United States Government Accountability Office

GAO Report to the Subcommittee on 

Oversight and Investigations, 

Committee on Veterans’ Affairs, House 

of Representatives 

VETERANS HEALTH 

ADMINISTRATION 

Improvements Needed 

in Design of Controls 

over Miscellaneous 

Obligations 

September 2008 

GAO-08-976 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2008

VETERANS HEALTH ADMINISTRATION

Improvements Needed in Design of Controls over 

Miscellaneous Obligations

Highlights of GAO-08-976, a report to the 

Subcommittee on Oversight and 

Investigations, Committee on Veterans' 

Affairs, House of Representatives 

The Veterans Health

Administration (VHA) has been 

using miscellaneous obligations for

over 60 years to record estimates of

obligations to be incurred at a later 

time. The large percentage of 

procurements recorded as 

miscellaneous obligations in fiscal

year 2007 raised questions about

whether proper controls were in 

place over the authorization and 

use of billions of dollars. 

GAO was asked to review (1) how

VHA used miscellaneous 

obligations during fiscal year 2007,

and (2) whether Department of

Veterans Affairs (VA) policies and 

procedures were designed to

provide adequate controls over 

their authorization and use. GAO 

obtained and analyzed available

VHA data on miscellaneous 

obligations, reviewed VA policies 

and procedures, and reviewed a

nongeneralizable sample of 42 

miscellaneous obligations at three

case study locations. 

What GAO Recommends

GAO makes four recommendations

to the Secretary of Veterans Affairs 

to modify its policies and 

procedures, in conjunction with

VA’s Office of General Counsel, to 

better ensure adequate oversight of

miscellaneous obligations by

contracting officials, segregation of

duties throughout the process, and 

sufficient supporting

documentation for miscellaneous 

obligations. VA concurred with the 

recommendations and identified

specific actions it will take to 

implement them. 

VHA recorded over $6.9 billion of miscellaneous obligations for the 

procurement of mission-related goods and services in fiscal year 2007. 

According to VHA officials, miscellaneous obligations were used to facilitate 

payment for goods and services when the quantities and delivery dates are not 

known. According to VHA data, almost $3.8 billion (55.1 percent) of VHA’s 

miscellaneous obligations was for fee-based medical services for veterans and 

another $1.4 billion (20.4 percent) was for drugs and medicines. The 

remainder funded, among other things, state homes for the care of disabled 

veterans, transportation of veterans to and from medical centers for 

treatment, and logistical support and facility maintenance for VHA medical 

centers nationwide. 

GAO's Standards for Internal Control in the Federal Government states that

agency management is responsible for developing detailed policies and 

procedures for internal control suitable for their agency's operations. 

However, VA policies and procedures were not designed to provide adequate

controls over the authorization and use of miscellaneous obligations with 

respect to oversight by contracting officials, segregation of duties, and 

supporting documentation for the obligation of funds. Collectively, these 

control design flaws increase the risk of fraud, waste, and abuse (including 

employees converting government assets to their own use without detection). 

These control design flaws were confirmed in our case studies at VHA Medical 

centers in Pittsburgh, Pennsylvania; Cheyenne, Wyoming; and Kansas City, 

Missouri. 

 Summary of Control Design Deficiencies at Three Case Study Locations

Inadequate supporting

documentation

Station

Number of

obligations

reviewed

No 

documented 

approval by 

contracting

officials

Inadequate 

segregation

of duties

Incomplete 

purpose 

description

Blank 

vendor 

field 

Blank 

contract 

field

Pittsburgh 14 14 9 3 6 3

Cheyenne 11 11 11 1 6 4

Kansas City 17 17 10 4 8 9

Total 42 42 30 8 20 16

Source: GAO analysis of VHA data. 

In May 2008, VHA issued revised guidance on required procedures for 

authorizing and using miscellaneous obligations. GAO reviewed the revised 

guidance and found that while it offered some improvement, it did not fully 

address the specific control design flaws GAO identified. Furthermore, 

according to VA officials, VA’s policies governing miscellaneous obligations 

have not been subject to legal review by VA's Office of General Counsel. Such

a review is essential to ensure that policies and procedures comply with 

applicable federal appropriations law and internal control standards. 

To view the full product, including the scope 

and methodology, click on GAO-08-976. 

For more information, contact Kay L. Daly at 

(202) 512-9095 or dalykl@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 5

Miscellaneous Obligations Used Extensively for Mission-Related 

Activities in Fiscal Year 2007 10 

Deficiencies in Design of Controls over Miscellaneous Obligations 

Increase the Risk of Fraud, Waste, and Abuse 13 

Conclusions 23

Recommendations for Executive Action 23 

Agency Comments and Our Evaluation 24 

Appendix I Scope and Methodology 26 

Appendix II Comments from the Department of Veterans Affairs 30 

Appendix III Miscellaneous Obligations by VISN in Fiscal 

Year 2007 33 

Appendix IV VHA Stations Ranked by Use of Miscellaneous

Obligations 34 

Appendix V GAO Contact and Staff Acknowledgments 38 

 

Tables 

Table 1: Miscellaneous Obligations at VHA and VA for Fiscal Year 

2007 10 

Table 2: Summary of Case Study Results 14 

Table 3: Case Study Analysis of Segregation of Duties 17 

Page i GAO-08-976 VHA Miscellaneous Obligations
Figures 

Figure 1: Veterans Integrated Service Networks (VISN) 6 

Figure 2: VA’s Miscellaneous Obligation Process 9 

Figure 3: VHA Miscellaneous Obligations for Fiscal Year 2007 11 

Abbreviations 

BOC budget object code 

FAR Federal Acquisition Regulation 

FMS Financial Management System 

IFCAP Integrated Funds Distribution, Control Point Activity, 

 Accounting and Procurement 

IPA independent public accountant 

OIG Office of Inspector General 

UPMC University of Pittsburgh Medical Center 

VA Department of Veterans Affairs 

VHA Veterans Health Administration 

VISN Veterans Integrated Service Network 

VISTA Veterans Health Information System and Technology 

 Architecture 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page ii GAO-08-976 VHA Miscellaneous Obligations
United States Government Accountability Office

Washington, DC 20548 

 

September 11, 2008 

The Honorable Harry E. Mitchell 

Chairman 

The Honorable Ginny Brown-Waite 

Ranking Member 

Subcommittee on Oversight and Investigations 

Committee on Veterans’ Affairs 

House of Representatives 

The Department of Veterans Affairs (VA) is responsible for providing a 

variety of services to veterans, including medical care, disability 

compensation, and vocational rehabilitation. The Veterans Health 

Administration (VHA), a component of VA, manages one of the largest 

health care systems in the United States, providing health care to veterans 

throughout the country. VHA officials briefed your Subcommittee staff in 

September 2007 about various financial reporting weaknesses in the 

agency and initiatives under way to address them. In the briefing, VHA 

officials disclosed that $4.8 billion (56 percent) of the reported $8.6 billion 

in procurements through the third quarter of fiscal year 2007 had been

done using funds categorized as “miscellaneous obligations.” VHA officials 

said that they have been using miscellaneous obligations for over 60 years 

to record estimates of obligations1

 to be incurred at a later time.2

According to VA policy,3

 miscellaneous obligations can be used to record

 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

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 3 A.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.” 

3

VA Office of Finance Directives, VA Controller Policy MP-4, Part V, Chapter 3, Section A, 

Paragraph 3A.02 – Estimated Miscellaneous Obligation or Change in Obligation (VA

Form 4-1358). 

Page 1 GAO-08-976 VHA Miscellaneous Obligations
estimated obligations to facilitate the procurement of a variety of goods 

and services, including fee-based medical and nursing services and 

beneficiary travel. In addition, VA’s Office of Inspector General (OIG) 

issued a report in May 2007 on the alleged mismanagement of funds at the 

VA Boston Healthcare System.4

 According to OIG officials, they obtained 

documents showing that a miscellaneous obligation for $200,000 was 

requested, approved, and obligated by the same fiscal official, calling into

question the adequacy of the segregation of duty controls over 

miscellaneous obligations. In light of these concerns, you requested that

we review whether the design of VHA’s internal controls over the use of 

miscellaneous obligations was adequate for fiscal year 2007. 

In response to your request, we initiated a review to determine (1) how 

VHA used miscellaneous obligations during fiscal year 2007, and 

(2) whether VA’s policies and procedures are designed to provide 

adequate controls over the authorization and use of miscellaneous 

obligations. Our review focused on the approximately $6.9 billion of 

miscellaneous obligations that VHA made during fiscal year 2007, the most 

complete fiscal year for which data were available when we began our 

review. We discussed our preliminary findings at a hearing before the 

Subcommittee on July 31, 2008.5

To determine the purposes for which VHA used miscellaneous obligations 

during fiscal year 2007, we obtained and analyzed a copy of VHA’s 

Integrated Funds Distribution, Control Point Activity, Accounting and 

Procurement (IFCAP) database of miscellaneous obligations. VA’s Senior 

Procurement Executive stated that the IFCAP database provided the best 

available data on VHA miscellaneous obligations created in fiscal year 

2007. We determined that the IFCAP data were sufficiently reliable for the 

purposes of our report based on (1) testing various required data 

elements, (2) performing walkthroughs of the system, and (3) tracing 

selected transactions from source documents to the database. We could 

not reconcile IFCAP miscellaneous obligations to VA’s Financial 

Management System (FMS)—the VA accounting system of record used to

generate VA financial statements and other reports—because FMS does 

 4

Department of Veterans Affairs, Office of Inspector General, Audit of Alleged 

Mismanagement of Government Funds at the VA Boston Healthcare System, Report No. 

