Department of Veterans Affairs 

Office of Inspector General 

Audit of Procurements 

Using Prior-Year Funds to Maintain 

VA Healthcare Facilities 

Report No. 08-00244-213 September 30, 2008

VA Office of Inspector General 

Washington, DC 20420 
 

To Report Suspected Wrongdoing in VA Programs and Operations 

 Call the OIG Hotline – (800) 488-8244 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Contents 

Page 

Executive Summary ..............................................................................................i

Introduction ..........................................................................................................1

Purpose............................................................................................................................. 1

Background...................................................................................................................... 1

Scope and Methodology .................................................................................................. 2

Results and Conclusions ....................................................................................4

Need for VHA to Strengthen Controls over Millions in Expired Funds......................... 4 

Conclusion ..................................................................................................................... 10 

Recommendations.......................................................................................................... 11 

Appendixes 

A. Sampling Methodology and Estimates ..................................................................... 13

B. Monetary Benefits in Accordance with IG Act Amendments.................................. 21

C. Under Secretary for Health Comments..................................................................... 22

D. OIG Contact and Staff Acknowledgments ............................................................... 25

E. Report Distribution.................................................................................................... 26

VA Office of Inspector General 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Executive Summary 

Results in Brief 

The Office of Inspector General (OIG) conducted an audit to determine whether controls 

over the use of expired funds for procurements to maintain VA healthcare facilities were 

effective. The audit assessed whether Veterans Health Administration (VHA) obtained 

proper approval to use expired funds as well as whether contract changes were within the 

scope of the original contracts. In addition, the audit determined if contract changes were 

executed and funded in accordance with acquisition and appropriations law and 

regulations. 

The audit identified unapproved and improper use of expired funds in at least 80 percent 

of Veterans Integrated Service Network (VISN) contracting activities nationwide 

amounting to a total of $16.4 million during fiscal year (FY) 2007. This widespread 

improper use of expired funds occurred primarily because of a lack of policy clarity and 

other weaknesses in internal controls. While VHA has taken steps to centralize the 

process to track and approve the use of prior-year funds, it needs to clarify relevant 

policies and further strengthen controls over these funds. In addition, appropriate 

administrative action is needed to address personnel who improperly awarded new 

contracts using expired appropriations. 

Background 

In May 2007, the OIG substantiated a complaint that officials in Boston improperly used 

expired appropriations. A series of out-of-scope modifications to maintenance contracts 

were in violation of Federal law. This audit was initiated to determine whether 

appropriation and procurement issues previously identified by the OIG at the Boston 

Healthcare System occurred at other locations. 

Federal appropriations law provides the balance of an appropriation is available only for 

payment of expenses properly incurred during the period of availability or to complete 

contracts properly made within that period of availability (31 U.S.C. §1502). For 

contract changes, a bona fide need exists when the need for a change arises from an 

antecedent liability in the original contract that is enforceable by the contractor. An 

appropriation is considered to have “expired” after the period when it was available for 

new obligations has passed. In VA, approval from the Secretary or his designee, the 

Assistant Secretary for Management, is necessary for obligations from expired accounts 

that exceed a cumulative total of $4 million in a fiscal year within a program, project, or 

activity (31 U.S.C. §1553(c), 38 C.F.R. §2.6(c)(2)). 

Procurements to maintain VA healthcare facilities are funded with an annual Medical 

Facilities Appropriation. VA maintenance activities include the Non-Recurring 

VA Office of Inspector General i 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Maintenance (NRM) construction program. This program involves capitalized projects 

controlled at the VISN level involving replacement and repair of major building systems; 

structural components of buildings, building service equipment, maintenance and repair 

of roads, grounds, and structures; and site preparation necessary to support installation of 

replacement medical equipment. Contracting activities for VHA field stations are also 

operated at the VISN level. 

In 1999, VHA issued a policy that assigned contracting officers the responsibility to 

determine whether contract changes are within the scope of the original contracts and 

whether the changes may be charged to an expired appropriation. The 1999 policy 

permitted VISN fiscal officers to approve the use of expired funds up to a threshold of $4 

million. Once the cumulative threshold was reached, VHA needed to obtain approval for 

additional obligation authority from the Assistant Secretary for Management. The VHA 

Chief Financial Officer was responsible for monitoring the obligation of expired funds to 

determine when approvals from the Assistant Secretary became necessary. 

