Purpose Statute Violation: Veterans Affairs Improperly Funded
Certain Cost Comparison Studies with VHA Appropriations
(30-NOV-05, GAO-06-124R).
The Department of Veterans Affairs (VA) provides health care to
about 4.7 million veterans primarily through its medical
facilities--which include hospitals, nursing homes, outpatient
clinics, and other health care facilities--and by contracting for
care with other healthcare providers. To lower costs, increase
access, and improve the quality of care provided to eligible
veterans, VA evaluates the efficiency of its medical facilities,
which includes performing studies to determine whether increased
savings and efficiencies can be obtained from outsourcing certain
segments of its operations. We have previously reported1 that VA
would benefit from examining certain aspects of its operations,
including its medical and laundry facilities, to determine if
operational efficiencies could be achieved through
consolidations, competitive sourcing, or both. While VA has the
authority to conduct cost comparison studies and, when
beneficial, to enter into contracts with commercial providers, VA
may only finance cost comparison studies with funds that are
legally available for this purpose. Under a provision in Title 38
of the U.S. Code, VA is prohibited by law from using any one of
its Veterans Health Administration (VHA) appropriations for
medical care, medical and prosthetic research, and medical
administration and miscellaneous operating expenses--which fund
VHA's operations--to conduct cost comparison studies unless the
Congress specifically makes these appropriations available to
conduct such studies. The Title 38 cost comparison funding
prohibition also provides that no employee compensated from these
VHA appropriations may carry out any activity in connection with
such studies unless the Congress makes these appropriations
specifically available for that purpose. In light of this,
Congress asked us in April 2004 whether the limitations imposed
by the Title 38 cost comparison funding prohibition applied
solely to those studies conducted pursuant to the Office of
Management and Budget (OMB) Circular No. A-76, Performance of
Commercial Activities, which provides policies and procedures for
determining whether commercial activities should be performed
in-house using government resources or under contract with
private contractor resources. If not, the request further asked
whether the prohibition applied to such studies conducted as part
of VA's Capital Asset Realignment for Enhanced Services (CARES)
process. In our October 2004 legal opinion, we concluded that the
Title 38 cost comparison funding prohibition was not limited to
standard A-76 cost comparison studies in particular, or A-76
studies in general, and that the prohibition applies to CARES
cost comparison studies. We further concluded that if VA had in
fact obligated the VHA appropriations for the unavailable purpose
of conducting cost comparison studies, then it would have
violated the purpose statute. However, we noted in the opinion
that we had not simultaneously undertaken an audit to determine
if VHA had used these appropriations for this purpose. We met
with VA headquarters officials and obtained information and
documentation regarding cost comparison studies performed as part
of CARES and other cost comparison studies performed during
fiscal years 2001 to 2004. The information and documentation VA
provided in response to our audit inquiry, however, were limited
because VA does not maintain comprehensive, centralized data on
the number and type of activities related to cost comparison
studies conducted in the past or currently underway. Because of
this, we limited the scope of our evaluation to determine whether
VA improperly used VHA medical care appropriations in the three
areas in which VA reported that cost comparison activities were
performed: (1) VA's CARES process, (2) VA's evaluation of its
medical center laundry facilities, and (3) the 1,626 cost
comparison studies referenced in VA's fiscal year 2002
Performance and Accountability Report (PAR).
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-124R
ACCNO: A42438
TITLE: Purpose Statute Violation: Veterans Affairs Improperly
Funded Certain Cost Comparison Studies with VHA Appropriations
DATE: 11/30/2005
SUBJECT: Appropriated funds
Comparative analysis
Cost analysis
Funds management
Health care costs
Health care facilities
Health care services
Legal opinions
Noncompliance
Veterans hospitals
VA Capital Asset Realignment for
Enhanced Services Initiative
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GAO-06-124R
November 30, 2005
The Honorable Lane Evans
Ranking Democratic Member
Committee on Veterans' Affairs
House of Representatives
Subject: Purpose Statute Violation: Veterans Affairs Improperly Funded
Certain Cost Comparison Studies with VHA Appropriations
Dear Mr. Evans:
The Department of Veterans Affairs (VA) provides health care to about 4.7
million veterans primarily through its medical facilities-which include
hospitals, nursing homes, outpatient clinics, and other health care
facilities-and by contracting for care with other healthcare providers. To
lower costs, increase access, and improve the quality of care provided to
eligible veterans, VA evaluates the efficiency of its medical facilities,
which includes performing studies to determine whether increased savings
and efficiencies can be obtained from outsourcing certain segments of its
operations. We have previously reported1 that VA would benefit from
examining certain aspects of its operations, including its medical and
laundry facilities, to determine if operational efficiencies could be
achieved through consolidations, competitive sourcing, or both.
While VA has the authority to conduct cost comparison studies and, when
beneficial, to enter into contracts with commercial providers, VA may only
finance cost comparison studies with funds that are legally available for
this purpose. Under a provision in Title 38 of the U.S. Code,2 VA is
prohibited by law from using any one of its Veterans Health Administration
(VHA) appropriations for medical care, medical and prosthetic research,
and medical administration and miscellaneous operating expenses-which fund
VHA's operations-to conduct cost comparison studies unless the Congress
specifically makes these appropriations available to conduct such studies.
The Title 38 cost comparison funding prohibition also provides that no
employee compensated from these VHA appropriations may carry out any
activity in connection with such studies unless the Congress makes these
appropriations specifically available for that purpose.
1 GAO, Veterans' Affairs: Progress and Challenges in Transforming Health
Care, GAO/T-HEHS-99-109 (Washington, D.C.: Apr. 15, 1999); and GAO, VA
Laundry Service: Consolidations and Competitive Sourcing Could Save
Millions, GAO-01-61 (Washington, D.C.: Nov. 30, 2000).
2 The permanent law, which was enacted in fiscal year 1982 and is now
codified at 38 U.S.C. S: 8110(a)(5), states: "Notwithstanding any other
provision of this title or of any other law, funds appropriated for the
Department under the appropriation accounts for medical care, medical and
prosthetic research, and medical administration and miscellaneous
operating expenses may not be used for, and no employee compensated from
such funds may carry out any activity in connection with, the conduct of
any study comparing the cost of the provision by private contractors with
the cost of the provision by the Department of commercial or industrial
products and services for the Veterans Health Administration unless such
funds have been specifically appropriated for that purpose."