06-00931-139 (Washington, D.C.: May 31, 2007). 

5

 GAO, Veterans Health Administration: Improvements Needed in Design of Controls

over Miscellaneous Obligations, GAO-08-1056T (Washington, D.C.: July 31, 2008). 

Page 2 GAO-08-976 VHA Miscellaneous Obligations
not identify the method used to obligate funds for transactions (e.g., 

miscellaneous obligations, purchase card, purchase order). 

To determine whether VA’s policies and procedures are designed to 

provide adequate controls over the use of miscellaneous obligations, we 

compared VA policies and procedures governing the use of miscellaneous 

obligations with federal appropriations law and internal control standards, 

interviewed VHA officials in Denver, Colorado, and Washington, D.C., and 

conducted case studies at VHA medical centers in Cheyenne, Wyoming; 

Kansas City, Missouri; and Pittsburgh, Pennsylvania. As part of the case 

studies, we interviewed VHA financial management and procurement 

officials, and reviewed a nongeneralizable sample of miscellaneous 

obligations to provide more detailed data on the extent and nature of any 

control design deficiencies. We did not review VHA’s procurement or 

service authorization processes. Appendix I contains a more detailed

description of our scope and methodology. We conducted our audit work 

from November 2007 through July 2008 in accordance with generally 

accepted government auditing standards. Those standards require that we

plan and perform the audit 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. 

In fiscal year 2007, available information from the Integrated Funds 

Distribution, Control Point Activity, Accounting and Procurement (IFCAP) 

database show that VHA used miscellaneous obligations to record over 

$6.9 billion against its appropriations for the procurement of missionrelated goods and services. According to the IFCAP data, almost $3.8 

billion of this total (55.1 percent) was for fee-based medical and dental 

services for veterans and another $1.4 billion (20.4 percent) was for drugs, 

medicines, and hospital supplies. The remainder covered, 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. VHA 

officials said they used miscellaneous obligations to administratively

reserve estimated funds required to facilitate the payments for goods and 

services for which specific quantities and time frames were uncertain. 

Another cited benefit was that miscellaneous obligations simplify the 

procurement process when no underlying contract or purchase order 

exists. For example, VHA centers used miscellaneous obligations to record 

estimated obligations for an umbrella agreement for fee-based medical 

Results in Brief 

Page 3 GAO-08-976 VHA Miscellaneous Obligations
services; the umbrella agreement can then be used to fund the work 

performed by a number of different physicians. Nonetheless, without 

effectively designed mitigating controls, the use of miscellaneous 

obligations may also expose VHA to increased risk of fraud, waste, and 

abuse. 

VA policies and procedures were not designed to provide adequate 

controls over the use of miscellaneous obligations with respect to 

oversight by contracting officials, segregation of duties, and supporting 

documentation for recording the obligation of funds. Specifically, although

VA’s September 29, 2006, policy required contracting officials to review 

miscellaneous obligations to help ensure the proper use of these 

obligations, the supporting procedures did not describe how these reviews 

should be carried out. Further, the design of the current control process 

did not include detailed procedures for conducting either an automated or

manual review of miscellaneous obligations by contracting officials. With

regard to segregation of duties, the miscellaneous obligation automated

system and associated policies and procedures were not designed to 

prevent one person from performing multiple roles in the process of 

authorizing and executing miscellaneous obligations. Finally, with regard 

to documentation, we found that current guidance did not include detailed 

procedures on what was to be included in the purpose field of the 

miscellaneous obligation authorization document and did not require that

the vendor name and contract number be included. These control design 

flaws were confirmed in our case studies at Pittsburgh, Cheyenne, and 

Kansas City. Such VHA-wide policy and procedure design flaws increase 

the risk of fraud, waste, and abuse at the 129 VHA stations using 

miscellaneous obligations in fiscal year 2007. New guidance for the use of

miscellaneous obligations was issued in May 2008. This guidance, while it 

offered some improvement, did not fully address the three problem areas. 

Also, we understand that VA attorneys have not reviewed these policies to 

help ensure compliance with applicable appropriations law and other 

requirements. 

We are making four recommendations to VA to establish policies and 

procedures that will improve overall control design to better ensure 

adequate oversight of miscellaneous obligations by contracting officials, 

segregation of duties during the authorization process, and supporting 

documentation for miscellaneous obligations. We received written 

comments on a draft of this report from the Deputy Secretary of Veterans

Affairs, which are reprinted in appendix II. VA concurred with our 

recommendations and identified specific actions it plans to take to 

Page 4 GAO-08-976 VHA Miscellaneous Obligations
implement these recommendations. VA also provided technical comments 

which we considered and incorporated as appropriate. 

VA is responsible for providing federal benefits to veterans. Headed by the 

Secretary of Veterans Affairs, VA operates nationwide programs for health 

care, financial assistance, and burial benefits. In fiscal year 2007, VA 

received appropriations of over $77 billion, including over $35 billion for 

health care and approximately $41.4 billion for other benefits. The 

Congress appropriated more than $87 billion for VA in fiscal year 2008. 

Background 

VHA is responsible for implementing the VA medical assistance programs. 

In fiscal year 2007, VHA operated more than 1,200 sites of care, including

155 medical centers, 135 nursing homes, 717 ambulatory care and 

community-based outpatient clinics, and 209 Readjustment Counseling 

Centers. VHA health care centers provide a broad range of primary care, 

specialized care, and related medical and social support services. The 

number of patients treated increased by 47.4 percent from 3.8 million in 

2000 to nearly 5.6 million in 2007 due to an increased number of veterans

eligible to receive care. 

As shown in figure 1, VHA has organized its health care centers under 21 

Veterans Integrated Service Networks (VISN),6

 which oversee the 

operations of the various medical centers and treatment facilities within 

their assigned geographic areas. 

During fiscal year 2007, these networks provided more medical services to

a greater number of veterans than at any time during VA’s long history. 

 6

VISNs 13 and 14 were consolidated and designated VISN 23. 

Page 5 GAO-08-976 VHA Miscellaneous Obligations
Figure 1: Veterans Integrated Service Networks (VISN) 

Source: U.S. Department of Veterans Affairs.

1.

2.

3.

4.

5.

6.

7.

VA New England Healthcare System

VA Healthcare Network Upstate New York

VA NY/NJ Veterans Healthcare Network

VA Stars & Stripes Healthcare Network

VA Capitol Health Care Network

VA Mid-Atlantic Health Care Network

The Southeast Network

8.

9.

10.

11.

12.

15.

16.

VA Sunshine Healthcare Network

VA Mid South Healthcare Network

VA Healthcare System of Ohio

Veterans in Partnership

VA Great Lakes Health Care System

VA Heartland Network

South Central VA Health Care Network

17.

18.

19.

20.

21.

22.

23.

VA Heart of Texas Health Care Network

VA Southwest Health Care Network

Rocky Mountain Network

Northwest Network

Sierra Pacific Network

Desert Pacific Healthcare Network

VA Midwest Health Care Network

Page 6 GAO-08-976 VHA Miscellaneous Obligations
VA has used “Estimated Miscellaneous Obligation or Change in Obligation” 

(VA Form 4-1358) to record estimated obligations for goods and services

for over 60 years. According to VA policy,7

 miscellaneous obligations can 

be used to record obligations against appropriations for the procurement 

of a variety of goods and services, including fee-based medical, dental, and 

nursing services; non-VA hospitalization; nursing home care; beneficiary 

travel; and rent and utilities. The policy states that miscellaneous 

obligations should be used as obligation control documents when a formal

purchase order or authorization is not required, and when necessary to 

record estimated obligations to be incurred by the subsequent issue of 

purchase orders. The policy also states that the use of miscellaneous 

obligations should be kept to an absolute minimum, consistent with sound 

financial management policies on the control of funds, and should only be

used in cases where there was a bona fide need for the goods and services 

being procured. 

VA Policies and 

Procedures on the Use of 

Miscellaneous Obligations 

In September 2006, VA policy for miscellaneous obligations was revised in

an attempt to minimize the use of miscellaneous obligations as an 

obligation control document.8 The revision states that miscellaneous 

obligations should not be used as obligation control documents unless the 

head contracting official for the station has determined that a purchase 

order9

 or contract will not be required. However, the policy provides that 

fiscal staff can use miscellaneous obligations as a tracking mechanism for 

obligations of variable quantity contracts,10 as well as for public utilities. In 

January 2008, VA issued interim guidance on the use of miscellaneous 

 7

VA Office of Finance Directives, VA Controller Policy, MP-4, Part V, Chapter 3, Section A, 

Paragraph 3A.02 – Estimated Miscellaneous Obligation or Change in Obligation (VA

Form 4-1358), www.va.gov accessed on December 12, 2007.

