        $4,268,645
                 EXAMINATIONS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2595            Education and          $17,868           $75,000           $57,132                                  $0                $0           $17,868            $75,000           $57,132
                 Training
                 Reporting
                 Allowances--
                 38 U
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2597            Burial Costs          $279,226            $9,700         ($269,526)                                 $0                $0          $279,226             $9,700         ($269,526)
                 for
                 Unclaimed
                 Bodies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2598            Non-VA            $568,529,740      $817,611,755      $249,082,015      $127,100,670      $130,531,175        $3,430,505      $695,630,410       $948,142,930      $252,512,520
                 Hospital and
                 Outpatient
                 Treatment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                $3,840,180,922    $5,037,300,044    $1,197,119,122      $490,363,431      $937,289,964      $446,926,533    $4,330,544,353     $5,974,590,008    $1,644,045,655
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Supplies and
                   Materials
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2610            Provisions         $76,213,618       $86,335,451       $10,121,833           $55,048              $167          ($54,881)      $76,268,666        $86,335,618       $10,066,952
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2620            Office              $1,878,032           $86,032       ($1,792,000)           $3,563              $685           ($2,878)       $1,881,595            $86,717       ($1,794,878)
                 Supplies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2623            Automated               $1,200                             ($1,200)                                 $0                $0            $1,200                              ($1,200)
                 Data
                 Processing
                 Recording
                 Media
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2625            Computing              $19,327           $30,150           $10,823              $650              $144             ($506)          $19,977            $30,294           $10,317
                 parts and
                 materials
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2631            Drugs/          $1,221,387,050    $1,325,120,414      $103,733,364    $2,048,950,544    $2,364,290,096      $315,339,552    $3,270,337,594     $3,689,410,510      $419,072,917
                 Medicines
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2632            Other Medical      $36,398,764       $27,788,064       ($8,610,700)      $28,390,359       $37,331,642        $8,941,283       $64,789,123        $65,119,706          $330,583
                 and Dental
                 Supplies
                 (also
                 Expendable
                 Property)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2633            Chemical            $6,570,519        $2,203,061       ($4,367,458)                                 $0                $0        $6,570,519         $2,203,061       ($4,367,458)
                 Supplies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2635            Blood              $59,856,232       $10,957,457      ($48,898,775)                                 $0                $0       $59,856,232        $10,957,457      ($48,898,775)
                 Products
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2636            Prescriptions       $6,029,609        $4,955,296       ($1,074,313)                                 $0                $0        $6,029,609         $4,955,296       ($1,074,313)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2645            Books,                $635,566           $64,811         ($570,755)          $10,650           $14,900            $4,250          $646,216            $79,711         ($566,505)
                 Periodicals,
                 and
                 Newspapers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2647            Audio/video            $25,392              $783          ($24,609)              $95               ($0)             ($95)          $25,487               $783          ($24,704)
                 Media
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2650            Fuel Oil            $4,398,742        $1,620,397       ($2,778,345)          $47,696            $3,954          ($43,742)       $4,446,438         $1,624,351       ($2,822,087)
                 (Heating Oil/
                 Diesel)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2651            COAL                                     $50,850           $50,850                                 ($0)              ($0)               $0            $50,850           $50,850
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2652            Liquefied               $7,924            $5,298           ($2,626)                                ($0)              ($0)           $7,924             $5,298           ($2,626)
                 Petroleum
                 Gas (LPG)/
                 Propane--Hea
                 ting and
                 Cooking
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2654            FUEL FOR              $511,631          $518,169            $6,537           $15,100          $103,717           $88,616          $526,731           $621,885           $95,154
                 FLEET
                 VEHICLES
                 ONLY
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2655            Auto                  $138,262           $46,206          ($92,056)          $12,547            $4,826           ($7,721)         $150,809            $51,032          ($99,777)
                 Gasoline--No
                 n-Fleet
                 Vehicles &
                 other
                 Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2656            Liquefied               $3,831           $42,000           $38,169                                  $0                $0            $3,831            $42,000           $38,169
                 Petroleum
                 Gas (LPG)/
                 Propane--Non-
                 Fleet
                 Vehicles &
                 Other
                 Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2657            Diesel/                $28,450                            ($28,450)           $9,500                $0           ($9,500)          $37,950                             ($37,950)
                 Distillate--
                 Non-Fleet
                 Vehicles &
                 Other
                 Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2660            Operating          $14,157,669       $15,243,340        $1,085,670        $6,571,344        $6,188,207         ($383,137)      $20,729,013        $21,431,547          $702,534
                 Supplies and
                 Materials
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2665            Linen Items           $126,000          $438,020          $312,020                                 ($0)              ($0)         $126,000           $438,020          $312,020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2666            Employee                $9,757            $4,881           ($4,875)           $6,943              $375           ($6,568)          $16,700             $5,256          ($11,444)
                 Uniforms and
                 Protective
                 Clothing
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2670            Maintenance           $341,630            $1,796         ($339,835)          $33,563               $15          ($33,548)         $375,193             $1,811         ($373,382)
                 Supplies and
                 Materials
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2674            Home Oxygen--         $266,562          $805,803          $539,241                                  $0                $0          $266,562           $805,803          $539,241
                 Prosthetic
                 Supplies/
                 Appliances
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2680            Supply Fund -             $500                               ($500)                                 $0                $0              $500                                ($500)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2692            Prosthetic         $81,540,037      $111,545,205       $30,005,168              $342      $209,820,750      $209,820,408       $81,540,379       $321,365,955      $239,825,576
                 Supplies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2693            Home Dialysis          $54,356           $90,576           $36,220                                  $0                $0           $54,356            $90,576           $36,220
                 Equipment
                 and Supplies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2696            Supply Fund                                                                                                                                        $1,750,000        $1,750,000
                 Inventory--H
                 eld for Sale
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                $1,510,600,661    $1,587,954,060       $77,353,399    $2,084,107,944    $2,617,759,477      $533,651,533    $3,594,708,605     $4,207,463,537      $612,754,932
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  Equipment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3110            Transportatio          $73,712                            ($73,712)                                 $0                $0           $73,712                             ($73,712)
                 n Equipment,
                 Passenger
                 Vehicles--Ca
                 pitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3111            Transportatio          $40,191                            ($40,191)                                 $0                $0           $40,191                             ($40,191)
                 n Equipment,
                 Passenger
                 Vehicles--No
                 n-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3120            Furniture and                                                                               $2,601,394        $2,601,394                $0         $2,601,394        $2,601,394
                 Fixtures--Ca
                 pitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3121            Office                                    $4,062            $4,062                                  $0                $0                $0             $4,062            $4,062
                 Equipment--C
                 apitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3123            Automated                                                                 $2,252,024        $5,880,450        $3,628,426        $2,252,024         $5,880,450        $3,628,426
                 Data
                 Processing
                 (ADP)
                 Software--Ca
                 pitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3124            Internal Use          $332,493                           ($332,493)       $5,157,976       $30,358,909       $25,200,933        $5,490,469        $30,358,909       $24,868,440
                 Software--Ca
                 pitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3126            Furniture and         $509,185        $3,553,131        $3,043,946            $9,022        $1,074,057        $1,065,035          $518,207         $4,627,188        $4,108,981