In light of this, you asked us in April 2004 whether the limitations
imposed by the Title 38 cost comparison funding prohibition applied solely
to those studies conducted pursuant to the Office of Management and Budget
(OMB) Circular No. A-76, Performance of Commercial Activities, which
provides policies and procedures for determining whether commercial
activities should be performed in-house using government resources or
under contract with private contractor resources. If not, the request
further asked whether the prohibition applied to such studies conducted as
part of VA's Capital Asset Realignment for Enhanced Services3 (CARES)
process. In our October 2004 legal opinion,4 we concluded that the Title
38 cost comparison funding prohibition was not limited to standard A-76
cost comparison studies in particular, or A-76 studies in general, and
that the prohibition applies to CARES cost comparison studies. We further
concluded that if VA had in fact obligated the VHA appropriations for the
unavailable purpose of conducting cost comparison studies, then it would
have violated the purpose statute. However, we noted in the opinion that
we had not simultaneously undertaken an audit to determine if VHA had used
these appropriations for this purpose.
After we issued our October 2004 legal opinion, you requested and we
agreed with your office to evaluate VA's use of the VHA medical
appropriations during fiscal years 2001 through 2004 to determine if VA
had violated the Title 38 cost comparison funding prohibition and,
consequently, the purpose statute, which requires that funds be used only
for the purposes for which they were appropriated.5 In this report, we
also address VA's legal views on whether the Title 38 cost comparison
funding prohibition applies to the specific cost comparison studies in the
areas we reviewed. Finally, for any such areas that we found to violate
the Title 38 cost comparison funding prohibition and the purpose statute
based on our work, you asked that we consider whether VA would be required
to report a violation of the Antideficiency Act (31 U.S.C. S: 1341). The
Antideficiency Act prohibits an agency from incurring an obligation in
advance or in excess of appropriations and requires agencies to report
violations to the Congress and the President (with a copy to the
Comptroller General).6
3 CARES is a nationwide effort designed to assist in systematically
assessing VA's medical facilities' capacity, services, and capital
infrastructure to better align services with future VA needs. As part of
the CARES assessment, VA researched and compared the costs and benefits of
alternative sources, including private contractors, of providing different
medical services and products to veterans.
4 B-302973, Oct. 6, 2004.
5 The purpose statute is codified at 31 U.S.C. S: 1301(a).
6 31 U.S.C. S: 1351.
We met with VA headquarters officials and obtained information and
documentation regarding cost comparison studies performed as part of CARES
and other cost comparison studies performed during fiscal years 2001 to
2004. The information and documentation VA provided in response to our
audit inquiry, however, were limited because VA does not maintain
comprehensive, centralized data on the number and type of activities
related to cost comparison studies conducted in the past or currently
underway. Because of this, we limited the scope of our evaluation to
determine whether VA improperly used VHA medical care appropriations in
the three areas in which VA reported that cost comparison activities were
performed: (1) VA's CARES process, (2) VA's evaluation of its medical
center laundry facilities, and (3) the 1,626 cost comparison studies
referenced in VA's fiscal year 2002 Performance and Accountability Report
(PAR). Based on these efforts, with the exception of how much VA spent on
cost comparison studies, we concluded the information we obtained is
reliable for addressing our reporting objectives. We conducted our work
from February 2005 to October 2005 in accordance with U.S. generally
accepted government auditing standards. Enclosure I contains further
details on our scope and methodology. We requested comments on a draft of
this report from the Secretary of Veterans Affairs or his designee. We
received written comments from the Secretary of Veterans Affairs, which
are presented and evaluated in the body of this report, and reprinted in
enclosure II.
Results in Brief
VA employees compensated from the VHA medical care appropriation accounts
performed activities in support of cost comparison studies in connection
with the CARES process, VA's evaluation of its medical center laundry
facilities, and for some of the 1,626 studies referenced in VA's fiscal
year 2002 PAR. Because the Congress did not specifically make VHA's
medical care appropriations available for cost comparison studies, VA
violated the Title 38 cost comparison funding prohibition and,
consequently, the purpose statute. Although funds were specifically
appropriated for performing such cost comparison studies for fiscal years
1983 through 2000, no similar specific appropriations were made available
in subsequent fiscal years. For fiscal years 2001 to 2004, VA requested
from the Congress but did not receive specific appropriations-ranging from
$16 million to $50 million-to conduct cost comparisons studies.7 To
successfully continue its competitive sourcing activities while complying
with the Title 38 cost comparison funding prohibition, VA could have used
other available VA appropriations to fund these activities, such as those
for major projects construction, minor projects construction, or
departmental administration.
7 For this purpose, the administration requested $16 million in its budget
request for fiscal year 2001, $25 million in its supplemental budget
request for fiscal year 2003, and $50 million in its amendment to its
budget request for fiscal year 2004. See, respectively, Budget of the
United States Government-Appendix, Fiscal Year 2001, at 1; and Budget of
the United States Government-Fiscal Year 2003 Appropriation Law Change and
Fiscal Year 2004 Budget Amendment, at 4-5. Congress did not accept these
requests, as reflected in the fiscal years 2001, 2003, and 2004
appropriations for VA. See, respectively, Pub. L. No. 106-377, 114 Stat.
1441A-3, 1441-A-5-6 (Oct. 27, 2000); Pub. L. No. 108-7, div. K, 117 Stat.
475, 477-78 (Feb. 20, 2003); and Pub. L. No. 108-199, div. G, 118 Stat.
363, 365-66 (Jan. 23, 2004).
According to VA, the cost comparison activities we reviewed were not
subject to the Title 38 cost comparison funding prohibition because VA
interprets the prohibition as applying only to "formal" (i.e., standard)
A-76 studies. This is the same position VA asserted to GAO in 20048 in
response to our inquiry related to our October 2004 legal opinion. We
continue to disagree with VA's interpretation. In our October 2004 legal
opinion, we concluded that the Title 38 cost comparison funding
prohibition applies to any VA studies comparing the costs of commercial
services and products provided by private contractors with those provided
by VA personnel whether or not they are "formal" studies under OMB
Circular No. A-76. According to VA's fiscal year 2003 PAR, it halted the
bulk of its competitive sourcing studies in August 2003 because the VA
General Counsel had concluded that the Title 38 cost comparison funding
prohibition prevents VA from conducting cost comparisons studies using the
VHA medical appropriations unless the Congress provides specific funding
for that purpose.9 According to VA, it is seeking legislative relief so
that it can restart its planned competitive sourcing program.
VA can correct its purpose statute violations through account adjustment
by deobligating the amounts that were improperly charged to the VHA
medical appropriations and charging these amounts to otherwise available
appropriation accounts. This requires that VA know the amount of VHA
medical appropriations used in connection with cost comparison studies.
However, VA did not track the time and expense associated with performing
cost comparison studies in-house and was thus unable to provide us with a
reliable estimate of this amount. Therefore, we were unable to determine
whether VA would have sufficient budget authority available in other
appropriations to correct the amount of each purpose statute violation. As
such, we were also unable to determine if VA could avoid violations of the
Antideficiency Act by making account adjustments. Nonetheless, based on
documentation provided by VA, the amount of time and effort spent in
support of cost comparison studies likely was substantial. For example,
according to VA's Draft National CARES Plan, issued on August 4, 2003,
hundreds of staff
across VA devoted a great deal of time and energy to the CARES
implementation process, which lasted 14 months.