8

VA Office of Finance Bulletin 06GA1.05, Revision to MP-4, Part V, Chapter 3, Section A, 

Paragraph 3A.02 – Estimated Miscellaneous Obligation or Change in Obligation (VA

Form 4-1358) (Sept. 29, 2006). 

9

A purchase order is written authorization for a supplier to ship products to an agency at a

specified price. Purchase orders may be supported by an underlying contract or function

as the sole legally binding document. 

10In variable quantity contracts, the quantity of goods to be furnished or services to be

performed may vary. Variations may be at the option of VA or the contractor. Under 

variable quantity contracts, normally no amount is obligated at the time the contract is 

signed. The order, which comes after the contract, obligates VA for goods or services and 

the obligation must be recorded for the exact amount, or a reasonable estimate of the 

order. 

Page 7 GAO-08-976 VHA Miscellaneous Obligations
obligations; however, the guidance did not apply to the fiscal year 2007 

miscellaneous obligations we reviewed.11

In recent years VHA has attempted to improve its oversight of 

miscellaneous obligations. For example, VHA’s Clinical Logistics Group 

created the IFCAP system database in April 2006 to analyze the use of 

miscellaneous obligations agencywide. The database is updated monthly 

and contains information on the miscellaneous obligations created 

monthly by the 21 VISN offices and their associated stations. VHA officials 

are using the IFCAP database to (1) analyze the number and dollar 

amounts of procurements being done using contracts and purchase cards, 

and recorded using miscellaneous obligations, and (2) identify the types of

goods and services recorded as miscellaneous obligations. Prior to the 

creation of the IFCAP database, such information on the use of

miscellaneous obligations nationwide was not readily available to VHA 

upper-level management. 

VHA’s Current 

Miscellaneous Obligation 

Process 

The creation and processing of miscellaneous obligations (VA Form 

4-1358) is documented in IFCAP—a component of VA’s Veterans Health 

Information System and Technology Architecture (VISTA). The 

miscellaneous obligation request passes through several stages illustrated 

in figure 2.12 

 11Department of Veterans Affairs Memorandum, Interim Guidance on Miscellaneous

Obligations, VA Form 4-1358 (Jan. 30, 2008). 

12Further details on processes in place are described in VA’s Integrated Funds

Distribution Control Point Activity, Account and Procurement (IFCAP) PPM 

Accountable Officer User’s Guide, Version 5.1 (May 2007). 

Page 8 GAO-08-976 VHA Miscellaneous Obligations
Figure 2: VA’s Miscellaneous Obligation Process 

The Funding

Stage

The Approval 

to Reserve 

Funds Stage

The Obligation 

Stage

VHA allocates funds to medical

facilities through VISN offices.

Congress appropriates funds for VA and 

OMB apportions the appropriations. VA allocates funds to VHA.

Fund Control Point Official approves

the miscellaneous obligation.

Medical facility official requests the

creation of a miscellaneous obligation.

Accounting Technician in Fiscal Services reviews the 

miscellaneous obligation, assigns an obligation

number, and records the obligation of funds.

a

Fund Control Point Clerk creates

a miscellaneous obligation.

Vendor performs the service and

sends invoice to VHA.

IFCAP notifies Control Point Official that 

funds have been obligated.

Control Point Official notifies the 

Vendor to perform service.b

Payment for goods or services made

by VA’s Financial Services Center

in Austin, Texas.

Invoice recorded and directed to an official 

at the medical facility (usually the Control 

Point Official) for certification.c

Certifying official certifies that 

goods or services have been 

received and approves the invoice 

for payment.

The Order/

Delivery Stage

The Payment 

Stage

Source: GAO analysis of VA policy and procedures.

a

In many transactions, the amount recorded reflects an administrative reservation of funds for which 

no obligations have yet been incurred. 

b

Our review did not include the processes VHA officials may use to incur legal obligations, such as by

issuing purchase orders or delivery orders. 

c

A different payment process is followed for fee-based medical, dental and nursing services. 

Page 9 GAO-08-976 VHA Miscellaneous Obligations
The IFCAP database shows that in fiscal year 2007 nearly 132,000 

miscellaneous obligations, with a total value of nearly $9.8 billion, were 

created (see table 1). While VA’s Central Office had $2.9 billion in 

miscellaneous obligations during fiscal year 2007, our review focused on 

the $6.9 billion in miscellaneous obligations used by VHA’s 129 stations,13

located in every VISN throughout the country, for a variety of missionrelated activities. (See app. III for a list of the uses of miscellaneous 

obligations by VISN, and app. IV for a list of the uses of miscellaneous 

obligations by station). 

Miscellaneous 

Obligations Used 

Extensively for 

Mission-Related 

Activities in Fiscal 

Year 2007 

Table 1: Miscellaneous Obligations at VHA and VA for Fiscal Year 2007 

(Dollars in billions) 

VISN name 

Number of 

miscellaneous

obligations

Dollar amount of 

miscellaneous

obligations

Percentage of

total dollar 

value

VHAa 127,070 $6.9 70%

VA’s Central Officeb 4,839 2.9 30%

Total 131,909 $9.8 100%

Source: GAO analysis of IFCAP data. 

a

Includes miscellaneous obligations for VISNs 1-12 and 15-23 (VISNs 13 and 14 were consolidated 

and designated VISN 23). 

b

VA’s Central Office (VISN 0) is responsible for the administration of the Consolidated Mail Outpatient 

Pharmacy (CMOP) initiative that provides mail order prescriptions to veterans using automated 

distribution centers located throughout the country. In fiscal year 2007, VISN 0 obligated about $2.08

billion in miscellaneous obligations for drugs, medicines, and other supplies, and almost $800 million 

for various fee-based medical, dental, and other services. 

According to available VHA data, VHA used miscellaneous obligations to 

record estimated obligations of over $6.9 billion for mission-related goods 

and services. As shown in figure 3, about $3.8 billion (55.1 percent) was for 

fee-based medical and dental services for veterans, and another 

$1.4 billion (20.4 percent) was for drugs, medicines, and hospital supplies.

The remainder was for, among other things, state veterans homes,14

transportation of veterans to and from medical centers for treatment, and 

 13The IFCAP database included 129 VHA stations. A VHA station may include more than

one medical center. 

14State veterans homes are established by individual states and approved by VA for the care

of disabled veterans. The homes include facilities for domiciliary nursing home care and 

adult day health care.

Page 10 GAO-08-976 VHA Miscellaneous Obligations
logistical support and facility maintenance for VHA medical centers 

nationwide.

Figure 3: VHA Miscellaneous Obligations for Fiscal Year 2007 

8%

55.1%

Source: GAO analysis of VHA data.

Other, such as dietetic provisions, operating supplies, cleaning services, and data processing.

Transportation of persons/things.

State homes and homeless veteran support.

Rent, communications, and utilities including gas, electricity, water, sewer, and phone.

Supplies including drugs, medicines, hospital supplies, blood products, and prosthetic supplies.

Services including fee-basis physician, nursing, dental, hospitalization stays, research, and prosthetic repair.

9.1%

20.4%

3%

$210 million

4.4%

$301 million

$553 million

$628 million

$1,412 million

$3,805 million

According to VHA contracting and fiscal service officials, using 

miscellaneous obligations tends to reduce administrative workload and 

facilitates the payment for contracted goods and services, including drugs,

medicines, and transportation, and for goods and services for which no 

preexisting contracts exist, such as fee-basis medical and dental services

and utilities. 

VHA officials stated that miscellaneous obligations facilitate the payment

for contracted goods and services when the quantities and delivery dates

are not known. A miscellaneous obligation can be created for an estimated 

Page 11 GAO-08-976 VHA Miscellaneous Obligations
amount and then modified as specific quantities are needed or specific 

delivery dates are set. When a purchase order is created, however, the 

obligated amount cannot be changed without a modification of the 

purchase order. According to VHA officials, the need to prepare numerous 

modifications to purchase orders could place an undue burden on the 

limited contracting personnel available at individual centers and could

also require additional work on the part of fiscal services personnel. 

VHA officials stated that the use of miscellaneous obligations can simplify 

the procurement process when no preexisting contract or purchase order 

exists. For example, providing medical care on a fee-basis to veterans 

outside of VHA medical centers may involve the services of thousands of 

private physicians nationwide. Attempting to negotiate a separate 

agreement or contract with each of these individuals would be a difficult 

task for VHA’s contracting staff. Under the policies and procedures in 

place during fiscal year 2007, VHA centers could use miscellaneous 

obligations as umbrella authorizations for fee-based medical services 

performed by a number of different physicians. In effect, in cases for 

which there is no preexisting contract, the miscellaneous obligation form 

becomes the record of an obligation.15 However, use of miscellaneous 

obligations may also increase the risk of fraud, waste, and abuse. 