Findings 

VHA permitted expired funds to be used without necessary approval to fund new 

contracts and for contract changes that were out-of-scope and did not meet a bona fide

need of the appropriation year. A total of $16.4 million in unapproved or improper use of 

expired funds in transactions during FY 2007 and in the original procurements from prior 

years were associated with these transactions. 

Widespread unapproved and improper use of expired funds was possible because VHA 

had not established effective internal controls to ensure compliance with statutory 

restrictions regarding how they were used. Furthermore, the lack of internal controls 

prevented an accurate assessment of the total amount of funds at risk. 

VHA Used Expired Funds without Required Approvals. VHA officials did not obtain 

approvals required by law for obligations of expired funds after cumulative obligations in 

FY 2007 necessitated a requirement for approvals by the Secretary. We projected that 

VHA improperly obligated $6.5 million in expired funds without obtaining legally 

sufficient approvals to obligate expired funds for 410 (43.5 percent) of 942 contract 

modifications between the period April 27 through September 30, 2007. We determined 

that the NRM program spent $4 million in expired FY 2006 funds by April 27, 2007, 

based on a combination of our sample data and VHA finance records. By law, VHA was 

authorized to obligate up to $4 million in expired funds without obtaining higher 

approval. However, upon exceeding this threshold, each additional obligation of expired 

funds required approval from the Secretary or his designee (31 U.S.C. §1553(c)). 

Then in August 2007, VHA obtained approval “to use” $1.8 million in additional expired 

funds from the Secretary’s designee, the Assistant Secretary for Management, to cover an 

estimate of total expired funds needed for the remainder of the fiscal year. The Assistant 

VA Office of Inspector General ii 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Secretary for Management told VHA he approved the use of $1.8 million in expired 

funds for contract changes. However, the request for his approval did not contain 

sufficient information to approve the use of expired funds for specific obligations or 

purposes, as the law required, and the approval did not fulfill the legal requirement to 

approve individual obligations. 

VHA Used Expired Funds for Additional Work Not Required in Original 

Contracts. VHA used expired funds to perform additional work that was out-of-scope of 

the original contract and/or did not arise based on an antecedent liability in the original 

contract, that is, a bona fide need. We estimated officials used expired funds for 285 

obligations in 2007 valued at $3.6 million in this category. 

VHA Funded New Contracts with Expired Funds. Contracting officers improperly 

awarded new contracts with expired funds or funded modifications with appropriations 

that had expired prior to the original award. As a result, we estimated that a total of 52 

obligations in 2007 valued at $3.1 million were made with appropriations that had 

expired before the original contracts were awarded. Furthermore, in six of these 

procurements, contracting officers improperly used an additional total of $5.8 million in 

expired funds prior to FY 2007. 

VHA Needed to Strengthen Internal Controls over Expired Funds. VHA internal 

controls over the use of expired funds needed strengthening to ensure compliance with 

Federal appropriations law. VHA did not ensure that cumulative contract changes 

exceeding $4 million received necessary approval, in part, because it lacked an accurate 

method to track such changes. In addition, it did not submit the requests for changes that 

exceeded the $4 million limit to the Assistant Secretary for Management before allowing 

VHA facilities to obligate the funds. 

VHA Needed to Clarify Policy. VHA field personnel made erroneous decisions to use 

expired funds, in part, because VHA policy did not clearly explain appropriation law 

requirements. Although VHA policy required the contracting officer to make a 

determination whether the modification is within the general scope of the contract, this 

was just one criterion that must be considered in making a bona fide needs determination 

that allows the use of expired funds to pay for any increase in cost. The contracting 

officer must also determine whether the upward price adjustment is attributable to an 

antecedent liability—whether the Government’s liability arises and is enforceable under a 

provision in the original contract. The use of expired funds for new contracts occurred 

because fiscal employees recorded obligations based on inaccurate entries created by 

contracting officers in the electronic procurement accounting system during year-end 

spending, rather than verifying acceptable obligation documentation. 