                 Fixtures--No
                 n-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3127            Office                    $755                               ($755)          $37,456          $332,686          $295,230           $38,211           $332,686          $294,475
                 Equipment--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3128            Office                                                                       $89,997                            ($89,997)          $89,997                             ($89,997)
                 Automation/
                 Word
                 Processing--
                 Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3129            Automatic           $1,288,738          $105,846       ($1,182,891)         $850,747        $1,430,866          $580,119        $2,139,485         $1,536,712         ($602,773)
                 Data
                 Processing
                 Equipment
                 (ADPE)--Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3130            Medical,              $392,305           $20,250         ($372,055)                                 $0                $0          $392,305            $20,250         ($372,055)
                 Dental, and
                 Scientific
                 Equipment--C
                 apitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3131            Medical,              $700,073        $2,333,394        $1,633,321                                  $0                $0          $700,073         $2,333,394        $1,633,321
                 Dental, and
                 Scientific
                 Equipment--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3133            Telecommunica         $296,754           $14,097         ($282,657)           $5,105        $1,246,000        $1,240,895          $301,859         $1,260,097          $958,238
                 tion
                 Equipment--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3134            Automated               $9,976                             ($9,976)                            $75,339           $75,339            $9,976            $75,339           $65,363
                 Data
                 Processing
                 (ADP)
                 Software--No
                 n-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3151            Utility and             $1,221                             ($1,221)                                 $0                $0            $1,221                              ($1,221)
                 Operating
                 Equipment--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3155            Hazardous              $30,682              $790          ($29,892)                               $580              $580           $30,682             $1,370          ($29,312)
                 Waste Clean-
                 Up of
                 Personal
                 Property--Ca
                 pitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3161            Equipment              $10,001           $35,607           $25,606           $83,055          $179,307           $96,252           $93,056           $214,914          $121,858
                 under
                 Capital
                 Lease
                 Purchase
                 Contracts--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    $3,686,085        $6,067,176        $2,381,092        $8,485,382       $43,179,589       $34,694,207       $12,171,467        $49,246,765       $37,075,298
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   Land and
                  Structures
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3216            Improvements                                                                                                                                          $12,000           $12,000
                 to Land--Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3220            Buildings and       $5,606,001       $17,884,920       $12,278,920        $4,500,000               ($0)      ($4,500,000)      $10,106,001        $17,884,920        $7,778,919
                 Facilities--
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3222            Land,               $5,006,261        $5,590,133          $583,871                                  $0                $0        $5,006,261         $5,590,133          $583,872
                 Building,
                 and Other
                 Structures
                 Acquired
                 Under Lease
                 Purchase
                 Contracts--C
                 apitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3223            Buildings and         $358,037            $1,372         ($356,665)                                 $0                $0          $358,037             $1,372         ($356,665)
                 Facilities--
                 Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3224            Buildings               $5,692           $14,556            $8,864                                 ($0)              ($0)           $5,692            $14,556            $8,864
                 Under
                 Capital
                 Lease--Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3226            Telecommunica         $430,266                           ($430,266)                                 $0                $0          $430,266                            ($430,266)
                 tion
                 Equipment--N
                 on-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3230            Leasehold                               $401,475          $401,475                          $1,199,887        $1,199,887                $0         $1,601,362        $1,601,362
                 Improvements
                 -Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3231            Leasehold              $82,575                            ($82,575)          $60,000        $1,202,970        $1,142,970          $142,575         $1,202,970        $1,060,395
                 Improvements
                 -Non-
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3255            Hazardous           $2,000,000                         ($2,000,000)                                 $0                $0        $2,000,000                          ($2,000,000)
                 Waste Clean-
                 Up of
                 Buildings
                 and Other
                 Structures--
                 Not
                 Capitalized
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3310            Property                  $463                               ($463)                                 $0                $0              $463                                ($463)
                 Acquisitions
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                   $13,489,295       $23,892,457       $10,403,162        $4,560,000        $2,402,856       ($2,157,144)      $18,049,295        $26,307,313        $8,258,018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Recorded Miscellaneous Obligations by Budget Object Code (BOC) for FY 2007 Compared to FY 2009--Continued
                                                                                    Attachment to Question #1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 VISNs 1 to 23     VISNs 1 to 23     VISNs 1 to 23     Other VHA/ VA     Other VHA/ VA     Other VHA/ VA         Total             Total              Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                BUDGET OBJECT
                  CODE (BOC)
      BOC        DESCRIPTION        FY 2007           FY 2009           Change            FY 2007           FY 2009           Change            FY 2007           FY 2009            Change------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   Grants,
                  Subsidies,
                      and
                 Contribution
                       s
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4110            Grants,           $541,571,009      $714,982,223      $173,411,213                                  $0                $0      $541,571,009       $714,982,223      $173,411,214
                 Subsidies,
                 and
                 Contribution
                 s to States
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4120            Grants--Homel      $11,409,121       $30,556,301       $19,147,180       $28,117,161       $30,663,004        $2,545,843       $39,526,282        $61,219,305       $21,693,023
                 ess Veterans
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  $552,980,131      $745,538,524      $192,558,393       $28,117,161       $30,663,004        $2,545,843      $581,097,292       $776,201,528      $195,104,236
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  Insurance
                  Claims and
                  Indemnities
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4205            No Fear (EEO)                             $5,000                                                                                                       $5,000            $5,000
                 Act
                 Settlements
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4210            Pension                                   $7,230            $7,230        $2,674,790        $2,175,104         ($499,686)       $2,674,790         $2,182,334         ($492,456)
                 Annuities
                 and Ins
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4220            Federal Tort          $719,764        $1,022,225          $302,461           $69,342            $2,560          ($66,782)         $789,106         $1,024,785          $235,679
                 Claims
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4250            Reimbursement         $135,077          $352,401          $217,324                                  $0                $0          $135,077           $352,401          $217,324
                 for Losses
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4260            Administrativ             $655              $292             ($363)                                 $0                $0              $655               $292             ($363)
                 e Expense--
                 Insurance
                 Programs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      $855,496        $1,387,148          $531,652        $2,744,132        $2,177,664         ($566,468)       $3,599,628         $3,564,812          ($34,816)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Interest and
                   Dividends
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4310            Interest                                  $4,678            $4,678          $376,103          $356,982          ($19,121)         $376,103           $361,660          ($14,443)
                 Expense--Lea
                 se Purchase
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  CASCA/GPF/
                  SUPPLY FUND
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
9999            Casca/GPF/             $81,078              $200          ($80,878)                                 $0                $0           $81,078               $200          ($80,878)
                 Supply Fund
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Total       $6,905,962,798    $8,480,252,293    $1,574,289,495    $2,875,703,370    $3,982,396,774    $1,106,693,404    $9,781,666,168    $12,475,621,952    $2,693,955,784
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                     
                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                      July 30, 2010