Consequently, mitigating controls must be designed to help compensate 

for the lack of a negotiated contract. Absent contractual terms, one risk 

area is the authorized fee schedule for the medical services being 

provided. In this case, federal regulations call for payments to non-VA 

physicians for services associated with outpatient and inpatient care 

provided at non-VA facilities to be the lesser of the amount billed or the 

amount calculated using the formula developed by the Department of 

Health and Human Services under Medicare’s participating physician fee 

schedule for the period in which the service is provided.16 However, we 

did not verify that VHA officials were properly following the fee schedule.

 15In their comments on our draft report, VA officials said that this practice is consistent 

with 38 C.F.R. 17.52, which provides that infrequently used services, such as fee-basis 

services, may be initiated using individual authorizations. They said that individual 

authorizations for fee-basis care are not subject to procurement regulations, and that

procurement regulations apply when the need for like medical services from the same 

medical provider is frequent enough to warrant the use of standard acquisition processes.

1638 C.F.R. 17.56. 

Page 12 GAO-08-976 VHA Miscellaneous Obligations
VA policies and procedures were not designed to provide adequate 

controls over the use of miscellaneous obligations. According to our 

Standards for Internal Control in the Federal Government,

 17 agency 

management is responsible for developing detailed policies and 

procedures for internal control suitable for their agency’s operations and

ensuring that they provide for adequate monitoring by management, 

segregation of duties, and supporting documentation for the need to 

acquire specific goods in the quantities purchased. We identified control 

design flaws in each of these oversight areas, and we confirmed that these 

weaknesses existed at the three locations where we conducted case 

studies. Collectively, these control design flaws increase the risk of fraud, 

waste, and abuse (including employees converting government assets to 

their own use without detection). New guidance for the use of

miscellaneous obligations was released in January 2008 and finalized in 

May 2008. We reviewed the new guidance and found that while it offered 

some improvement, it did not fully address the specific control design 

flaws we identified. Furthermore, VA officials told us that this guidance

was not subject to any legal review. Such an analysis is essential to help 

ensure that the design of policies and procedures comply with all 

applicable federal appropriations law and internal control standards. 

Deficiencies in Design 

of Controls over 

Miscellaneous 

Obligations Increase 

the Risk of Fraud, 

Waste, and Abuse 

We reviewed 42 miscellaneous obligations at the three case study 

locations and developed illustrative, more detailed information on the 

extent and nature of these control design flaws. Table 2 summarizes the 

locations visited, the miscellaneous obligations reviewed at each location,

and the extent and nature of control design deficiencies found. 

 17GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999). 

Page 13 GAO-08-976 VHA Miscellaneous Obligations
Table 2: Summary of Case Study Results 

Inadequate supporting documentation

Station 

Number of 

obligations

reviewed

Dollar value

of obligations

reviewed

No documented 

approval by

contracting

officials 

Inadequate 

segregation of 

duties a

Incomplete 

purpose

descriptionb

Blank 

vendor field 

Blank 

contract fieldc

Pittsburgh 14 $6,694,853 14 9 3 6 3

Cheyenne 11 $2,076,648 11 11 1 6 4

Kansas Cityd17 $27,274,395 17 10 4 8 9

Total 42 $36,045,896 42 30 8 20 16

Source: GAO analysis of VHA data. 

a

In 30 of the 42 obligations we reviewed, one official performed two or more of the following functions: 

requesting, creating, approving, or obligating funds for the original miscellaneous obligations, or 

certifying delivery of goods and services and approving payment. 

b

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 without reference to supporting invoices. 

c

In these instances, we confirmed that contracts existed, but no contract number was listed on the 

miscellaneous obligation document. 

d

Includes facilities located in Kansas City, Kansas; Wichita, Kansas; Columbia, Missouri; and eastern 

Kansas. 

To help minimize the use of miscellaneous obligations, VA policy stated 

that miscellaneous obligations would not be used as obligation control 

documents unless the contracting authority for a station had determined 

that purchase orders or contracts would not be required. Furthermore, VA 

policy required review of miscellaneous obligations by contracting 

officials to help ensure proper use in accordance with federal acquisition 

regulations, but did not address the intended extent and nature of these 

reviews or how the reviews should be documented. Contracting officials 

were unable to electronically document their review of miscellaneous 

obligations and no manual documentation procedures had been 

developed. Our review of 42 miscellaneous obligations prepared at three 

VHA stations showed that contracting officers were at times familiar with 

specific miscellaneous obligations at their facilities, but that they had no 

documented approvals available for review. Furthermore, none of the 

three sites we visited had procedures in place to document review of the 

miscellaneous obligations by the appropriate contracting authorities. 

Inadequate Contracting 

Oversight of Miscellaneous 

Obligations 

Effective oversight and review by trained, qualified officials is a key factor

in identifying a potential risk for fraud, waste, or abuse. Without control 

procedures to help ensure that contracting personnel review and approve 

miscellaneous obligations prior to their creation, VHA is at risk that 

Page 14 GAO-08-976 VHA Miscellaneous Obligations
procurements will not have safeguards established through a contract 

approach. For example, in our 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). The Chief of Acquisition and Materiel

Management for the VA Pittsburgh Medical Center stated that she was not 

aware of the UPMC’s laboratory testing service procurements and would 

review these testing services to determine whether a contract should be 

established for these procurements. Subsequently, she stated that VISN 4,

which includes the VA Pittsburgh Medical Center, was going to revise 

procedures to procure laboratory testing services through purchase orders

backed by reviewed and competitively awarded contracts, instead of 

funding them through miscellaneous obligations. 

Another Pittsburgh miscellaneous obligation for about $141,000 was used 

to fund the procurement of livers for transplant patients. Local officials 

said that there was a national contract for the services, and that livers 

were provided at a standardized price of $21,800. However, officials could 

not provide us with a copy of the contract, nor documentation of the 

standardized pricing schedule. Therefore, we could not confirm that VHA 

was properly billed for these services or that the procurement was 

properly authorized. 

Furthermore, in the absence of review by contracting officials, controls 

were not designed to prevent miscellaneous obligations from being used 

for unauthorized purposes, or for assets that could be readily converted to

personal use. Our analysis of the IFCAP database for fiscal year 2007 

identified 145 miscellaneous obligations for over $30.2 million that 

appeared to be used in the procurement of such items as passenger 

vehicles; furniture and fixtures; office equipment; and medical, dental, and 

scientific equipment. Although VA’s miscellaneous obligation policy did

not address this issue, VA officials stated that acquisition of such assets 

should be done by contracting officials and not through miscellaneous 

obligations. Without adequate controls to review miscellaneous 

obligations and prevent them from being used for the acquisition of such 

assets, it is possible that VHA may be exposing the agency to unnecessary 

risks by using miscellaneous obligations to fund the acquisitions of goods 

or services that should have been obtained under contract with 

conventional controls built in. 

Page 15 GAO-08-976 VHA Miscellaneous Obligations
One tenet of an effectively designed control system is that key duties and 

responsibilities need to be divided or segregated among different people to

reduce the risk of error or fraud.18 These controls should include 

separating the responsibilities for authorizing transactions, processing and 

recording them, reviewing the transactions, and accepting any acquired 

assets. The basic principle is that no one individual should be permitted to 

control all key aspects of a transaction or event, such as acquiring a good

or service. 

Inadequate Segregation of 

Duties 

However, IFCAP control design allows a single official to perform multiple 

key roles in the process of creating and executing miscellaneous 

obligations, and VA policies and procedures do not specifically prohibit 

this practice. Control point officials are authorized to create, edit, and 

approve requests for miscellaneous obligations. In addition, these same 

individuals can certify the delivery of goods and services and approve 

payment. Such weak control design could enable a VHA employee to 

convert VHA assets to his or her own use, without detection (such as the 

personal property acquired through the use of miscellaneous obligations 

described in the previous section). 

Our review of the previously mentioned 42 miscellaneous obligations at 

three case study locations indicated that controls in place at these 

locations were not designed to ensure sufficient segregation of duties for 

procurements. Specifically, as noted in table 3, we found inadequate 

segregation of key duties in 30 of the 42 obligations we reviewed. In these 

instances, controls were not designed to prevent one official from 

performing two or more of the following key functions: (1) requesting the 

miscellaneous obligation, (2) approving the miscellaneous obligation, 

(3) recording the obligation of funds, or (4) certifying delivery of goods 

and services and approving payment. 

 18GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999). 

Page 16 GAO-08-976 VHA Miscellaneous Obligations
Table 3: Case Study Analysis of Segregation of Duties 

Number of functions performed by agency officialsaObligations

One official performed two out of the four functions 15

One official performed three out of the four functions 13

One official performed all four functions 2

Subtotal–-inadequate segregation of duties 30

Adequate segregation of duties–-different officials performed each of the 

four functions 

12

Total 42

Source: GAO analysis.

a

Agency officials performed various combinations of the following four functions: (1) requesting the

miscellaneous obligation, (2) approving the miscellaneous obligation, (3) obligating funds, and (4) 

certifying receipt of goods and services and approving payment. 