We are making four recommendations dealing with VA's compliance with the
Title 38 cost comparison funding prohibition. In commenting on a draft of
this report, VA disagreed with our conclusions and did not concur with our
recommendations. VA said it continues to disagree with our interpretation
that the Title 38 cost comparison funding prohibition applies to all cost
comparison studies, whether or not they are A-76 studies. We stand by our
interpretation and our conclusion that VA violated the purpose statute. In
addition, VA's disagreement with our conclusions is not a sound basis for
rejecting our recommendations. Implementing the recommendations included
in this report would improve VA's funds control capability, provide a
mechanism to track costs associated with performing cost comparison
studies, and assist in making a determination of future funding needs for
such studies.
8 See Letter from Tim S. McClain, General Counsel, VA, to GAO, June 15,
2004.
9 The VA General Counsel subsequently modified his opinion.
Background
The long-standing policy of the federal government has been to rely on the
private sector for needed commercial services. To ensure that the American
people receive maximum value for their tax dollars, commercial activities
should be subjected to the forces of competition. Since 1966, OMB has
issued various versions of OMB Circular No. A-76, Performance of
Commercial Activities, which provides policies and procedures for
determining whether commercial activities should be performed in-house
using government resources or under contract with private contractors. In
accordance with OMB Circular No. A-76 and, since 1998, the Federal
Activities Inventory Reform Act of 1998 (FAIR Act), agencies have been
required to identify all activities performed by government personnel as
either commercial or inherently governmental.10
For those activities identified as commercial, agencies are required to
determine, through cost comparison studies, whether it is more
cost-effective for the government or the private sector to perform these
activities. The versions of OMB Circular No. A-76 that would have governed
the cost comparison studies reviewed by this audit are those OMB issued in
1999 and 2003, whereas the 1979 version was in effect when the Title 38
cost comparison funding prohibition was enacted.11 Streamlined cost
comparisons were first added to OMB Circular No. A-76 in the 1983 version.
A streamlined A-76 cost comparison study is a modified version of a
standard cost comparison study that reduces the administrative activities
required to complete the study and as a result generally lowers the
study's costs. A streamlined study can only be performed if it meets the
criteria set out for its use in OMB Circular No. A-76.12
In August 2001, President Bush established the President's Management
Agenda (PMA), which included five governmentwide initiatives intended to
improve performance and management in the federal government. One of the
initiatives involves competitive sourcing-or using the competitive process
to determine whether the government or a private sector contractor should
perform a particular commercial activity. Although the requirements of OMB
Circular No. A-76 have been in place for decades, the PMA competitive
sourcing initiative places additional pressure on agencies to use the
private sector to perform activities that are considered commercial
activities and, thus, not inherently governmental.13 For example, in 2001,
in response to the new competitive sourcing initiative, OMB issued
directives stating that during the 2-year period of fiscal years 2002 and
2003, agencies should undertake public-private competitions or conversions
of at least 15 percent of personnel associated with commercial
activities.14 These directives stated that the President's long-term goal
was to open at least one-half of the federal positions that are not
inherently governmental to competition with the private sector.
10 OMB Circular No. A-76 was updated in 1999, in part, to reflect changes
generated by the Federal Activities Inventory Reform (FAIR) Act of 1998,
Pub. L. No. 105-270, 112 Stat. 2382 (Oct. 19, 1998)(31 U.S.C. S: 501
note), which added the FAIR Act's requirements to the policy expressed in
the circular.
11 OMB Circular No. A-76, S: 4(b) (1999).
12 OMB Circular No. A-76, Revised Supplemental Handbook at part II, Ch.
5(1999); and OMB Circular No. A-76, Att.B, at pp (A)(5), (c) (2003).
13 Under the FAIR Act and OMB Circular No. A-76, an activity qualifies as
inherently governmental if its performance is so closely related to the
public interest that it should only be done by federal government
employees, such as activities involving significant discretion, value
judgments, decision making, and interpretation of laws.
To implement the PMA competitive sourcing initiative and achieve VA's goal
of having a systematic, timely, and cost-effective competitive sourcing
process, VA issued Directive 7100, "Competitive Sourcing," on August 5,
2002. VA used Directive 7100 to implement a three-tiered process for
competitive sourcing which, according to VA, was approved by OMB.15
o The Tier 1 process is only available for situations involving
10 or fewer full time equivalent employee (FTE) positions, as a
"cost-benefit analysis"-intended to determine whether VA derives
the "best value" from conducting an activity in-house or
contracting it out.16 Directive 7100 requires documentation
supporting this decision regarding what was considered and
evaluated, the effects on the quality of service to be provided,
and any cost savings.
o The Tier 2 process was created for activities involving 11 or
more FTEs that are "commercial exempt," which Directive 7100
defines as commercial activities that are exempt from the
provisions of OMB Circular No. A-76 by the Congress, executive
order, or OMB guidance. For commercial exempt activities under
Tier 2, there is no upper limit on the number of FTEs. VA
Directive 7100 describes the Tier 2 process as a "cost-benefit
analysis" that is intended to provide a "streamlined A-76-like"
process that would result in a level of analysis that is more
detailed than a Tier 1 analysis but less detailed than a Tier 3
analysis. Many of the same forms and processes required in the
Tier 2 analysis are also required under the streamlined and
standard OMB Circular No. A-76 processes.17
o The Tier 3 analysis reflects VA's implementation of OMB
Circular No. A-76 for commercial activities involving 11 or more
FTEs that do not meet Directive 7100's definition of "commercial
exempt." Under Tier 3, VA decides to retain or outsource a
commercial activity after conducting a study as prescribed by OMB
Circular No. A-76, including its associated attachments or
supplements. For commercial activities involving 11 to 65 FTEs, a
streamlined A-76 study may be conducted if it meets the
requirements set out in OMB Circular No. A-76. However, for
commercial activities involving 66 or more FTEs, Tier 3 requires
that VA perform a standard cost comparison study, including all
the formal steps involved such as the formal solicitation
process.18
14 See OMB, Performance Goals and Management Initiatives for the FY 2002
Budget, M-01-15 (Mar. 9, 2001); and OMB, Implementation of the President's
Management Agenda and Presentation of the FY 2003 Budget Request, M-02-02
(Oct. 30, 2001).
15 Letter from John H. Thompson, Deputy General Counsel, VA, to GAO, June
8, 2005; see also Letter from VA to OMB, Dec. 19, 2002.