The Honorable Eric K. Shinseki
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

Dear Secretary Shinseki,

    In reference to our Committee hearing of July 28, 2010, I would 
appreciate your response to the enclosed additional questions for the 
record by close of business Wednesday, September 1, 2010.
    It would be appreciated if you could provide your answers 
consecutively on letter size paper, single spaced. Please restate the 
question in its entirety before providing the answer.
    Thank you for your cooperation in this matter.

            Sincerely,

                                                        Steve Buyer
                                          Ranking Republican Member

SB:dwc

Enclosure

                               __________
                        Questions for the Record
             The Honorable Steve Buyer, Ranking Republican
Member, House Committee on Veterans' Affairs, ``Continued Oversight of 
 Inadequate Cost Controls at the U.S. Department of Veterans Affairs''
                             July 28, 2010

    Question 1: Please provide to the Committee a complete listing of 
the 23 categories Form 1358 should be used, as well as the amount spent 
with these 23 categories for FY 2009. For those purchases made using 
form 1358 that are not under the 23 approved categories, please provide 
the Committee the amount and type of these purchases.

    Response: The table below lists the 23 categories and the dollar 
amount for each in fiscal year (FY) 2009. There were 9 of 23 categories 
that had no costs. The remaining 14 of 23 categories accounted for 
$11.2 billion (90 percent) of the total $12.5 billion in FY 2009. The 
balance of $1.3 billion (10 percent) was not in one of the 23 
authorized categories.