VHA Making Improvement Efforts. VHA revised its expired funds directive for the 

NRM program in April 2008 to increase centralized control. Further action was needed 

to ensure that each request to obligate expired funds above the $4 million threshold is 

VA Office of Inspector General iii 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

submitted to the Assistant Secretary for Management for approval. In addition, VHA 

was monitoring cumulative contract changes using expired funds for NRM projects only, 

whereas the law requires monitoring and controlling contract changes in all programs, 

projects, and activities funded with appropriations with specific time limitations. 

Conclusion 

VHA policies needed to be clarified, controls strengthened, and personnel held 

accountable regarding the appropriate use of expired funds. The improper use of expired 

funds was widespread within the NRM program during FY 2007. VHA used expired 

funds without approval or for improper purposes in at least 80 percent of VISN 

contracting activities nationwide. The audit identified $16.4 million in improperly used 

or unapproved expired funds for FY 2007 transactions and in the original procurements 

from prior years associated with these transactions. This amount included a $2.6 million 

adjustment to eliminate duplication in our projections for transactions having more than 

one exception. 

Expired funds were used improperly because VHA had not provided clear policies or 

implemented effective internal controls over them, including an effective approval 

process. VHA did not have a satisfactory process in place to track the use of expired 

funds and obtain higher level approvals when required. VHA policy erroneously implied 

that an in-scope contract modification necessarily represented a bona fide need of the 

year when the original funding was available. In addition, VHA improperly recorded 

obligations for contracts that were not awarded until after the appropriations had expired. 

This occurred, in part, because fiscal employees recorded obligations without reviewing 

obligation documentation. All of these issues needed to be addressed to ensure proper 

obligation and use of millions of VA appropriation dollars. 

Recommendations 

1. We recommended the Under Secretary for Health establish effective controls and 

processes to centrally track, review, and obtain approval for requests to fund all NRM 

contract actions using expired appropriations. 

2. We recommended the Under Secretary for Health revise VHA policy to require 

requests to use expired funds include justifications that specifically address legal 

elements necessary for approval, such as whether the additional work is based on an 

antecedent liability in the original contract and meets a bona fide need of the 

appropriation year. 

3. We recommended the Under Secretary for Health ensure that VHA officials with 

responsibilities concerning use of expired funds receive appropriate training on the 

revised VHA policy and relevant appropriations law. 

VA Office of Inspector General iv 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

4. We recommended the Under Secretary for Health revise VHA policy to require fiscal 

employees to verify that obligations recorded during year-end spending are supported 

by adequate documentation prepared while the funds were legally available for 

obligation. 

5. We recommended the Under Secretary for Health initiate appropriate administrative 

action against contracting officers who entered inaccurate contract award dates in the 

electronic procurement accounting system and later signed the contracts after they 

should have known the funds had expired. 

6. We recommended the Under Secretary for Health ensure that necessary accounting 

adjustments are made to correct the funding of contract actions with expired funds, 

including obtaining any additional approvals necessary from the Assistant Secretary 

for Management. 

7. We recommended the Under Secretary for Health consult with the Assistant Secretary 

for Management to develop plans to implement controls over obligation of expired 

funds in other VHA programs, projects, or activities. 

Under Secretary for Health Comments 

The Under Secretary for Health agreed with our findings, recommendations, and 

estimated monetary benefits. The Under Secretary said that revisions to VHA policies 

during the audit improved controls concerning the use of prior-year funds for NRM 

maintenance and that the recent reorganization of VHA’s procurement oversight 

responsibilities would further enhance relevant controls. He also agreed to initiate 

additional policy revisions needed to address issues presented in the report. He stated 

that, under new procedures, requests to use prior-year funds and related obligation 

records would be reconciled quarterly and requests to use expired funds will be required 

to address the legal justification issues we identified. 

The Under Secretary said that financial and acquisitions staff would receive appropriate 

training on revised VHA policies and appropriation law. VHA would consult with the 

Assistant Secretary for Management to develop plans to implement controls over the use 

of prior-year funds in other VHA activities. The Under Secretary’s action plan provided 

that VHA would implement appropriate procedures to verify obligations recorded during 

year-end spending, take action regarding contracting officers who misused prior-year 

funds, and make appropriate accounting adjustments to correct funding issues identified 

in the report. (See Appendix C for the full text of the Under Secretary’s comments and 

action plan.) 