16 See Directive 7100, App. A., P: 2.a.(1).
17 See VA Directive 7100, P: 5(f), App. A, P: 2.a.(2). This understanding
of Tier 2 is consistent with Directive 7100 and the legal opinion issued
by the VA General Counsel, at P: 3, on April 28, 2003, which states that
"Tier 2 applies to activities of 11 or more FTEs classified as commercial
exempt on the FAIR Act inventory (in essence VHA activities)." However,
this understanding differs from the later characterization from the VA
General Counsel's office provided to GAO, which states that Tier 2 is a
streamlined A-76-like process available for "commercial activities of 11
or more FTE." Letter from John H. Thompson, Deputy General Counsel, VA, to
GAO, June 8, 2005.
Title 38, Cost Comparison Funding Prohibition: We have identified five
conditions that must be met for VA employees' participation in activities
connected to cost comparison studies to violate the Title 38 cost
comparison funding prohibition. First, VA must have conducted a study.19
Second, the subject of the study must involve the provision of commercial
or industrial products or services. This means in general that the service
or good could be provided by the private sector. Third, the study must
involve the comparison of the costs of providing the product or service.
Fourth, the cost comparison must be between VA in-house and private
contractor performance. Thus, for example, the prohibition would not apply
if the alternative source were a federal, state, or local government
agency. Fifth, the activity in connection with the study must have been
paid out of one of the VHA appropriation accounts when there was no
specific appropriation made for this purpose. This would include any
activities done in anticipation of or that further the study, including
administrative support activities, when performed by employees compensated
from the VHA appropriation accounts. The prohibition would not apply if
the activities were paid for with funds from other VA appropriation
accounts, such as the accounts appropriating funds for major projects
construction, minor projects construction, or departmental
administration.20
Purpose Statute: When VA violates the Title 38 cost comparison funding
prohibition, it also violates the purpose statute, which states that
appropriations can only be used for the purposes for which they were made.
The VHA appropriations were not available for cost comparison studies or
to pay employees for activities connected to any such studies. Even
activities the agency is otherwise authorized to perform violate the
purpose statute if their expenses are charged to the wrong appropriation
account.
Antideficiency Act: Section 1341(a) of Title 31 of the U.S. Code, together
with other provisions, is commonly referred to as the Antideficiency Act.
The Antideficiency Act prohibits U.S. officers and employees from
obligating or expending an amount in advance or in excess of
appropriations available for the given purpose. If an appropriation is not
available for a given purpose and any amount of funds from that
appropriation is used for the prohibited purpose, then the obligation or
expenditure is a violation of the purpose statute and an agency must
"cure" the purpose statute violation to avoid an Antideficiency Act
violation. Agencies "cure" violations by deobligating those amounts
charged to the wrong appropriation and obligating the amounts to an
appropriation available for that purpose.21 An agency may be unable to
"cure" the purpose statute violation if it either (1) lacked any
appropriation available for the object charged or (2) lacked sufficient
budget authority in an otherwise available appropriation.22
18 See VA Directive 7100, App. A, P: 2.a.(3). This understanding of Tier 3
is consistent with Directive 7100 and the legal opinion issued by the VA
General Counsel, at P: 3, on April 28, 2003 ("Tier 3, applicable to
commercial competitive activities over 11 FTE equivalents, requires a full
A-76 study.") However, it differs from the later characterization from the
VA General Counsel's office provided to GAO, which states that Tier 3
constitutes only standard A-76 studies. Letter from John H. Thompson,
Deputy General Counsel, VA, to GAO, June 8, 2005.
19 See discussion and GAO's interpretation of "study" in the section
entitled VA Asserts Limited Application of Title 38 Cost Comparison
Funding Prohibition.
20 For example, the major projects construction appropriation is
available, in part, for advance planning activities funded through the
advance planning fund (e.g., needs assessments related to potential
capital investments, other capital asset management related activities,
and investment strategy studies) and planning and design activities funded
through the design funds and CARES funds. It is also available for any of
the purposes set out in 38 U.S.C. S: 8110, among other provisions. See,
e.g., Pub. L. No. 108-199, div. G, 118 Stat. 363, 367 (Jan. 23, 2004).
If an agency is not able to "cure" the purpose statute violation, then it
violates the Antideficiency Act. This would require the agency to report
the Antideficiency Act violation to the President and the Congress and
provide a copy of the report to the Comptroller General on the same day.
23 In addition to the reporting requirement, violations of the
Antideficiency Act can result in imposition of penalties on agency
officials responsible for the actions that resulted in the violation.24
VA Improperly Funded Cost Comparison Studies
Using VHA Medical Appropriations
As noted before, we have previously reported that VA would benefit from
examining certain aspects of its operations to determine if operational
efficiencies could be achieved through consolidations, competitive
sourcing, or both.25 However, in performing these activities during fiscal
years 2001 to 2004, VA improperly used funds from the VHA medical
appropriation accounts in connection with cost comparison studies
performed related to the CARES process, its evaluation of the medical
laundry facilities, and the studies referenced in VA's fiscal year 2002
PAR. Such usage violated the Title 38 cost comparison funding prohibition
and, consequently, the purpose statute. Specifically, VA employees
compensated from the medical care appropriation performed activities in
support of cost comparison studies-which is prohibited under the Title 38
cost comparison funding prohibition because the Congress did not
specifically make the funds available for that purpose.
21 An agency could also "cure" purpose statute violations by transferring
the amount from the wrong appropriation account to an available
appropriation account, provided the agency has statutory authority for the
transfer. 31 U.S.C. S: 1352.
22 See 63 Comp. Gen. 422, June 22, 1984.
23 See 31 U.S.C. S: 1351. See also OMB Circular No. A-11, Preparation,
Submission, and Execution of the Budget, S: 145.
24 See 31 U.S.C. S:S: 1349, 1350.
25 GAO, Veterans' Affairs: Progress and Challenges in Transforming Health
Care, GAO/T-HEHS-99-109 (Washington, D.C.: Apr. 15, 1999); and GAO, VA
Laundry Service: Consolidations and Competitive Sourcing Could Save
Millions, GAO-01-61 (Washington, D.C.: Nov. 30, 2000). These reports did
not discuss funding issues; VA had been receiving funding to perform cost
comparison studies.
In-house Cost Comparison Activities Performed in
Connection with CARES Violated the Purpose Statute
Although VA's initial work related to CARES was contracted out and funded
by non-VHA appropriations that were available for the purpose of
implementing CARES, later CARES-related cost comparison activities relied
primarily upon VA in-house support. This work was carried out by VA
personnel whose salaries and expenses are paid from VHA medical care
appropriations. In doing so, VA violated the Title 38 cost comparison
funding prohibition and, thus, the purpose statute. Because VA did not
track the time or expense associated with the in-house support provided by
VA staff, we were unable to determine the extent to which VHA
appropriations were used in support of CARES-related cost comparison
studies.