As noted in table 3, in 13 of the 42 obligations we examined, the same 

official performed three of the four functions. In 11 of these cases, the 

same official requested and approved the miscellaneous obligations, and 

then certified receipt of goods and services. For example, in one case in

Pittsburgh, one official requested and approved a miscellaneous obligation 

of over $140,000 for medical services and then certified receipt and 

approved payment for at least $43,000 of those services. In another case in 

Cheyenne, we found one miscellaneous obligation for utilities where one 

official requested, approved, and certified receipt and approved payment 

of over $103,000 in services. 

In two instances in Cheyenne involving employee grievance settlements 

for about $22,000, one official performed all four functions. While our 

review found that these obligations were for legitimate purposes, the fact 

that one official was able to perform multiple functions is indicative of an 

inherent control system flaw. One individual, controlling all of the key 

stages of the transaction, leaves VHA vulnerable to potential fraud, waste, 

or abuse because of the opportunity for the creation of inappropriate, 

perhaps fraudulent, transactions. 

The VA OIG noted a similar problem in its review of the alleged 

mismanagement of funds at the VA Boston Healthcare System.19 According 

 19Department of Veterans Affairs, Office of Inspector General, Audit of Alleged 

Mismanagement of Government Funds at the VA Boston Healthcare System, Report No. 

06-00931-139 (Washington, D.C.: May 31, 2007). 

Page 17 GAO-08-976 VHA Miscellaneous Obligations
to OIG officials, they obtained documents showing that a miscellaneous 

obligation was used to obligate $200,000, and was requested, approved, 

and obligated by the same fiscal official. The OIG officials said that this 

transaction called into question the adequacy of segregation of duty 

controls over funds obligated through miscellaneous obligations. 

Similarly, a July 2007 report by an independent public accountant (IPA) 

also found, among other things, the segregation of duties for VA’s 

miscellaneous obligation process was inadequate.20 The report noted that 

control point officials at a VISN, VA’s Central Office, and two medical 

centers had the ability to act as the requestor and approving official for the 

same transaction. This condition was observed at four of the six locations 

the IPA reviewed. The IPA recommended that the medical centers update

their local policies to prevent control point officials from acting both as 

requestor and approving official on the same transaction. Similarly, in 23

of the 42 miscellaneous obligations we reviewed in our case studies, the 

same individual served as both the requestor and approving official for a 

miscellaneous obligation.21 

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.22 Adequate 

documentation is essential to support an effective funds control system; is 

crucial in helping to ensure that a procurement represents a bona fide 

need; and reduces the risk of fraud, waste, and abuse. When a legal 

obligation is recorded, it must be supported by adequate documentary 

evidence of the liability.23 An agency should use its best estimate to reserve 

an amount for future obligation when the amount of the government’s final 

liability is undefined. Further, the basis for the estimate and the 

computation must be documented. Although VA’s form entitled “Estimated

Miscellaneous Obligation or Change in Obligation” (VA Form 4-1358) 

Lack of Adequate Supporting 

Documentation 

 20Grant Thornton, Department of Veterans Affairs, OMB Circular A-123, Appendix A – 

Findings and Recommendations Report (Procurement Management) (July 18, 2007). 

21In 8 of the 23 cases, one official requested and approved a miscellaneous obligation. For

the remaining 15 cases, one official performed those two tasks plus one or more other key

tasks, such as recording the obligation of funds and certifying receipt of goods and services

and approving payment. 

22GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999). 

2331 U.S.C. §1501(a). 

Page 18 GAO-08-976 VHA Miscellaneous Obligations
includes three key fields—the purpose, vendor, and contract number 

fields—that provide crucial supporting documentation for the obligation,

VA policies and procedures were not sufficiently detailed to specifically 

require this type of information needed to adequately document 

miscellaneous obligations. During the period covered by our review, VA 

did not have specific guidance as to what information should be included

in the purpose field, including such essential data as the nature and extent

of the transaction. Further, during our case studies, we found many 

instances where these fields on the miscellaneous obligation form were

left blank or did not provide adequate information as a result of this 

control design flaw. 

Specifically, in our case studies, we found that these control design flaws 

resulted in the purpose field on 8 of the 42 miscellaneous obligations 

having insufficient data to determine whether the miscellaneous obligation 

represented a bona fide need. In many instances, while the stated 

purposes may have been adequate for the requesters and approving 

officials in the using services, this level of documentation was not 

sufficient for an independent reviewer to determine from the purpose field 

what items were procured and whether the appropriate budget object 

code was charged. As a result of these deficiencies in the design of 

controls, in several cases we had to rely on invoices to determine the 

probable purpose of the miscellaneous obligation and whether it 

represented a bona fide need. For example, in Kansas City, we found one 

miscellaneous obligation for over $1.3 million whose purpose was listed as 

"To obligate funds for the Oct 06 payment," while the associated invoices 

showed that the miscellaneous obligation was used to cover the services 

of medical resident staff. In another instance, we found a miscellaneous 

obligation for over $53,000 whose purpose was listed as "October billing,"

while the associated invoices showed that the miscellaneous obligation 

was used for automated prescription services provided at the Kansas 

Soldiers Home in October 2007. In another case in Pittsburgh, we found a 

miscellaneous obligation for over $45,000 whose purpose was listed as 

"LABCORP 5/1-5/31/07," while the associated invoices showed that the 

obligation was for laboratory testing services. Without procedures calling 

for more definitive descriptions of the purpose, we could not confirm that 

these miscellaneous obligations were for bona fide needs or that the 

invoices reflected a legitimate use of federal funds. 

Page 19 GAO-08-976 VHA Miscellaneous Obligations
Although appropriation law provides that the basis for the amount 

obligated should be documented, we found deficient VA control design 

resulted in several miscellaneous obligations at one location with 

inadequate support for the recorded obligations.24 For example, according 

to our analysis of the IFCAP database, 12 miscellaneous obligations, 

totaling almost $1.3 million, were created using no-year funds25 by the VA 

Pittsburgh Medical Center on September 28, 2007, to support the St. 

Clairsville community-based outpatient clinic. One miscellaneous 

obligation for $106,400 covered March 2008 services, and another 

miscellaneous obligation for $108,400 covered April 2008 clinic services. 

The purpose fields for the two miscellaneous obligations did not provide 

an explanation of how the estimates were calculated. When asked, 

medical center officials stated that the estimates were based on historical 

trends or calculations, but they did not provide any documentation to 

support the estimates. Furthermore, established control procedures did 

not require them to do so. In another instance, the VA Kansas City Medical 

Center obligated $200,000 for “patient care services at the Kirksville 

community-based outpatient clinic from 10/01/06 to 12/31/06.” The purpose 

field did not provide an explanation of how the estimate was calculated. 

Further, in the absence of explicit documentation requirements, data fields 

were left blank on a number of the miscellaneous obligations we 

examined. For example, the vendor field was left blank in 20 of the 42 

miscellaneous obligations we reviewed. Current VA guidance states that 

the vendor field is to be left blank when multiple vendors exist since the 

IFCAP system allows only one vendor to be listed; however, we observed 

several cases where the field was left blank even when there was only one 

vendor. For example, in Kansas City we found obligations for electricity 

and natural gas where historically only one vendor had been used, but the 

vendor field was left blank. Similarly, in Kansas City another 

miscellaneous obligation was used in the procurement of $8.6 million in 

services at the Warrensburg Veteran’s Home in Warrensburg, Missouri, but 

the vendor field was left blank. While payment was made to the vendor 

that invoiced VA in these instances, leaving the vendor field blank poses 

several problems for agency management, including establishing that the

 24GAO, Principles of Federal Appropriations Law: Third Edition, Volume II, 

GAO-06-382SP (Washington, D.C.: Feb. 1, 2006). 

25No-year funds are appropriations for which budget authority remains available for

obligation for an indefinite period of time. A no-year appropriation is usually identified by

language such as “to remain available until expended.” 

Page 20 GAO-08-976 VHA Miscellaneous Obligations
vendor is appropriate for the purpose of the miscellaneous obligation and 

verifying that the correct, authorized vendor is paid. 

We also found that the contract number field was left blank in 16 of the 42 

miscellaneous obligations reviewed, even though supporting contracts did 

exist for these miscellaneous obligations. VA guidance did not require that 

the contract number be included in order to process the miscellaneous 

obligation. However, missing contract numbers make it difficult to 

determine whether VA is receiving the appropriate type and quantity of 

goods and services at the correct price. 