VA Office of Inspector General v 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Office of Inspector General Comments 

We consider the planned actions acceptable and will follow up on their implementation.

 (original signed by:)

 BELINDA J. FINN 

Assistant Inspector General 

For Auditing 

VA Office of Inspector General vi 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Introduction 

Purpose 

The OIG conducted an audit to determine whether VHA controls over the use of expired 

funds for maintenance activities were effective. The audit assessed whether VHA 

facilities obtained proper approval to use expired funds as well as whether contract 

changes were within the scope of the original contracts. In addition, the audit determined 

if contract changes were funded in accordance with appropriations law and met 

acquisition requirements. 

Background 

VA maintenance activities include the Non-Recurring Maintenance (NRM) construction 

program. This program involves capitalized projects controlled at the VISN level 

involving replacement and repair of major building systems; structural components of 

buildings, building service equipment, maintenance and repair of roads, grounds, and 

structures; and site preparation necessary to support installation of replacement medical 

equipment. In addition to the VISN-administered NRM program, healthcare facilities 

with additional maintenance needs and funding may conduct station-level maintenance 

projects. 

Congress provides VA an annual Medical Facilities Appropriation for the maintenance 

and operations of VHA facilities. Most funding in this appropriation is available for a 1-

year period, although a small portion is available for a 2-year period. For example, the 

FY 2008 appropriation included $4.1 billion, of which $350 million is available through 

FY 2009 and $325 million for NRM (Consolidated Appropriations Act, 2008). 

Prior OIG Audits. A previous OIG audit reported that weak controls permitted medical 

facilities to use expired funds improperly to perform additional project work that was outof-scope of the original contracts.1

 The audit report stated that VA’s control process 

focused on NRM projects only, permitting facilities to misuse expired funds for stationlevel projects and for other purposes, such as the installation of equipment. As a result, 

VA transferred responsibility for monitoring the use of expired funds from the Office of 

Financial Policy within the VA Office of Management to VHA, which had responsibility 

for managing the NRM program. 

The Under Secretary for Health developed new controls on the use of expired funds and 

provided medical facilities with detailed policy guidance and training on their use. The 

resulting VHA directive, “Use of Prior-Year Funds for Non-Recurring Maintenance 

 

1

VA OIG, Audit of VA Medical Center Use of Prior Year Funds for Nonrecurring Maintenance Construction 

Projects; Report No. 8R8-D04-013; October 10, 1997. 

VA Office of Inspector General 1 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

(NRM) Construction Projects,” was issued in October 1999 (VHA Directive 99-048).2 

The policy assigned contracting officers, who were responsible for determining whether 

contract changes are within scope of the original contract, with the additional 

responsibility to determine whether the change may be charged to an expired 

appropriation. The policy permitted VISN fiscal officers to approve the use of expired 

funds until the cumulative threshold was reached requiring approval from the Assistant 

Secretary for Management for additional obligation authority. The VHA Chief Financial 

Officer was responsible for monitoring the obligation of expired funds to determine when 

approvals from the Assistant Secretary became necessary. 

In May 2007, the OIG reported that from 2002 to 2006 officials at the VA Boston 

Healthcare System misused $5.4 million in expired funds for out-of-scope contract 

modifications. In response to the audit, the VISN strengthened its controls over relevant 

procurement and fiscal processes and took administrative action on related employee 

conduct issues.3

 In addition, the VA Office of Acquisition and Logistics took action 

against the contracting warrant of a supervisory contract specialist involved in the 

incidents. 

Scope and Methodology 

We conducted audit work from November 2007 to May 2008. We conducted interviews 

at VA Central Office located in Washington, DC, and VHA healthcare facilities or VISN 

offices located in Cincinnati, OH; Mare Island, CA; Portland, OR; San Francisco, CA; 

and Seattle, WA. We also reviewed related Federal law, regulations, and VA policies. 