------------------------------------------------------------------------
    Exception          Description       FY 2009 Total      Percent of
---------------------------------------   Obligations         Total
                                       ---------------------------------
                       Exceptions
------------------------------------------------------------------------
1                 Nursing Homes/Adult   $539,352,030     4.32%
                   Daycare
------------------------------------------------------------------------
2                 Fee Basis, including  $3,570,650,185   28.62%
                   Fee Dental,
                   Homemaker/Home
                   Health Aid, Non-VA
                   Hospitalization
------------------------------------------------------------------------
3                 Standardized          $104,855,181     0.84%
                   Obligations
------------------------------------------------------------------------
4                 Limited Open Travel   $0
                   Authority (LOTA)
                   under $10.00
------------------------------------------------------------------------
5                 Research Studies      $0
------------------------------------------------------------------------
6                 Inter-Library Loan    $0
                   Program
------------------------------------------------------------------------
7                 Affiliation           $457,471,644     3.67%
                   Agreement for
                   Interns/Residents
------------------------------------------------------------------------
8                 Tort Claims/EEO       $3,619,734       0.03%
                   settlements; OIG
                   Confidential
                   Services
------------------------------------------------------------------------
9                 Meal Tickets          $0
------------------------------------------------------------------------
10                Incentive Therapy/    $67,921,018      0.54%
                   Compensated Work
                   Therapy
------------------------------------------------------------------------
11                Beneficiary Travel    $415,929,557     3.33%
------------------------------------------------------------------------
12                Home Improvement      $4,932,949       0.04%
                   Structural
                   Alterations (HISA)
------------------------------------------------------------------------
13                Outer Burial          $0
                   Receptacle
------------------------------------------------------------------------
14                VBA Lease Agreement   $0
                   Overtime Charges
------------------------------------------------------------------------
15                Home Oxygen Bills     $15,949,552      0.13%
------------------------------------------------------------------------
16                Prosthetics--New or   $346,020,253     2.77%
                   Repaired Items
------------------------------------------------------------------------
17                Pharmacy and          $3,775,746,128   30.26%
                   Subsistence Prime
                   Vendor
------------------------------------------------------------------------
18                Regulated Utilities   $523,565,607     4.20%
------------------------------------------------------------------------
19                Tuition               $0
                   Reimbursement to VA
                   Employees
------------------------------------------------------------------------
20                Miscellaneous Non-    $1,247,407,534   10.00%
                   Procurement
                   Obligations
------------------------------------------------------------------------
21                CHAMPVA, Spina        $96,433,697      0.77%
                   Bifida Health,
                   Children of Women
                   Vietnam Veterans,
                   Foreign Medical
                   Program, and other
                   Health
                   Administration
                   Center health care
                   programs
------------------------------------------------------------------------
22                Special Adaptive      $0
                   Housing Inspections
------------------------------------------------------------------------
23                State Approving       $0
                   Agency
------------------------------------------------------------------------
                  Total Exceptions in   $11,169,855,071  89.53%
                   FY 2009
------------------------------------------------------------------------
                  Total Non-Exceptions  $1,305,766,878   10.45%
                   in FY 2009
------------------------------------------------------------------------
                  Total in FY 2009      $12,475,621,950  100%
------------------------------------------------------------------------


    Question 2: Please provide a breakdown in the dollar amounts used 
for each of the 23 approved categories for miscellaneous obligations.

    Response: See VA's response to question 1 for the dollar amounts.

    Question 3: Please provide a status on Arkansas facilities on the 
use of Form 1358 for miscellaneous obligations relative to the GAO 
report.

    Response: The table below provides the data for the two facilities 
in Arkansas.

