Report No.:  7R1-G01-045

Date:  February 14, 1997







February 14, 1997

(52BN)

Memorandum to:

Director (10N2), Department of Veterans Affairs
(VA),

Veterans Integrated Service Network 2

Review of Financial Internal Controls at VAMC
Buffalo

Advisory Report No. 7R1-G01-045

1.  The Office of Inspector General (OIG) Bedford
Audit Operations Division (52BN) has completed the internal controls
assessment you requested.  As agreed, the focus of our assessment
was to evaluate internal controls as they apply to fiscal activities
at VA Medical Center (VAMC), Buffalo, N.Y.

2.  In support of Veterans Health Administration
goals of reducing administrative overhead and streamlining functions,
the Administrative Leadership Board and Executive Leadership Council
of the Western New York (WNY) Healthcare System recommended approval
of a plan for reorganizing financial operations.  The WNY Healthcare
System consists of three VA medical facilities under the leadership
of the Director, VAMC Buffalo.  The plan was submitted to your
office on June 3, 1996 and subsequently approved.

3.  Through discussions with key personnel and review
of applicable documentation, we determined that the reorganization
resulted in the following:

- The Chief, Human Resource Service, was designated
as Chief, Payroll Operations in addition to his current duties.



- The Chief, Acquisition and Material Management
Service, assumed additional responsibilities as Chief, Finance,
encompassing Accounting, Voucher Audit, and Agent Cashier Activities.



- The Acting Chief, Fiscal Service, was designated
as Manager, Financial Planning and Decision Support System (DSS)
Operations, responsible for all budgetary activities and DSS program
duties.



A comparative analysis of the actual fiscal activity
structure before and after reorganization is indicated in the
attachment.

4.  We discussed internal control procedures with
the Manager, Financial Planning and DSS Operations, and the Chief
of Finance.  Based on these discussions, and prior audit experience,
we determined that the greatest potential for a break down in
internal controls would be in not performing VHA required risk
assessments and value audits.  We also determined that required
separation of duties must be maintained as they were prior to
the reorganization.

These same concerns were addressed by the VHA Chief
Financial Officer (CFO) in a memorandum to all network Directors
and Medical Center Directors dated December 2, 1996
in which he stated that the accuracy of financial information
and internal controls must be maintained in considering any consolidation
of financial activities.

In order to address the concerns of the VISN Director
and the VHA Chief Financial Officer, we performed such reviews
of internal control areas as we felt necessary in order to maintain
the integrity of the financial entity at VAMC Buffalo:

- Certification of Financial Records:VA policy requires that an annual certification of accounting
records be performed and jointly signed by the Fiscal Officer
and Director of each VA facility.  We also noted that the VHA
CFO emphasized that due to departmental policy, only qualified
individuals perform certain financial functions.



Our review showed that the Manager, Financial Planning
and DSS Operations supervised the certification of the accounting
records for fiscal year 1996 and that the records were signed
by the Chief of Finance, and the facility Director.  The Manager,
Financial Planning and DSS Operations, was the former Acting Chief,
Fiscal Service, and possessed the proper qualifications to perform
this type of certification.  We also noted that areas of concern
identified during the certification process were adequately addressed
and appropriately explained as required.

- Prohibition of Dual Functions (Separation
of Duties):VA policy also requires in
the interest of sound internal controls, that certifying and disbursing
functions not be performed by the same employee.  For example,
agent cashiers would be prohibited from performing duties that
include certifying vouchers or serving as a patients' fund clerk
or payroll clerk, simultaneously.  Also prohibited would be assigning
individuals with duties that include performing both accounts
payable and voucher audit functions, or purchasing agent and accounts
payable clerk functions.



Through discussions with key financial management
and review of current organizational charts, we determined that
appropriate separation of duties had been addressed during the
reorganization and that no one person is performing both certifying
and disbursing functions.