Inadequate control requirements for supporting documentation and 

completing data fields concerning the purpose of the obligation, vendor 

information, and contract numbers can hinder oversight by senior VA 

management officials. The Deputy Assistant Secretary for Logistics and 

Acquisition26 said that he and other VHA officials use the IFCAP database 

to monitor the extent and nature of miscellaneous obligations nationwide, 

including analyzing the number and dollar amounts of miscellaneous 

obligations and identifying the types of goods and services procured using 

miscellaneous obligations. He told us that he was concerned with the 

extent and nature of the use of miscellaneous obligations at VA, that he 

lacked adequate oversight or control over procurements made through 

miscellaneous obligations, and that he often did not know what was being 

bought or who it was being bought from. Our analysis of the IFCAP 

database found that over 88,000 (69 percent) of 127,070 miscellaneous 

obligations did not include vendor information, accounting for over 

$5 billion of the $6.9 billion in recorded miscellaneous obligations in fiscal

year 2007. Similarly, the IFCAP database did not contain a description of 

what was purchased or information on the quantities purchased. As a 

result, important management information was not available to senior VA

procurement officials. 

 26This official acts as VA’s Senior Procurement Executive and oversees the development 

and implementation of policies and procedures for departmentwide acquisition and 

logistics programs supporting all VA facilities. 

Page 21 GAO-08-976 VHA Miscellaneous Obligations
In January 2008, VHA issued interim guidance effective for all

miscellaneous obligations created after January 30, 2008, concerning 

required procedures for using miscellaneous obligations.27 The guidance 

provides that prior to creating a miscellaneous obligation, fiscal service 

staff are required to check with the contracting activity to ensure that a 

valid contract is associated with the miscellaneous obligation, except in 

specific, itemized cases. Under this guidance, the using service is to have

the contracting activity determine (1) if a valid procurement authority 

exists, (2) if a procurement needs to be initiated, and (3) the appropriate 

method of obligation. Also, this guidance requires that a copy of the head 

contracting official’s approval be kept with a copy of the miscellaneous 

obligation for future audit purposes. In addition, the guidance provides 

that the fiscal service may not create a miscellaneous obligation without 

appropriate information recorded in the purpose, vendor, and contract 

number fields on the document. The guidance specifically cites a number 

of invalid uses for miscellaneous obligations, including contract 

ambulance, lab tests, blood products, and construction, but did not always

specify a procurement process to be used for these items. 

Interim Guidance Does 

Not Address All Control 

Weaknesses 

In May 2008, VHA management finalized the interim guidance.28 This 

guidance represents a step in the right direction. It includes a manual 

process for documenting contracting approval of miscellaneous 

obligations and specifically states that a miscellaneous obligation cannot 

be created if the purpose, vendor, and contract number fields are 

incomplete. However, the new guidance does not address the segregation 

of duties issues we and others have identified and does not establish an 

oversight mechanism to ensure that control procedures outlined are 

properly implemented. 

In our view, VHA has missed an opportunity to obtain an important legal 

perspective on this matter. According to VA officials, these policies have

not been subject to any legal review, which is essential in ensuring that the 

policies and procedures comply with federal funds control laws and 

regulations and any other relevant VA policies or procedures dealing with

budgetary or procurement matters. For example, such a review would 

help ensure that the guidance adequately addresses Federal Acquisition 

 27Department of Veterans Affairs Memorandum, Interim Guidance on Miscellaneous

Obligations, VA Form 4-1358 (Jan. 30, 2008). 

28Department of Veterans Affairs, Memorandum, Revised Guidance for Processing of 

Miscellaneous Obligations, VA Form 4-1358 (May 18, 2008). 

Page 22 GAO-08-976 VHA Miscellaneous Obligations
Regulation, requiring that no contract shall be entered into unless the 

contracting officer ensures that all requirements of law, executive orders,

regulations, and all other applicable procedures, including clearances and

approvals, have been met.29 In addition, a legal review could help to ensure 

that this guidance (1) provides that all legal obligations of VA are 

supported by adequate documentation to meet the requirements of the 

recording statute 31 U.S.C. §1501(a) and (2) prevents any individual from 

committing the government for purchases of supplies, equipment, or 

services without being delegated contracting authority as a contracting 

officer, purchase card holder, or a designated representative of a 

contracting officer.30 The absence of a legal review to determine the 

propriety of VA’s miscellaneous obligations policies and procedures places

VA at risk of not complying with important laws and regulations. 

Without basic controls in place over billions of dollars in miscellaneous 

obligations, VA is at significant risk of fraud, waste, and abuse. Effectively 

designed internal controls serve as the first line of defense for preventing

and detecting fraud, and they help ensure that an agency effectively and 

efficiently meets its missions, goals, and objectives; complies with laws 

and regulations; and is able to provide reliable financial and other 

information concerning its programs, operations, and activities. Although 

miscellaneous obligations can facilitate and streamline the procurement 

process, they require effectively designed mitigating controls to avoid 

impairing full accountability and transparency. 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, in the correct amounts, and to the correct vendors. 

Improved controls in the form of detailed policies and procedures, along 

with a management oversight mechanism, will be critical to reducing the 

government’s risks from VA’s use of miscellaneous obligations. 

In order for VA to reduce the risks associated with the use of

miscellaneous obligations, we recommend that the Secretary of Veterans

Affairs, in conjunction with VA’s Office of General Counsel, develop and 

implement policies and procedures consistent with federal appropriations 

law and internal control standards that 

Conclusions 

Recommendations for 

Executive Action 

 2948 C.F.R. 1.602-1 (b). 

3048 C.F.R. 801.601 (b). 

Page 23 GAO-08-976 VHA Miscellaneous Obligations
• establish a process for the review of miscellaneous obligations by 

contracting officials, including requiring appropriate documentation 

that the review has occurred; 

• segregate duties for (1) creating, approving, and recording 

miscellaneous obligations; (2) the certification and payment of 

invoices; and (3) the receipt of the resulting goods or services; 

• document the purposes, vendors, and contract numbers of 

miscellaneous obligations; and

• establish an oversight mechanism to ensure that these control policies 

and procedures are fully and effectively implemented. 

We received written comments on a draft of this report from the Deputy 

Secretary of Veterans Affairs, which are reprinted in appendix II. VA 

concurred with our recommendations and identified specific actions it 

plans to take to implement these recommendations. For example, VA 

commented it plans to include electronic approval requirements of 

miscellaneous obligations by contracting officials in the financial 

component of its new accounting system. Also, VA commented it plans to 

address the segregation of duties issues identified in our report in an 

upcoming VA Office of Finance Bulletin, and that VA policy now requires 

documentation of the purpose, vendor, and contract number for all 

miscellaneous obligations. Finally, VA commented it plans to implement 

reporting and auditing processes to help ensure that the internal control 

procedures are properly implemented agencywide. If effectively 

implemented, these planned actions should enable VHA to substantially 

resolve the deficiencies pointed out in our report. VA also provided 

technical comments which we considered and incorporated as 

appropriate.

We are sending copies of this report to other interested congressional 

committees and to affected federal agencies. Copies of this report will also 

be made available to others upon request. In addition, this report is 

available at no charge on the GAO Web site at http://www.gao.gov. 

Agency Comments 

and Our Evaluation 

Page 24 GAO-08-976 VHA Miscellaneous Obligations
If you or your staff have any questions regarding this report, please 

contact me at (202) 512-9095 or at dalykl@gao.gov. 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 appendix V. 

Kay L. Daly 

Acting Director, Financial Management and Assurance 

Page 25 GAO-08-976 VHA Miscellaneous Obligations
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

In order to determine how VHA used miscellaneous obligations during 

fiscal year 2007, we obtained and analyzed a copy of VHA’s Integrated 

Funds Distribution, Control Point Activity, Accounting and Procurement 

(IFCAP) database of miscellaneous obligations for that year. IFCAP is 

used to create miscellaneous obligations (VA Form 4-1358) at VA, and 

serves as a feeder system for VA’s Financial Management System (FMS)—

the department’s financial reporting system of record. According to VA 

officials, FMS cannot be used to identify the universe of miscellaneous 

obligations at VHA in fiscal year 2007 because FMS does not identify the 

procurement method used for transactions (i.e., miscellaneous obligation, 

purchase card, purchase order). Furthermore, FMS does not capture the 

contract number, requester, approving official, and obligating official for

obligations. However, according to senior agency officials, the IFCAP 

database is the most complete record of miscellaneous obligations 

available at VHA and can be used to provide an assessment of how 

miscellaneous obligations were used during fiscal year 2007. 

IFCAP’s data included information on the appropriation codes, vendors, 

budget object codes (BOC), date and amount of obligations, obligation 

numbers, approving officials, and VISN and VHA stations for VHA 

miscellaneous obligations. We converted the database to a spreadsheet 

format and sorted the data by VISN, station, and BOC to determine where

and how miscellaneous obligations were used in fiscal year 2007 (See app. 

III and IV.) 