----------------------------------------------------------------------------------------------------------------
    Exception         Description          FY 2009         FY 2009 Little     FY 2009 Total     Percent of Total
-------------------------------------    Fayetteville     Rock Obligations       Arkansas     ------------------
                                         Obligations    -------------------    Obligations
                       Exceptions    -------------------                   -----------------------------------------------------------------------------------------------------------------------------------
1                  Nursing Homes/     $1,672,047         $3,242,910         $4,914,957         3.61%
                    Adult Daycare
----------------------------------------------------------------------------------------------------------------
2                  Fee Basis,         $28,187,329        $18,337,131        $46,524,460        34.19%
                    including Fee
                    Dental,
                    Homemaker/Home
                    Health Aid, Non-
                    VA
                    Hospitalization
----------------------------------------------------------------------------------------------------------------
3                  Standardized       $702,197           $1,763,532         $2,465,729         1.81%
                    Obligations
----------------------------------------------------------------------------------------------------------------
4                  Limited Open       $0                 $0                 $0
                    Travel Authority
                    (LOTA) under
                    $10.00
----------------------------------------------------------------------------------------------------------------
5                  Research Studies   $0                 $0                 $0
----------------------------------------------------------------------------------------------------------------
6                  Inter-Library      $0                 $0                 $0
                    Loan Program
----------------------------------------------------------------------------------------------------------------
7                  Affiliation        $29,274            $8,406,952         $8,436,226         6.20%
                    Agreement for
                    Interns/
                    Residents
----------------------------------------------------------------------------------------------------------------
8                  Tort Claims/EEO    $4,222             $5,334             $9,556             0.01%
                    settlements; OIG
                    Confidential
                    Services
----------------------------------------------------------------------------------------------------------------
9                  Meal Tickets       $0                 $0                 $0                 0.00%
----------------------------------------------------------------------------------------------------------------
10                 Incentive Therapy/ $330,820           $736,056           $1,066,876         0.78%
                    Compensated Work
                    Therapy
----------------------------------------------------------------------------------------------------------------
11                 Beneficiary        $3,325,889         $10,191,629        $13,517,518        9.93%
                    Travel
----------------------------------------------------------------------------------------------------------------
12                 Home Improvement   $44,414            $111,248           $155,662           0.11%
                    Structural
                    Alterations
                    (HISA)
----------------------------------------------------------------------------------------------------------------
13                 Outer Burial       $0                 $0                 $0
                    Receptacle
----------------------------------------------------------------------------------------------------------------
14                 VBA Lease          $0                 $0                 $0
                    Agreement
                    Overtime Charges
----------------------------------------------------------------------------------------------------------------
15                 Home Oxygen Bills  $126,000           $0                 $126,000           0.09%
----------------------------------------------------------------------------------------------------------------
16                 Prosthetics--New   $518,551           $2,116,551         $2,635,102         1.94%
                    or Repaired
                    Items
----------------------------------------------------------------------------------------------------------------
17                 Pharmacy and       $8,113,401         $21,489,504        $29,602,905        21.75%
                    Subsistence
                    Prime Vendor
----------------------------------------------------------------------------------------------------------------
18                 Regulated          $463,348           $729,397           $1,192,413         0.88%
                    Utilities
----------------------------------------------------------------------------------------------------------------
19                 Tuition            $0                 $0                 $0
                    Reimbursement to
                    VA Employees
----------------------------------------------------------------------------------------------------------------
20                 Miscellaneous Non- $2,642,964         $2,962,449         $5,605,413         4.12%
                    Procurement
                    Obligations
----------------------------------------------------------------------------------------------------------------
21                 CHAMPVA, Spina     $0                 $0                 $0                 0.00%
                    Bifida Health,
                    Children of
                    Women Vietnam
                    Veterans,
                    Foreign Medical
                    Program, and
                    other Health
                    Administration
                    Center health
                    care programs
----------------------------------------------------------------------------------------------------------------
22                 Special Adaptive   $0                 $0                 $0
                    Housing
                    Inspections
----------------------------------------------------------------------------------------------------------------
23                 State Approving    $0                 $0                 $0
                    Agency
----------------------------------------------------------------------------------------------------------------
                   Total Exceptions   $46,160,456        $70,092,693        $116,253,149       85.43%
                    in FY 2009
----------------------------------------------------------------------------------------------------------------
                   Total Non-         $465,499           $19,359,928        $19,825,427        14.57%
                    Exceptions in FY
                    2009
----------------------------------------------------------------------------------------------------------------
                   Total in FY 2009   $46,625,955        $89,452,621        $136,078,576       100.00%
----------------------------------------------------------------------------------------------------------------


    Question 4: The private sector utilizes various accounting and 
financial systems to track their income and expenditures. Can the 
department utilize similar commercial off the shelf (COTS) products, 
and make a few modifications to build a readily usable program that 
will assist them in getting a better idea of its expenditures. If the 
answer is no, please provide the Committee with an explanation of the 
differences between the government and private sector that would 
prohibit the use of a COTS product.

    Response: VA can use commercial off the shelf (COTS) products for 
financial and accounting transactions and reporting. There are a number 
of COTS products available which provide Federal Government financial 
and accounting software. Vendors typically work with agencies to 
configure or tailor the software to meet agency needs and satisfy 
specific requirements. COTS products that are not designed for Federal 
Government finance and accounting require much customization to 
accommodate the budgeting process unique to Federal agencies. 
Implementation of any COTS product, with VA's size and complexity, is 
high risk, tends to cost more than it should, and takes many years to 
deploy. Our current accounting system (as of FY 2010) provides us with 
the total amount of 1358 spending data. VA's Logistics Data Warehouse 
provides the breakout of 1358 spending data by category.

    Question 5: It is apparent to the Committee that the Department 
needs an integrated financial management and logistics accounting 
system as mandated by OMB in 2001. Please provide the Committee with a 
detailed plan for the replacement system of the FLITE program, 
including a timeline for implementation, to include development 
timelines.