- Agent Cashier Functions:In addition to requirements for separation of certifying and
disbursing functions, the agent cashier position is subject to
strict policy relating to the safeguarding of funds.  VA policy
requires that the Fiscal/Finance Officer assure that individual
accountability be established for funds entrusted to each employee
of the Agent Cashier Section.  In order to adhere to this policy,
access to funds by other than the agent cashier or alternate is
limited to the Director of the facility in the presence of the
Fiscal/Finance Officer.  The agent cashier funds are also subject
to unannounced audits every 90 days.



We discussed these responsibilities with the Finance
Officer and found that he has been thoroughly instructed on his
duties relating to the safeguarding of agent cashier funds.  We
also reviewed unannounced audits of the agent cashier that were
performed prior to and after the reorganization of Fiscal Service.
 We found that all audits were performed in a timely and effective
manner by independent and qualified personnel.

- Quality Assurance Reviews (Value Audits):In order to maintain the quality of work performed within fiscal
operations, VA policy requires that risk assessments and quality
assurance reviews be performed annually.  Office of Management
and Budget circular A-123 allows the requirement for risk assessments
to be met by utilizing the results of other management control
system reviews in order to assess the level of vulnerability of
an issue.  We found that the facility Director met circular A-123
requirements by utilizing the results of the annual self-assessment
quality assurance reviews at VAMC Buffalo.  Areas covered by the
facility quality assurance reviews included fiscal management,
agent cashier, accounting, employee accounts, patients' funds,
voucher audit, and general post funds.



We found that, except for the patients' fund review,
the timeliness and quality of the facility internal reviews were
adequate.  We concluded that better oversight of quality assurance
reviews would have improved the timeliness and quality of the
patients' fund review.

5.  We discussed the results of our review with the
Director, VAMC Buffalo and in doing so pointed out the need and
importance of quality assurance reviews being performed in a timely
and effective manner, and that all financial related positions
be filled by knowledgeable and qualified personnel.  We also suggested
that since circular A-123 risk assessments were the responsibility
of the facility Directors, that the annual self-assessment quality
assurance reviews be monitored at the facility Director's level
in order to ensure they are performed by qualified personnel and
that they satisfy circular A-123 requirements.

6.  We appreciated the opportunity to assist you
in your effort to ensure that internal controls related to the
financial activity remain in place after the reorganization. 
If you have any questions or wish to request additional assistance
in the future, please contact me at 617-687-3120.



Attachment

cc: Under Secretary for Health (105E)

VHA Chief Financial Officer (17)

Director, WNY Healthcare System (00)

ATTACHMENT 1

|PRIOR TO REORGANIZATION      |  | SUBSEQUENT TO REORGANIZATION       
|---------------------------- |  | -----------------------------------
|                             |  |                                    
|Financial Management         |  | Financial Planning & DSS Operations
|                             |  |                                    
|Financial Operations Manager |  | Financial Manager                  
|Secretary                    |  |                                    
|                             |  |                                    
|Data Analysis/DSS            |  |                                    
|                             |  |                                    
|Program Analyst              |  |                                    
|2 Budget Analysts            |  |                                    
|                             |  |                                    
|Accounting Section           |  |                                    
|                             |  |                                    
|Supervisory Accountant       |  | Supervisory Accountant             
|2 Accountants                |  |                                    
|Sr. Accounting Technician    |  | Sr. Accounting Technician          
|5.5 Accounting Technicians   |  |                                    
|4 Voucher Examiners          |  |                                    
|1.5 Agent Cashiers           |  |                                    
|                             |  |                                    
|Employee Accounts Section    |  | Human Resources Service            
|                             |  |                                    
|6 Civilian Pay Technicians   |  | 5 Civilian Pay Technicians         
|                             |  |                                    

As indicated above, the reorganization consisted
of three major movements:

- consolidation of Financial Management and DSS
Operations,



- movement of the Accounting Section to Acquisition
and Material Management Service, and



- movement of the Employee Accounts Section to
Human Resource Service.