To determine whether VHA’s policies and procedures are designed to 

provide adequate controls over the use of miscellaneous obligations, we 

first reviewed VHA’s policies and procedures governing the use of 

miscellaneous obligations at VA. Specifically, we reviewed the VA 

Controller Policy, MP-4, Part V, Chapter 3, Section A, Paragraph 3A.02 – 

Estimated Miscellaneous Obligation or Change in Obligation (VA Form 

4-1358); the VA Office of Finance Bulletin 06GA1.05, Revision to MP-4, 

Part V, Chapter 3, Section A, Paragraph 3A.02 – Estimated

Miscellaneous Obligation or Change in Obligation (VA Form 4-1358), 

dated September 29, 2006; VA Interim Guidance on Miscellaneous 

Obligations, VA Form 1358, dated January 30, 2008; VHA Revised 

Guidance for Processing of Miscellaneous Obligations, VA Form 1358, 

dated May 18, 2008; and other VA and VHA directives, policies, and 

procedures. We also used relevant sections of the Federal Acquisition 

Regulation (FAR); VA’s Acquisition Regulation; appropriations law; and 

our Standards for Internal Control in the Federal Government in 

assessing the design of VA's policies and procedures. We met with VA and 

VHA officials in Washington, D.C., and coordinated with VHA’s Office of 

Page 26 GAO-08-976 VHA Miscellaneous Obligations
Appendix I: Scope and Methodology 

Inspector General staff to identify any previous audit findings relevant to

our audit work. In addition, we interviewed representatives of VA’s 

independent public accounting firm and reviewed copies of their reports. 

In order to better understand the extent and nature of VA policy and 

procedure design deficiencies related to miscellaneous obligations, we 

conducted case studies at three VHA stations in Cheyenne, Wyoming; 

Kansas City, Missouri; and Pittsburgh, Pennsylvania.1

 The stations in 

Kansas City and Pittsburgh were selected because they had a high volume

of miscellaneous obligation activity, and they were located in different 

regions of the country. We conducted field work at the Cheyenne, 

Wyoming, station during the design phase of our review to better 

understand the extent and nature of miscellaneous obligation control 

design deficiencies at a small medical center. Inclusion of the Cheyenne 

facility in our review increased the geographic diversity of our analysis 

and allowed us to compare the extent and nature of miscellaneous 

obligation design deficiencies at medical centers in the eastern, 

midwestern, and western portions of the United States. 

During the case studies, we met with senior medical center administrative, 

procurement, and financial management officials to discuss how VA 

policies and procedures were designed with regard to specific obligations, 

and assess the control environment design for using miscellaneous 

obligations at the local level. We discussed how miscellaneous obligations 

were used as part of the procurement process and the effect of new VHA 

guidance on medical center operations. We also reviewed the design of 

local policies and procedures for executing miscellaneous obligations and 

conducted walkthroughs of the processes. 

To provide more detailed information on the extent and nature of the 

control design deficiencies we found at our case study locations, we 

identified a nongeneralizable sample of obligations for further review at 

each site. Through data mining techniques, we identified a total of 42

miscellaneous obligations for more detailed examination at our case study 

sites: 11 from Cheyenne, 17 from Kansas City, and 14 from Pittsburgh. We 

based our selection on the nature, dollar amount, date, and other 

identifying characteristics of the obligations. For each miscellaneous 

 1

We visited the Cheyenne VA Medical Center in Cheyenne, Wyoming; the Kansas City VA 

Medical Center in Kansas City, Missouri; and the VA Pittsburgh Healthcare System, H. John

Heinz III Progressive Care Center, in Pittsburgh, Pennsylvania. 

Page 27 GAO-08-976 VHA Miscellaneous Obligations
Appendix I: Scope and Methodology 

obligation selected, we accumulated information on the extent and nature 

of control design weaknesses in the areas of 

• review and documentation by contracting officials; 

• segregation of duties during the procurement process; and 

• the purpose, timing, and documentation of obligations. 

Concerning the adequacy of control design with respect to contracting 

review, we reviewed miscellaneous obligations for evidence of review by 

contracting officials and, for selected miscellaneous obligations, followed 

up with contracting officials to discuss contracts in place for 

miscellaneous obligations, whether review by contracting officials was 

needed, and when and how this review could occur and be documented. 

Concerning the control design deficiencies with respect to segregation of

duties, we reviewed miscellaneous obligation documents to determine 

which officials requested, approved, and obligated funds for the original 

miscellaneous obligations and then which officials certified delivery of

goods and services and approved payment. We noted those instances 

where control design deficiencies permitted one official to perform 

multiple functions. 

With respect to control design deficiencies relating to the supporting 

documentation for the miscellaneous obligations, we reviewed the 

purpose, vendor, and contract number fields for each obligation. For the 

purpose field, we assessed whether the required description was adequate 

to determine the nature, timing, and extent of the goods or services being 

procured and whether controls provided for an adequate explanation for 

any estimated miscellaneous obligation amounts. For the vendor and 

contract number fields, we assessed whether controls were designed to 

ensure entered information was complete, and we identified those 

instances where control deficiencies permitted fields to be left blank. 

Because of time limitations, we did not review VHA’s procurement or 

service authorization processes. In addition, in our case study approach, 

we were unable to analyze a sufficient number of obligations to allow us to 

generalize our conclusions to the sites visited, nor to the universe of VHA 

medical centers. The 42 obligations represented a total of approximately 

$36.0 million; however, the results cannot be projected to the overall 

population of miscellaneous obligations in fiscal year 2007. While we 

found no examples of fraudulent or otherwise improper purchases made 

by VHA, our work was not specifically designed to identify such cases or 

estimate their full extent. 

Page 28 GAO-08-976 VHA Miscellaneous Obligations
Appendix I: Scope and Methodology 

We assessed the reliability of the IFCAP data provided by (1) performing 

various tests on required data elements, (2) reviewing related policies and

procedures, (3) performing walkthroughs of the system, (4) interviewing 

VA officials knowledgeable about the data, and (5) tracing selected 

transactions from source documents to the database. In addition, we 

verified that totals from the fiscal year 2007 IFCAP database agreed with a

method of procurement compliance report provided by VA. We did not 

reconcile the IFCAP miscellaneous obligations reported to us to FMS—the 

VA system of record—and published VA financial statements because FMS 

does not identify the procurement method used for transactions (i.e., 

miscellaneous obligations, purchase card, purchase order). We determined 

that the data were sufficiently reliable for the purposes of our report and 

that the data can be used to provide an assessment of how miscellaneous 

obligations were used during fiscal year 2007. 

Data Reliability 

Assessment 

We conducted this audit from November 2007 through July 2008 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit 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 requested comments on a draft of this 

report from the Secretary of Veterans Affairs or his designee. We received 

written comments from the Deputy Secretary of Veterans Affairs, which 

are reprinted in appendix II. 

Page 29 GAO-08-976 VHA Miscellaneous Obligations
Appendix II: Comments from the Department Appendix II: Comments from the Department of Veterans Affairs 

of Veterans Affairs 

Page 30 GAO-08-976 VHA Miscellaneous Obligations
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 31 GAO-08-976 VHA Miscellaneous Obligations
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 32 GAO-08-976 VHA Miscellaneous Obligations
Appendix III: Miscellaneous Obligations by

Appendix III: Miscellaneous Obligations by VISN in Fiscal Year 2007 

VISN in Fiscal Year 2007 

VISNaVISN name Number Dollar amount

Percentage of

total

1 VA New England Healthcare System 6,638 $360,762,340 5.2%

2 VA Healthcare Network Upstate New York 2,910 160,799,144 2.3%

3 VA NY/NJ Veterans Healthcare Network 7,248 256,453,022 3.7%

4 VA Stars & Stripes Healthcare Network 12,321 328,355,399 4.8%

5 VA Capitol Health Care Network 2,024 185,679,821 2.7%

6 VA Mid-Atlantic Health Care Network 2,808 304,500,111 4.4%

7 The Southeast Network 4,548 440,137,101 6.4%

8 VA Sunshine Healthcare Network 9,985 496,497,019 7.2%

9 VA Mid South Healthcare Network 4,461 356,353,797 5.2%

10 VA Healthcare System of Ohio 5,093 247,515,982 3.6%

11 Veterans in Partnership 3,947 261,290,926 3.8%

12 VA Great Lakes Health Care System 4,284 293,466,391 4.2%

15 VA Heartland Network 5,941 300,314,177 4.3%

16 South Central VA Health Care Network 9,859 551,236,444 8.0%

17 VA Heart of Texas Health Care Network 2,388 292,273,251 4.2%

18 VA Southwest Health Care Network 6,308 346,135,243 5.0%

19 Rocky Mountain Network 3,332 220,514,581 3.2%

20 Northwest Network 9,370 360,007,803 5.2%

21 Sierra Pacific Network 11,262 403,378,623 5.8%

22 Desert Pacific Healthcare Network 1,906 388,244,689 5.6%

23 VA Midwest Health Care Network 10,437 354,911,219 5.1%

Total 127,070 $6,908,827,084 100%

Source: GAO analysis of IFCAP database.

a

VISNs 13 and 14 were consolidated and designated as VISN 23. 