    Response: In general, we agree that VA would benefit from replacing 
our current financial system with an integrated financial management 
system. In making the determination of when such a replacement should 
happen there are several key considerations. These considerations 
include: how well the current system is functioning today and is 
expected to function in the future; how much it costs to operate the 
current system; how much it will cost to replace the current system; 
how much risk there would be in implementing a new system; what other 
financial management challenges we face; and the relative priority and 
impact of other challenges versus the need to replace the current 
financial system.
    Earlier this year when we reevaluated all of our financial 
management challenges, risks, and priorities, we considered all of 
these questions and determined that now was not the best time for tVA 
to replace the current financial system. Our current system has 
resulted in a clean audit opinion on our financial statements for 11 
years in a row. It only costs $15 million to operate. There is relative 
low risk with maintaining the system for the foreseeable future. On the 
other hand, the Financial and Logistics Integrated Technology 
Enterprise (FLITE)/Integrated Financial Accounting System (IFAS) 
solution would have cost an estimated $500 million and carried very 
high implementation risks. We will reevaluate our financial system 
environment in another 2-3 years and then decide whether to undertake a 
replacement of VA's Financial Management System (FMS). At that time, if 
a decision is made to replace FMS, VA will develop a detailed plan for 
implementation.
                               __________
     The Honorable Cliff Stearns, Deputy Ranking Republican Member

    Question 1: Two years ago the VA had $6.9 billion in miscellaneous 
obligations. Today there are $12 billion in miscellaneous obligations. 
What is the appropriate use of the miscellaneous obligations 
classification? Does the VA feel that $12 billion in miscellaneous 
obligations is the appropriate use of this code? What does the VA 
consider as an acceptable level of expenditure in the miscellaneous 
obligations category?

    Response: According to VA records, miscellaneous obligations 
totaled $9.8 billion in FY 2007. The $6.9 billion in miscellaneous 
obligations cited in the Government Accountability Office (GAO) report 
for FY 2007 refers only to those miscellaneous obligations used by the 
21 VISNs (No. 1 thru 23), but did not include amounts attributable to 
other Veterans Health Administration (VHA) and VA organizations in FY 
2007. The GAO report cited an additional $2.9 billion during this same 
time frame applicable to miscellaneous obligations for drugs, 
medicines, and other supplies, and for various fee-based medical, 
dental, and other services. In FY 2008, the number of recorded 
miscellaneous obligations was $11.3 billion, and in FY 2009, the number 
was $12.4 billion. This represents an average growth rate of about 9 
percent per year, which roughly corresponds to the annual increase in 
the VA budget along the same time frame.
    The usage of the miscellaneous obligation form is defined by VA 
policy. VA may use Form 1358 as an obligation control document for any 
of the 23 approved uses, or when the Head of Contracting Activity (HCA) 
or contracting designee has determined that a contract is not required. 
A copy of the Appendix to VA policy detailing these approved uses is 
attached. In reviewing the transactions, the bulk of the items fall 
under fee care and pharmacy. Therefore, while we agree that internal 
controls must be strengthened and the type of use must be enumerated on 
the Form, VA believes that the current level of expenditure is 
appropriate. VA continues to examine the process for improvements.

    Question 2: What steps is the VA taking to prevent the misuse of 
miscellaneous obligations from being used in future financial 
reporting? What steps is the VA taking to clarify current expenditures 
listed as miscellaneous obligations? How much expenditure would be 
classified as fraud or misuse within the miscellaneous obligations 
category?

    Response: VA has established clear policy on the use of 
miscellaneous obligations. In January 2009, VA's Chief Financial 
Officer reissued policy for use of miscellaneous obligations, including 
a prohibition of any individual performing more than one of the 
following key approval functions:

      Requesting the miscellaneous obligation
      Approving the miscellaneous obligation
      Recording the obligation of funds
      Certifying delivery of goods or services and approving 
payment.

    In addition, VA modified its Integrated Funds Distribution Control 
Point Activity (IFCAP) system to identify whether a given purchasing 
transaction uses Form 1358, Use of Estimated Miscellaneous Obligation 
or Change in Obligation, or Form 2237, Request, Turn-In, and Receipt 
for Property or Services. As of September 2009, these data are now sent 
to VA's Financial Management System to distinguish between these two 
types of transactions. This new capability identifies transactions 
originated on a Form 1358 (commonly referred to as a miscellaneous 
obligation) and helps VA monitor the use of this form. To assist field 
activities with monitoring compliance with policy, VA developed two new 
IFCAP reports to help facilities accomplish their oversight 
responsibilities:

      A Segregation of Duties Violations Report is available 
for management to ensure appropriate segregation of duties between the 
approval functions involved in using a Form 1358, and
      An additional report, the Missing Fields Report, 
identifies fields (vendor, contract number, purpose) that have not been 
completed as required.