In October 2000, VA initiated CARES. Through CARES, VA compared the sizes,
locations, and available health care services of VA's existing medical
facilities to projected demand for health care services through fiscal
year 2022. Simply put, the CARES process involves: (1) analyzing veterans'
health care needs-referred to as market analysis, (2) developing options
to address those needs, (3) evaluating each option, and (4)
implementation. However, before CARES decisions are implemented, VA
undergoes an extensive process for vetting these decisions. This includes
the review of CARES decisions by a 16-member independent CARES commission
as well as congressional oversight.
In fiscal year 2001, VA contracted out the initial CARES work, which was
funded through a non-VHA appropriation, for a total contract cost of $3.6
million. This included contractor support for developing the criteria,
methodology, and tools used in evaluating various restructuring options
and piloting the process at 1 of VA's 21 networks. VA completed the pilot
phase of the CARES process in February 2002. To coordinate and carry out
the CARES process for the remaining 20 VA networks, VA used in-house
personnel, rather than contractor staff. Specifically, VA divided its
CARES initiatives by markets-focusing on areas where major gaps in
healthcare services existed, such as primary care, specialty care, and
mental health care. The process used standardized methods, such as a
forecasting model and a computerized market template created by a
contractor, that allowed different cost alternatives to be
analyzed-including decisions on whether to renovate, lease, build, or
contract out for service.26 As part of this process, VA staff, whose
salaries and expenses are paid through the VHA medical care
appropriations, completed the market plan templates, which included
comparing the cost of contracting out services or performing those
services in-house. The conduct of this component of the market plan
analysis is a study that violated the Title 38 cost comparison funding
prohibition and, thus, the purpose statute.
VA could not provide an estimate of the personnel costs involved in the
cost comparison portion of the CARES process because VA does not track
time spent by jobs or tasks. Further, the market plan templates are an
integral part of the CARES process, and we could not discern from the
documentation provided the time and effort devoted to performing these
tasks. However, according to VA's Draft National CARES Plan, issued on
August 4, 2003, hundreds of staff across VA devoted a great deal of time
and energy to the CARES implementation process, which lasted 14 months.
Further, given that the pilot study for one VA network totaled $3.6
million, the time and effort involved in implementing the CARES process at
the remaining 20 VA networks is likely to have been substantial. It is
important to note, however, that only a portion of the $3.6 million spent
on the pilot was associated with performing cost comparison studies.
26 VA awarded two contracts to help develop a tool for forecasting data to
be used in Phase II of CARES and to help develop the project costs for the
VISN (Veterans Integrated Service Network) centers, which were funded out
of the major projects construction appropriation account.
Laundry Facility Outsourcing Studies Violated the Purpose Statute
During fiscal years 2002 and 2003, personnel from VA's Central Office and
medical centers, whose salaries and expenses were paid out of the VHA
medical care appropriations, performed cost comparison studies of VA's
medical center laundries to determine if the work at the facilities should
be retained in-house or contracted out to the private sector. In doing so,
VA violated the Title 38 cost comparison funding prohibition, and
consequently, the purpose statute. Again, because VA does not track the
time or expense associated with performing cost comparison studies, we
were unable to determine the extent to which VHA funds were used in
support of the laundry studies.
In fiscal year 2002, VA began to evaluate selected laundry facilities on a
pilot basis to determine whether to outsource laundry facilities to the
private sector or to retain them in-house. During fiscal year 2003, to
meet the administration's goals for competitive sourcing as required by
the President's Management Agenda, VA extended the laundry study to all
remaining laundry facilities.27 To carry out these studies, VA formed the
Laundry Advisory Work Group comprised of field, VA Central Office, and
departmental members. The advisory group issued additional guidance under
Directive 7100, which provided guidance for VA's new three-tiered process
for outsourcing commercial activities, such as those conducted at the
laundry facilities. The laundry studies involved developing in-house
estimates calculating the costs of operating the facilities, including
equipment and personnel, and comparing them to the costs of consolidating
certain facilities or contracting the laundry workload to a private sector
contractor in order to determine the most cost-efficient alternatives. The
cost comparison process was structured and standardized under the new Tier
2 process developed by VA using forms and schedules that resemble the
processes defined in OMB Circular No. A-76, Performance of Commercial
Activities.
After completing cost comparison studies for 18 of the laundry facilities,
in August 2003, these evaluations were terminated by order of the VA
Deputy Secretary in response to a legal opinion provided by VA's Office of
General Counsel. Specifically, the VA Deputy Secretary ordered staff at
the Central Office and at the Veterans Integrated Service Networks (VISNs)
to terminate any competitive sourcing studies funded from any of the three
VHA medical care appropriations mentioned above until specific funds had
been appropriated for these studies, consistent with the Title 38 cost
comparison funding prohibition.28
27 Prior to the fiscal year 2002 and 2003 laundry studies, VA had already
contracted out a number of its laundry facilities. We did not evaluate the
use of VHA funds in connection with any cost comparison analyses performed
related to these facilities.
For 6 of the 18 completed laundry facilities studies, VA estimated the
time and money spent in conducting the studies was $14,725.29 However, VA
did not have a methodology to develop these estimates and provided limited
documentation to support these estimates; therefore, we have no reasonable
assurance of the accuracy of these estimates. In addition, as mentioned
before, we could not verify any amounts because VA does not track time
spent by jobs or tasks.
Competitive Sourcing Activities Conducted to Meet Requirements
of the President's Management Agenda Violated the Purpose Statute
In its fiscal year 2002 PAR, VA takes credit for performing 1,626 cost
comparison studies related to 4,061 FTE positions. VA provided
documentation for 1,352 of these studies.30 According to VA officials, the
remaining studies were in connection with the VA's benefits programs,
which are not funded through the VHA medical appropriations. Based on the
documentation provided for the medical care-related cost comparison
studies, we determined that at least 16 studies violated the Title 38 cost
comparison funding prohibition and, thus, the purpose statute.
Specifically, VA employees, whose salaries and expenses were paid through
the VHA medical care appropriations, performed work in connection with
these 16 studies. However, for the remaining 1,336 VA studies, the
documentation VA provided was not sufficiently detailed to allow us to
determine whether cost comparison studies were actually performed and,
therefore, subject to the Title 38 cost comparison funding prohibition.
The documentation provided for the 1,352 VA cost comparison studies cited
in the fiscal year 2002 PAR included the following information: (1)
description of the facility, (2) study completion date, (3) description of
services being evaluated, (4) contract cost, (5) in-house costs, (6)
savings, (7) number of FTEs evaluated, and (8) the type of study
performed-Tier 1 or Tier 2. According to VA's documentation, VA classified
16 of the 1,352 studies as Tier 2 studies. As discussed previously, Tier 2
studies-as defined by VA-involve the same analyses, processes, and forms
required under the streamlined and standard OMB Circular No. A-76
processes.