Page 33 GAO-08-976 VHA Miscellaneous Obligations
Appendix IV: VHA Stations Ranked by Use of 

Miscellaneous Obligations 

Rank Station Facility number VISN Number Amount 

1 Omaha 636 23 6,832 $158,912,717

2 North Florida/South Georgia VHA 573 8 4,131 145,875,702 

3 Kansas City, Missouri 589 15 3,603 171,613,075 

4 Pittsburgh HCS-University Dr 646 4 3,567 69,880,889 

5 VA New York Harbor HCS – NY CA 630 3 3,280 85,275,329 

6 San Francisco 662 21 3,200 89,361,982 

7 N. California HCS-Martinez 612 21 3,166 88,567,989

8 Upstate New York HCS 528 2 2,910 160,799,144 

9 Philadelphia 642 4 2,536 77,015,657

10 VA Boston HCS-Boston Division 523 1 2,351 102,803,146 

11 St. Louis-John Cochran 657 15 2,338 128,701,102 

12 Seattle, Washington 663 20 2,030 110,264,551 

13 G. V. (Sonny) Montgomery VAMC 586 16 1,964 84,782,426

14 VAMC Bronx 526 3 1,743 37,336,434 

15 Northern Arizona HCS 649 18 1,706 30,897,276 

16 Miami 546 8 1,686 64,028,264

17 Middle Tennessee HCS 626 9 1,644 102,901,107 

18 Cleveland-Wade Park 541 10 1,642 119,323,832 

19 Portland 648 20 1,602 88,110,706

20 VA Palo Alto HCS-Palo Alto 640 21 1,498 100,993,614 

21 Clarksburg 540 4 1,470 25,244,100

22 Amarillo HCS 504 18 1,453 32,694,257 

23 Central California HCS (Fresno) 570 21 1,403 30,528,159

24 Fayetteville AR 564 16 1,386 42,468,351 

25 Boise 531 20 1,385 35,371,800

26 New Orleans 629 16 1,369 57,125,143 

27 VA New Jersey HCS 561 3 1,366 65,538,526 

28 W Palm Beach 548 8 1,318 56,059,142 

29 Dayton 552 10 1,306 43,574,791

30 Fort Meade 568 23 1,284 28,139,258 

31 Bay Pines 516 8 1,128 76,081,613 

32 Lebanon 595 4 1,105 29,330,151

33 Alaska HCS 463 20 1,090 55,377,371 

34 Togus 402 1 1,085 52,777,782

35 Baltimore 512 5 1,060 92,856,732

36 Chillicothe 538 10 1,037 16,704,890

Appendix IV: VHA Stations Ranked by Use of 

Miscellaneous Obligations 

Page 34 GAO-08-976 VHA Miscellaneous Obligations
Appendix IV: VHA Stations Ranked by Use of 

Miscellaneous Obligations 

Rank Station Facility number VISN Number Amount 

37 Oklahoma City 635 16 1,020 80,419,697 

38 Roseburg HCS 653 20 996 21,172,773 

39 Lexington-Leestown 596 9 987 48,090,092

40 Milwaukee WI 695 12 974 59,113,209 

41 Walla Walla 687 20 964 13,199,190 

42 Dallas VAMC 549 17 942 100,556,097 

43 Fargo 437 23 937 26,988,919

44 Wilmington 460 4 923 24,534,375

45 Providence 650 1 900 31,961,444

46 Pacific Islands HCS (Honolulu) 459 21 894 57,759,481 

47 Southern Oregon Rehabilitation 692 20 883 11,294,874 

48 Phoenix 644 18 879 84,069,252

49 Columbia SC 544 7 870 70,594,890 

50 Wilkes Barre 693 4 861 26,987,646 

51 Houston 580 16 855 67,739,913

52 Augusta 509 7 846 53,390,674

53 Tampa 673 8 838 116,270,986

54 Alexandria 502 16 830 25,417,175

55 Gulf Coast HCS 520 16 823 46,044,544 

56 Hines 578 12 813 72,402,760

57 Eastern Colorado HCS 554 19 803 82,599,599 

58 Salt Lake City HCS 660 19 803 68,390,644 

59 San Antonio VAMC 671 17 801 113,175,496 

60 Butler 529 4 792 15,272,087

61 West Haven 689 1 731 80,337,724 

62 Ann Arbor HCS 506 11 715 50,017,830 

63 N. Indiana HCS-Marion 610 11 706 33,501,439 

64 Coatesville 542 4 702 17,933,344

65 Chicago HCS 537 12 700 53,085,848 

66 El Paso HCS 756 18 699 24,242,716 

67 Madison WI 607 12 696 46,845,867 

68 VA Sierra Nevada HCS 654 21 691 31,948,186 

69 Huntington 581 9 690 32,256,564

70 Greater Los Angeles HCS 691 22 670 113,284,821 

71 Detroit (John D. Dingell) 553 11 667 41,810,942 

72 New Mexico HCS 501 18 666 84,082,667 

73 Tuscaloosa 679 7 650 20,128,372

Page 35 GAO-08-976 VHA Miscellaneous Obligations
Appendix IV: VHA Stations Ranked by Use of 

Miscellaneous Obligations 

Rank Station Facility number VISN Number Amount 

74 Temple VAMC 674 17 645 78,541,658 

75 Indianapolis 583 11 645 54,906,324

76 Muskogee 623 16 645 39,781,639

77 Montana HCS 436 19 645 32,278,047 

78 Durham 558 6 639 61,960,744

79 Sheridan 666 19 629 12,501,607

80 Manchester 608 1 606 27,003,396

81 White River Jct 405 1 580 28,279,283 

82 S. Arizona HCS 678 18 578 69,574,532 

83 Columbus 757 10 570 25,461,020

84 Central AR. Veterans HCS LR 598 16 564 70,779,560 

85 Washington 688 5 563 65,013,443

86 Illiana HCS (Danville) 550 11 543 19,659,628 

87 Cincinnati 539 10 538 42,451,450

88 Minneapolis 618 23 534 93,816,762

89 Mountain Home 621 9 517 57,849,934 

90 Orlando 675 8 505 9,342,539

91 San Diego HCS 664 22 503 76,890,097 

92 Decatur 508 7 494 103,798,914

93 Richmond 652 6 490 50,242,036

94 Montgomery 619 7 488 33,582,736

95 Birmingham 521 7 481 75,609,201

96 Iron Mountain MI 585 12 459 16,882,679 

97 St. Cloud 656 23 456 17,539,831 

98 Louisville 603 9 438 51,080,527

99 W.G. (Bill) Hefner Salisbury V 659 6 438 50,753,235 

100 VAMC Northport 632 3 433 45,155,858 

101 VA Hudson Valley HCS-Montrose 620 3 426 23,146,875 

102 Spokane 668 20 420 25,216,539

103 Manila 358 21 410 4,219,213

104 Charleston 534 7 407 44,239,266

105 Overton Brooks VAMC 667 16 403 36,677,997 

106 Martinsburg 613 5 401 27,809,646

107 Sioux Falls 438 23 394 29,513,732 

108 San Juan 672 8 379 28,838,772 

109 North Chicago IL 556 12 353 31,553,133 

110 Battle Creek 515 11 337 43,990,975 

Page 36 GAO-08-976 VHA Miscellaneous Obligations
Appendix IV: VHA Stations Ranked by Use of 

Miscellaneous Obligations 

Rank Station Facility number VISN Number Amount 

111 Saginaw 655 11 334 17,403,788

112 West Texas HCS 519 18 327 20,574,543 

113 Salem 658 6 326 30,946,603

114 Dublin 557 7 312 38,793,048

115 Loma Linda VAMC 605 22 298 64,213,454 

116 Tomah 676 12 289 13,582,895

117 Beckley 517 6 274 11,949,194

118 Cheyenne 442 19 250 13,484,935

119 Fayetteville NC 565 6 243 42,688,173 

120 Southern Nevada HCS 593 22 236 95,628,301 

121 Bedford 518 1 229 13,576,881

122 Asheville-Oteen 637 6 203 28,266,374

123 Grand Junction 575 19 202 11,259,749 

124 Long Beach HCS 600 22 199 38,228,015 

125 Hampton 590 6 195 27,693,752

126 Erie 562 4 191 15,333,253

127 Memphis 614 9 185 64,175,573

128 James E. Van Zandt VA (Altoona) 503 4 174 26,823,897 

129 Northampton 631 1 156 24,022,684

Total 127,070 $6,908,827,084

Source: GAO analysis of IFCAP database. 

Page 37 GAO-08-976 VHA Miscellaneous Obligations
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 38 GAO-08-976

Appendix V: GAO Contact and Staff 

Acknowledgments 

Kay Daly, (202) 512-9095 or dalykl@gao.gov. 

In addition to the contact named above, Glenn Slocum (Assistant 

Director), Richard Cambosos, Debra Cottrell, Francine DelVecchio, Daniel

Egan, W. Stephen Lowrey, Robert Sharpe, and George Warnock made key 

contributions to this report. 

VHA Miscellaneous Obligations

GAO Contact 

Acknowledgments 

(195139) 
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