    The VA Secretary recently approved an additional measure to improve 
internal controls over the use of miscellaneous obligations. The new 
measure includes requiring facility directors to certify quarterly that 
their facility meets the four levels of segregation of duties as 
defined by VA policy. In completing the certification, the facility 
director must verify that he or she has reviewed the segregation of 
duties violations report in the IFCAP system. In addition, the facility 
Information Security Officer is required to certify the report. VA 
policy on miscellaneous obligations has been updated to include the 
quarterly certification requirements and related processes. During site 
visits where miscellaneous obligations are reviewed, VA's Management 
Quality Assurance Service (MQAS) will conduct an independent review of 
the facility's certifications to ensure they accurately represent the 
state of operations at that facility.
    The Secretary has also directed that VA lay out a long-term plan to 
implement automated information technology controls to prevent 
segregation of duties issues and other issues surrounding the use of 
miscellaneous obligations. These changes will include modifying IFCAP 
to systematically enforce the segregation of duties, verifying that a 
system user has only one distinct role in each key action required to 
process a miscellaneous obligation. System changes will also force 
required data elements such as purpose, vendor, and contract number to 
be populated on all miscellaneous obligations. Lastly, the IFCAP system 
will also be modified to route any miscellaneous obligation to the 
contracting office for determination of proper use if it does not fall 
within one of the 23 pre-approved exceptions.
    VA is also considering a programming change that would provide a 
drop-down menu of the allowable exceptions for using a miscellaneous 
obligation, as detailed in VA policy, requiring an entry that would 
specifically identify the type of miscellaneous obligation. This change 
is important as it would essentially remove the ``miscellaneous'' 
aspect of these obligations and provide for easier reporting of 
obligations by category.
    Over the last two fiscal years (FY 2009 and FY 2010 year-to-date), 
MQAS reviewed a total of 747 miscellaneous obligations totaling $141.5 
million at 55 sites within VA and found no instances of fraud. During 
that same time frame, MQAS found 25 of 747 instances (3.3 percent) 
totaling $1.1 million of $141.5 million reviewed (0.8 percent) where 
the site misused the Form 1358 for a purpose that is explicitly listed 
in VA policy as an ``invalid use'' of a miscellaneous obligation.
    It should also be noted that since the 2008 GAO study, VA's efforts 
have significantly reduced practices inconsistent with VA policy. For 
example, in FY 2008, 71 percent of transactions sampled were in 
violation of the four-person Separation of Duties standard. In FY 2010, 
this has decreased to 29 percent. The number of sampled transactions 
with a blank vendor field has decreased from 48 percent in FY 2008, to 
13 percent in FY 2010. The blank or incomplete data field problem is 
now in single digit percentages. While the remaining challenges are 
still large, and we are addressing them, the data shows significant 
progress.

    Question 3: What is VA's plan to establish proper cost control and 
oversight? How is this plan different from 2 years ago from the last 
GAO report? How long will it take to implement this plan?

    Response: In response to the GAO report from 2007, VA modified its 
IFCAP system to distinguish whether a transaction originated on a Form 
1358 or Form 2237. As of September 2009, this data is now sent to VA's 
FMS to distinguish between these two types of transactions. VA has also 
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.
    Also, in response to the GAO report, MQAS expanded their site 
reviews to include a review of miscellaneous obligations, and VHA's 
Financial Quality Assurance Managers at each network review a 
percentage of all VHA stations miscellaneous obligations for 
segregation of duties and documentation of vendor, contract number and 
purpose.
    The VA response to GAO's report included a commitment from VA to 
establish policies and procedures regarding the proper segregation of 
duties, requiring proper documentation in IFCAP, and ensuring review by 
contracting officials for certain miscellaneous obligations.
    As assured in our response to the GAO report, VA implemented the 
recommendations associated with establishing policies and procedures to 
enhance internal controls over financial reporting. However, the 
independent reviews conducted by MQAS indicated that policies and 
procedures were not enough to ensure compliance with strong internal 
controls. Recognizing the GAO recommendations did not improve the 
situation quickly enough, VA took additional action, over and above the 
recommendations made by GAO, to strengthen oversight of the segregation 
of duties requirement. In January 2009, VA's Office of Finance reissued 
policy for use of miscellaneous obligations reaffirming the prohibition 
against one individual performing more than one key function in the 
miscellaneous obligations process. The policy also prohibited the use 
of miscellaneous obligations for uses other than 23 accepted uses 
unless HCA approval is obtained.
    VHA has also begun an aggressive communication campaign to ensure 
field stations are aware of requirements for use of miscellaneous 
obligations. VHA communicated the GAO findings, the continued MQAS 
findings associated with field station non-compliance with policy, and 
VA policy requirements during national VISN network director calls, 
national fiscal officer calls, and in writing via national email 
distribution groups for VHA facility and fiscal office leadership and 
staff.
    On June 29, 2010, the Secretary mandated that facility directors 
certify quarterly that their facility meets the four levels for 
segregating duties. For the quarter ending September 30, 2010, and 
every quarter thereafter, each facility director is required to verify 
that the four functions have been separated. The facility Information 
Security Officer is also required to certify the report. As a result of 
the Secretary's certification mandate, VA updated its miscellaneous 
obligations policy to provide facilities with guidance on how to timely 
and accurately implement the quarterly certification requirements.
    ``VA's Office of Information and Technology, in collaboration with 
business stakeholders, has developed a plan to provide a longer-term 
IFCAP system solution that would automate many of the controls to 
enforce compliance within the system. The initial version of this plan 
was delivered on 1 September 2010. Following the tenets of the Program 
Management Accountability System (PMAS), this plan fully covered the 
first phase of work and laid out preliminary steps for the second and 
final phase. The plan will be updated again by 17 December 2010 to 
fully cover the second and final phase.'' This solution will replace 
the FLITE information technology solution originally included in our 
response to the 2007 GAO report.
    To enhance oversight, during FY 2011 site visits where 
miscellaneous obligations are reviewed, MQAS will conduct an 
independent review of each facility's certifications to ensure they 
accurately represent the state of operations at that facility. MQAS is 
also planning a special, in-depth review of the use of miscellaneous 
obligations at one VISN and all of its associated medical facilities in 
FY 2011. The in-depth review will clearly identify the root causes of 
findings of non-compliance so that recommendations that correct the 
underlying root causes can be made and addressed by the Department. 
MQAS and VHA's Financial Quality Assurance Managers will also continue 
their existing reviews of miscellaneous obligations to measure field 
facilities' compliance with policy.
    Since first receiving GAO's report 2 years ago, VA has made 
significant policy changes to address the concerns raised about VA use 
and oversight of miscellaneous obligations. VA has tightened 
requirements to enforce segregation of duties and to ensure proper 
review of Form 1358. New reports and data are available to help 
managers conduct the proper oversight. VA also established an 
independent review mechanism to measure compliance with policy on 
miscellaneous obligations and made additional changes to policy, such 
as the Secretary's mandate requiring quarterly facility certification. 
VA will continue to pursue technological solutions to automate the 
internal controls over miscellaneous obligations. These new efforts 
have the highest management attention and are being tracked by the VA 
Secretary and VA Chief Financial Officer.