28 The VA General Counsel subsequently modified his opinion.
29 VA estimated that $11,225 was spent in performing the cost comparison
studies related to the medical laundry facilities located in one of VAs
VISNs. This VISN study included the Huntington, W. Va; Louisville, Ky;
Mountain Home, Tenn.; and Nashville, Tenn., laundry facilities. For two
additional facilities located in Sioux Falls, S. Dak., and Fargo, N. Dak.,
the agency estimated a total of $3,500. However, VA did not use a reliable
methodology to estimate these amounts. Instead, the estimate of $11,225
was calculated based on the pay scale of the staff involved in the
project, and individuals' recollection of how much time was allocated (in
percentage) to working on this project.
30 Documentation consisted of a schedule where information on cost
comparison studies was gathered as a result of a data call to the VA
networks in an effort to obtain information for the President's Management
Agenda. We did not the audit the cost comparison studies included in this
schedule.
According to VA officials, employees whose salaries and benefits were paid
through the VHA medical care appropriations performed work in support of
the 16 Tier 2 cost comparison studies. As a result, because appropriations
were not made specifically available for this purpose, VA violated the
Title 38 cost comparison funding prohibition and, consequently, the
purpose statute. As was the case for the studies discussed previously, VA
was unable to determine costs involved in performing this analysis because
it does not track this type of information.
According to VA officials, most of the studies cited in the fiscal year
2002 PAR were Tier 1 equivalents or A-76 direct conversions, which they
assert do not constitute cost comparison studies. Under a direct
conversion, which until 2003 was expressly allowed by OMB Circular No.
A-76, an agency could decide to contract out a commercial function without
performing a standard or streamlined cost comparison study so long as the
contracting officer had made a determination that the potential
contractors would provide the given service at the required level of
quality for a fair price and applicable contracting procedures were
followed. Based on the documentation provided, we could not verify VA's
assertion that these were direct conversions and that they did not involve
studies comparing costs that would be subject to the Title 38 cost
comparison funding prohibition.
VA Asserts Limited Application of Title 38 Cost Comparison Funding
Prohibition
According to VA, the cost comparison activities we reviewed did not
violate the Title 38 cost comparison funding prohibition. VA interprets
this funding prohibition as applying only to "formal" studies, which it
has interpreted as meaning only the standard (i.e., not streamlined)
studies conducted in accordance with OMB Circular No. A-76, Performance of
Commercial Activities. We disagree with VA's interpretation of the Title
38 cost comparison funding prohibition, as discussed in our legal opinion,
and instead interpret the law to apply to any VA studies comparing the
costs of commercial services and products provided by private contractors
with those provided by VA, whether or not they are "formal" studies under
OMB Circular No. A-76.
In a June 8, 2005, letter from VA's Deputy General Counsel, VA asserts
that the Title 38 cost comparison funding prohibition applies only to
"formal" (i.e., standard) OMB Circular No. A-76 cost comparison studies
and not to other competitive sourcing activities because those were the
studies the Congress addressed by enacting the provision in 1981. The
streamlined A-76 studies did not exist in 1981 when the provision was
enacted. In the June 2005 letter, VA's Deputy General Counsel argued that
the words used by the Congress in 1981 must be interpreted consistent with
the common and ordinary meaning contemporaneous with the date of the
statute's enactment.31 VA also argues that application of the prohibition
to other than standard A-76 studies would conflict with statutory
authority for it to make sourcing decisions and provide cost-effective
medical care. Further, VA argues that the legislative history of the
provision reflects the Congress' intent only to curb standard A-76 studies
such as the many underway in 1981. Therefore, according to VA, its Tier 1
and 2 processes and its A-76 streamlined studies would not be subject to
the Title 38 cost comparison funding prohibition. As a result of applying
VA's interpretation of the law, most (but not all) of VA's competitive
sourcing activities would fall outside of the Title 38 cost comparison
funding prohibition.
31 The VA Deputy General Counsel cited Bedroc Limited, LLC v. United
States, 541 U.S. 176, 184 (2004), as support, but did not point to any
specific words in the Title 38 cost comparison funding prohibition.
We disagree with VA's argument. In October 2004, we concluded that the
Title 38 cost comparison funding prohibition was not limited to standard
A-76 cost comparison studies in particular, or A-76 studies in general,
and that the prohibition applies to CARES cost comparison studies. We said
that the VA cost comparison funding prohibition addresses any study, A-76
or otherwise, as clearly reflected in the legislative history related to
the provision's enactment. We agree with VA that, absent an indication to
the contrary, we should interpret words in the statute to have their
common, ordinary, and contemporary meaning. At the crux of our
disagreement with VA is the meaning of the word "study." According to a
well-recognized dictionary32 of the sort that might have been available to
the Congress in 1981, a "study" is defined broadly as a careful
examination or analysis of a phenomenon, development, or question, or the
publication of a report of such an examination or analysis. The other
important word in the language of the prohibition is the word "any," which
modified the word "study." In our October 2004 legal opinion, we construed
"any" to mean "every" and "all." We found no evidence in the legislative
history that the Congress intended the words "any" and "study" in their
common, ordinary, and contemporary usage to mean only a "formal" (i.e.,
standard) A-76 study. Further, application of the prohibition to all
studies would not prevent VA from carrying out its competitive sourcing
activities, provided it receives sufficient appropriations.
According to VA, its efforts to satisfy PMA competitive sourcing
requirements are stymied by the Title 38 cost comparison funding
prohibition. In its fiscal year 2003 PAR, VA reported that the bulk of
VA's competitive sourcing studies were halted in August 2003 because the
VA General Counsel had issued a legal opinion stating that the Title 38
cost comparison funding prohibition prevents VA from conducting cost
comparisons studies using the VHA medical appropriations unless the
Congress provides specific funding for that purpose. In August 2003, the
VA General Counsel confirmed his April 2003 legal opinion that the Title
38 cost comparison funding prohibition applied to Tier 1, 2, and 3 studies
and to all A-76 studies, but he subsequently modified his legal analysis
and conclusion in a January 2004 legal opinion. In the January 2004 legal
opinion, the VA General Counsel asserted that the Title 38 cost comparison
funding prohibition applies only to "formal" A-76 studies. The fiscal year
2004 PAR, which was published on November 15, 2004, does not indicate
whether the more recent legal opinion has influenced VA's competitive
sourcing activities.
Although funds were specifically appropriated for performing such cost
comparison studies for fiscal years 1983 through 2000, no similar specific
appropriations were made available in subsequent fiscal years.33 As
previously noted, for fiscal years 2001 to 2004, VA requested but did not
receive from the Congress specific appropriations-ranging from $16 million
to $50 million-to conduct cost comparison studies. According to VA, it is
seeking legislative relief so that it can restart its planned competitive
sourcing program. However, VA would also be authorized to fund these
activities with other available appropriations, such as its major projects
construction or minor projects construction appropriations.