    Question 4: What is the penalty for a contracting officer when they 
fail to follow proper procedures as detailed in VAAR and other 
regulations? Does VA enforce these penalties? Should there be more 
penalties? How many employees have lost their jobs for not complying 
with regulations? How many employees have been transferred to non-
contracting positions for not complying with regulations? What are the 
criteria that the VA uses to determine a contracting officer's employee 
performance? Does the VA use contractors for its contracting? If so, 
what steps are used to maintain proper oversight?

    Response: Contracting officers who fail to comply with statute, 
regulation, policy, and/or procedures subject themselves to corrective, 
performance-based and/or disciplinary actions. Although some may 
consider these actions punitive, performance-based and disciplinary 
actions taken against government personnel, to include contracting 
personnel, are designed to correct or improve future behavior and 
performance. Labor-management agreement obligations require 
performance-based and disciplinary actions to be progressive in nature. 
Supervisory personnel and the HCS are charged with responsibility for 
taking these actions with respect to contracting personnel assigned to 
their respective organizations.
    Prior to initiating formal performance-based or disciplinary 
action, most supervisors provide verbal and/or written counseling to 
employees. Performance-based actions include informal and formal 
counseling; placing the employee on a formal performance improvement 
plan, remedial training, coaching, and closer supervision to help the 
employee improve. Formal disciplinary actions include letters of 
admonishment and reprimand, and suspension from duty without pay. In 
addition, the potential exists for further adverse actions which could 
include suspensions of 14 days or greater, demotion in grade, or 
removal from Federal service. VA's Office of Acquisition, Logistics, 
and Construction (OALC) does not track disciplinary or performance-
based actions taken against contracting personnel across the enterprise 
for failure to comply with statute, regulation, policy or procedures, 
as these actions are effected through a localized supervisory 
structure. OALC is unaware of any employees losing their jobs or being 
reassigned to non-contracting positions for failures in this regard. 
Government contractor personnel are used as contract specialists and 
consultants on a small scale and their performance is closely 
supervised and monitored by government personnel, also in a localized 
manner.
    Though both types of actions occur locally, through training and 
Department-wide coordination via VA's Acquisition Reform Initiative, 
Acquisition Academy, Senior Procurement Council activities, VA will 
continue to foster enterprise management as necessary and develop the 
acquisition workforce to ensure that fewer and fewer of these instances 
occur.

    Question 5: Does VA require all contracts to be signed off by a 
head contracting authority? Are contracts that have not been approved 
by all appropriate parties within the VA considered legal and valid? 
Would VA support legislation that would require all contracts over 
$100,000 must be approved by the contracting officer, the HCA and OGC 
to be considered a legal offer?

    Response: VA does not require contracts be signed off by heads of 
contracting activities (HCAs). Warranted contracting officers, as the 
government's legal representative in contractual matters, are the only 
authorized authority to legally bind the government by contract. All 
contracts executed by authorized contracting officers are considered 
legally binding and valid. HCAs and legal counsel do not have authority 
to enter into contracts on behalf of the government.
    VA believes adequate authority currently exists to establish the 
necessary policy and guidance on the execution of contracts over 
$100,000, and no additional legislation is needed to further enhance 
its acquisition program. VA Acquisition Regulation 801.695 delineates 
VA's appointment of HCAs, whose overall responsibility includes the 
management of the procurement program assigned to the activity. Office 
of Acquisition and Logistics (OAL) Information Letter (IL) 001AL-09-02, 
Integrated Oversight Process (IOP), establishes the various contract 
review thresholds. Contracts become legally binding once signed by an 
authorized contracting officer.
    VA's contracting officers are warranted to sign contracts in 
accordance with the Office of Procurement Policy Letter 05-01, 
Developing and Managing the Acquisition Workforce, dated April 15, 
2005. This policy has been codified in VA via OAL ILs 049-07-5, 
Department of Veterans Affairs Acquisition Workforce Certification 
Program, and 001AL-09-03, Updates to Federal Acquisition Certification 
in Contracting (FAC-C) Program, which define the implementation process 
for the Department and provides updates to the FAC-C training policy.

                                 