32 Webster's Third New International Dictionary of the English Language
unabridged (Springfield, Mass.: 1965).
VA May Have to Report Antideficiency Act Violations
We were unable to determine if VA would be required to report
Antideficiency Act violations because it was unclear whether VA could
correct its purpose statute violations through account adjustment. VA can
correct its purpose statute violations through account adjustment by
deobligating the amounts that were improperly charged to the VHA medical
care appropriations and charging these amounts to otherwise available
appropriation accounts. VA's SF-133s, Report on Budget Execution and
Budgetary Resources, show available budget authority (unobligated
balances) in the major projects construction and minor projects
construction accounts from prior fiscal years. However, because these
reports do not itemize the available amounts in these accounts for each
prior fiscal year, we cannot determine the amount, if any, of budget
authority that remains available for each fiscal year from 2001 to 2004.
To make account adjustments, VA must know the amount of VHA medical care
appropriations used in connection with performing cost comparison studies.
However, VA does not track the in-house cost associated with performing
cost comparison studies and was unable to provide us with a reliable
estimate of this amount. Therefore, we were unable to determine whether VA
would have sufficient budget authority available in other appropriations
accounts to correct the amount of each purpose statute violation. As such,
we were also unable to determine if VA could avoid violations of the
Antideficiency Act.
Although VA estimated that the time and money spent conducting the laundry
facility studies for 6 of the 18 completed laundry facility sites was
$14,725, VA provided no detailed documentation to support these estimates
and, therefore, we have no reasonable assurance of their accuracy.
Moreover, VA was unable to provide us with any estimate, no matter how
rough, of the time its VA employees spent on activities in connection with
the cost comparison studies cited in the fiscal year 2002 PAR or the CARES
process. As discussed previously, this amount is likely to be substantial
given the amount VA spent contracting out similar activities. Nonetheless,
we were unable to determine whether VA would have sufficient budget
authority to cover all obligations incurred after adjusting its accounts
by deobligating the amounts that were improperly charged to the VHA
medical care appropriations and correctly charging these amounts to other
available appropriations accounts or through any possible transfer of
funds from another account. As such, we were also unable to determine if
VA would be required to report an Antideficiency Act violation for any
specific activity.
33 In fiscal year 2000, the VHA medical care appropriation included a
specific appropriation-not to exceed $8,000,000-for cost comparison
studies as referred to in 38 U.S.C. S: 8110(a)(5). Pub. L. No. 106-74, 113
Stat. 1047, 1049-50 (Oct. 20, 1999).
The fact that VA did not track the time and expense associated with using
in-house personnel to conduct the cost comparison studies in the areas we
evaluated is not surprising given VA's narrow interpretation of the Title
38 cost comparison funding prohibition. However, as discussed previously,
under our interpretation of the law, it would be critical to track the
in-house time and expense spent on cost comparison studies so that these
costs could be funded using available appropriations-and not through VHA
medical appropriations. This is a critical funds control measure that
would help VA comply with the Title 38 cost comparison funding
prohibition. Similarly, if VA receives-as it has in the past-a specific
appropriation authorizing use of a specific amount from its VHA medical
appropriations for the purpose of conducting cost comparison studies, VA
would be required to track all costs, both in-house and contract costs,
associated with conducting these studies to ensure that it did not exceed
its funding limit for this specific purpose.34
This is part of a bigger problem at VA. VA lacks reliable cost accounting
information needed to manage its operations and budget effectively. In our
recent testimony before the House Committee on Government Reform dealing
with cost accounting at federal agencies, we pointed out differences in
leadership and capabilities in generating reliable cost data for decision
making.35 Related to our testimony, the Committee pointed out that in June
2005, the Congress had provided $1.5 billion in emergency funding for VA's
health care programs for fiscal year 2005. In testifying before the House
Committee on Veterans' Affairs, VA's Secretary attributed the shortfall to
inaccurate data and outdated assumptions. The Committee noted that timely,
accurate cost accounting data are integral to effective budgeting.
The Statement of Federal Financial Accounting Standard (SFFAS) No. 4,
Managerial Cost Accounting Standards and Concepts, provides that each
reporting entity should accumulate and report the costs of its activities
on a regular basis for management information purposes. VA was unable to
provide us with accurate estimates or other cost data because it did not
track costs associated with the various projects. SFFAS No. 4 also states
that alternatively the entity can use appropriate "cost finding"
techniques, such as analytical or sampling methods to accumulate costs.
Conclusion
VA violated the Title 38 cost comparison funding prohibition and, thus,
the purpose statute. As VA implements the CARES process and attempts to
achieve its President's Management Agenda competitive sourcing goals, VA
must use the appropriations the Congress has provided to fund these
activities, such as through specific appropriations made to the VHA
accounts or through other available appropriations, such as the major
projects construction or minor projects construction appropriation
accounts. Going forward, VA has a responsibility to (1) avoid using its
VHA medical appropriations to fund cost comparison activities, (2) cure
prior purpose statute violations, and (3) report all violations of the
Antideficiency Act.
34 See GAO's Policy and Procedures Manual for Guidance of Federal
Agencies, Title VII, Fiscal Guidance, S: 2.3.B., at 7.2-6-7 (May 1993).
35 GAO, Managerial Cost Accounting Practices: Departments of Labor and
Veterans Affairs, GAO-05-1031T (Washington, D.C.: Sept. 21, 2005).
Recommendations for Executive Action
To avoid future noncompliance with the Title 38 cost comparison funding
prohibition, we recommend that the Secretary of Veterans Affairs establish
a process to:
o identify all planned cost comparison studies and
activities-whether stand-alone or as an integral part of a larger
effort,
o estimate the amount of resources required to perform such cost
comparison studies and activities,
o fund such activities using only appropriations available to
fund such activities, and
o implement a mechanism to track all costs associated with
conducting such studies-including in-house and contract costs.
Agency Comments and Our Evaluation
In responding to a draft of this report, VA disagreed with our conclusions
and did not concur with our recommendations. VA stated that it strongly
disagrees with our interpretation that the Title 38 cost comparison
funding prohibition applies to all cost comparison studies, whether or not
they are A-76 studies. VA stated that we have ignored the prohibition's
legislative history and the rest of Title 38 of the U.S. Code. In support
of its view, VA stated that "Congress clearly did not intend to preclude
all manner of cost analysis necessary for the day-to-day administration of
our health-care system and, to the contrary," has directed or permitted VA
to contract for care in circumstances covered by other Title 38
authorities, such as sections 1703, 1706(a), and 8153. 36 VA also stated
that a standard A-76 study is the type of study that the Congress intended
to prohibit under the Title 38 cost comparison funding prohibition because
"there is no indication whatsoever in the extensive legislative history
that the Congress meant to foreclose other cost analyses of the sort [the]
draft report calls unauthorized."
VA mischaracterized our views on VA's authority to conduct cost comparison
studies. We agree with VA that in enacting the Title 38 cost comparison
funding prohibition, the Congress did not preclude all cost comparison
studies. As we stated at the beginning of our report, the Congress
prohibited VA from using particular appropriations-the VHA appropriations
for medical care, medical and prosthetic research, and medical
administration and miscellaneous operating expenses-to pay for cost
comparison studies. As we have stated previously in this report and in our
October 2004 legal opinion, in enacting the prohibition, the Congress
intended to restrict only the use of VHA appropriations to fund these
activities, not VA's authority to conduct cost comparison studies. Other
VA appropriations remain available for cost comparison studies, such as
the major projects construction and minor projects construction
appropriations. Thus, it is the use of the VHA appropriations to conduct
cost comparison studies that is unauthorized, not the studies themselves.
Therefore, the Title 38 cost comparison funding prohibition does not
conflict with the other provisions of Title 38, such as sections 1703,
1706, and 8153 of Title 38, which VA cited in its comments. Furthermore,
even if the Title 38 cost comparison funding prohibition was construed to
conflict with VA's authorities and duties set out in Title 38, as VA
argues, the Congress specifically stated that the prohibition was to apply
"[n]otwithstanding any other provisions of this title or any other law."37
Thus, the funding prohibition would take precedence over the other Title
38 authorities that VA cited in its comments.
36 Section 1706(a) of Title 38 charges the VA Secretary with designing,
establishing, and managing the provision of medical care "to promote
cost-effective delivery of health care services in the most clinically
appropriate setting." 38 U.S.C. S: 1706(a). Sections 1703 and 8153 of
Title 38 grant the VA Secretary authority to contract for services when
necessary to fulfill VA's responsibility under section 1706(a).
Contrary to VA's assertions, there is clear evidence that the Congress
intended the prohibition on VHA funding of "any study comparing the costs"
to apply to any cost comparison studies, not solely the A-76 related
studies. For example, the joint explanatory statement published in the
October 1, 1981, Congressional Record states that the prohibition applies
to "activities under Office of Management and Budget Circular A-76 or
otherwise (emphasis added) in connection with the contracting-out (and
studies of the feasibility of such contracting) of functions carried out
by VA employees."38 The legislative history also shows that the primary
objective of the Congress was to prevent the diversion of VHA
appropriations from the delivery of quality medical care to the conduct of
cost comparison studies, and not the preclusion of the many A-76 studies
in progress at the time. However, as we stated in our October 2004 legal
opinion and this report, it is not necessary to resort to the legislative
history because, in applying the plain meaning rule for statutory
interpretation, the clear and unambiguous words in the Title 38 cost
comparison funding prohibition must be interpreted according to their
common, ordinary, and contemporary meaning.
VA's disagreement with our conclusions is not a sound basis for rejecting
our recommendations. Implementing the recommendations included in this
report would ensure VA uses only available funding to perform cost
comparison studies and avoid future purpose statute violations. VA's funds
control would be improved by having a mechanism in place to track the
number of studies and costs associated with performing these cost
comparison studies. Further, VA should be able to track and ensure
compliance with any specific appropriations that the Congress may make for
cost comparison studies, as VA has recently requested. Finally, tracking
the cost of these studies provides a tool for determining future funding
needs for this purpose. VA's comments are reprinted in enclosure II of
this report.
37 38 U.S.C. S: 8110(a)(5).
38 This can be found in the Joint Explanatory Statement, Oct. 1, 1981 (127
Cong. Rec. S22,704 at 22,713).
We are sending copies of this report to the Secretary of Veterans Affairs,
interested congressional committees, and other interested parties. We will
make copies of the report available to others upon request. In addition,
the report will be available at no charge on GAO's Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-6906 or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in enclosure III.
Sincerely yours,
McCoy Williams
Director, Financial Management and Assurance
Enclosures
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separately.
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Enclosure I
Scope and Methodology
To achieve our objectives and determine whether the Department of Veterans
Affairs (VA) violated the purpose statute by using funds from the Veterans
Health Administration (VHA) medical care, medical and prosthetic research,
or medical administration and miscellaneous operating expenses
appropriation accounts during fiscal years 2001 through 2004 to fund cost
comparison studies, we reviewed pertinent sections of the law and GAO's
October 2004 legal opinion. We also reviewed the pertinent appropriations
from fiscal years 2001 to 2004 to determine if funds had been provided in
these medical accounts to perform cost comparison studies.
To determine the process and steps involved in performing cost
comparisons, we reviewed applicable guidance included in the Office of
Management and Budget (OMB) Circular No. A-76, Performance of Commercial
Activities; VA policies and procedures on outsourcing such as VA Directive
7100; and pertinent sections of the Capital Asset Realignment for Enhanced
Services (CARES) Guidebook. We also compared guidance included in OMB
Circular No. A-76 to outsourcing guidance included in VA Directive 7100 to
analyze any similarities.
To determine what cost comparison activities had been conducted by VA, we
met with VA headquarter officials and discussed areas in which VA
performed cost comparisons as part of the CARES process or other areas
such as VA laundry services from fiscal years 2001 to 2004. We reviewed
CARES contracts to determine if cost comparison studies were performed and
if VHA medical appropriations were used to fund these contracts. We also
reviewed VA's Performance and Accountability Reports (PAR) from fiscal
years 2001 to 2004 to determine what additional cost comparison studies
had been performed as part of making progress toward the competitive
sourcing goals of the President's Management Agenda.
We conducted structured interviews with key VA personnel involved in the
laundry facilities studies, the CARES process, and the 1,626 cost
comparison studies reported in the fiscal year 2002 PAR to determine the
time and expenses incurred by VHA personnel while performing cost
comparison activities. However, we were unable to obtain or verify VA
information about the number of staff and expenses involved in performing
these activities because VA does not have a payroll or other system in
place to track these costs. We conducted our review from February 2005 to
October 2005 in accordance with U.S. generally accepted government
auditing standards.
The Department of Veterans Affairs provided written comments on a draft of
this report. These comments are presented and evaluated in the body of
this report and are reprinted in enclosure II.
Enclosure II
Comments from the Department of Veterans Affairs
Enclosure II
Enclosure III
GAO Contact and Staff Acknowledgments
GAO Contact
McCoy Williams, Director (202) 512-6906
Acknowledgments
In addition to those named above, Diane Handley, Assistant Director; F.
Abe Dymond, Assistant General Counsel; Francine DelVecchio; Lauren
Fassler; Danielle Free; and Elizabeth Martinez made key contributions to
this report.
(195063)
*** End of document. ***