To determine whether procurements using expired appropriations were funded and 

processed appropriately, we used automated data from VA’s Financial Management 

System to identify the sampling universe of maintenance-related transactions greater than 

$1,000 in FY 2007 that were funded with appropriations during the 3-year period October 

2003–September 2006. The universe consisted of 1,511 transactions totaling 

approximately $51 million, from which we selected a stratified statistical sample of 166 

maintenance-related transactions valued at $32 million. In addition to testing FY 2007 

contract modifications, we tested whether the awards for the original contracts had been 

made prior to expiration of the appropriations used. Our audit obtained information from 

65 VHA facilities, 21 VISNs, VHA’s Office of Finance, and the VA Office of 

Acquisition and Logistics. 

 

2

VHA issued three directives concerning the use of prior year funds for the NRM program. VHA Directive 99-048 

was issued in October 1999; the directive was reissued in March 2007 as VHA Directive 2007-011 with only minor 

changes from the original VHA directive. The directive was further revised and reissued in April 2008 as VHA 

Directive 2008-019. 

3

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

06-00931-139, May 31, 2007. 

VA Office of Inspector General 2 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

To assess the reliability of computer-processed data, we compared automated data from 

the Financial Management System to source documentation supporting the transactions. 

We concluded that computer-processed data was sufficiently reliable for the purposes of 

the audit. (For more information regarding our sampling methodology, see Appendix A). 

We conducted this performance audit 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. 

VA Office of Inspector General 3 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Results and Conclusions 

Need for VHA to Strengthen Controls over Millions in Expired 

Funds 

Findings 

VHA used expired funds without approval or for improper purposes in healthcare 

facilities nationwide. Sample data identified misuse in 17 (81 percent) of 21 VISN 

contracting activities. Expired funds were used improperly because VHA had not 

implemented effective internal controls including an effective approval process. 

VHA did not have an effective process in place to track the use of expired funds and 

obtain higher-level approvals when required; VHA policy erroneously implies that an inscope contract modification was necessarily a bona fide need of the year when the 

original funding was available.4

 In addition, VHA improperly funded unawarded 

contracts when appropriations were about to expire. This occurred, in part, because fiscal 

employees recorded obligations without reviewing obligation documentation. Our audit 

identified a total of $16.4 million in unapproved or improper use of expired funds in 

transactions during FY 2007 and in the original procurements from prior years associated 

with these transactions.5

 This amount includes a $2.6 million adjustment to eliminate 

duplication in our projections for transactions having more than one exception.

VHA Used Expired Funds without Required Approvals. VHA officials did not obtain 

approvals required by law for contract modifications using expired funds. The audit 

determined that 410 obligations using expired funds for NRM were permitted without 

necessary approvals. This occurred because VHA did not implement a reliable method to 

centrally track expired funds obligations, and the process to obtain approval from the 

authorized approving official was inadequate. 

The National Defense Authorization Act of 1991 (commonly referred to within VA as the 

Expired Funds Control Act) provides that when obligations in expired accounts for 

contract changes that cumulatively exceed $4 million in a fiscal year within a program, 

project, or activity, an additional obligation from that account may only be made if the 

head of the agency or designee has approved the obligation (31 U.S.C. §1553(c)). The 

Assistant Secretary for Management has been delegated the authority to approve an 

obligation of expired funds above the $4 million threshold in VA (38 C.F.R. § 2.6(c) (2)). 

 

4

VHA Directives 99-048, October 22, 1999 and 2007-011, March 7, 2007. 

5

The numbers presented in the report results section represent the point estimate from statistical projections of audit 

results. The overall amounts could be higher or lower based on standard errors from statistical projections, which 

are described in Appendix A. 

VA Office of Inspector General 4 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

We projected that during the period April 27 through September 30, 2007, expired funds 

valued at $6.5 million of the FY 2006 appropriation were obligated without review and 

approval by the Secretary or the Assistant Secretary for Management. 

For the NRM program, VHA directives 99-048 and 2007-011 permitted VISNs to 

approve requests to use expired funds until the cumulative threshold requiring the 

Assistant Secretary’s approval for additional requests was reached. The directives 

require field facilities to use special accounting codes for the NRM and station-level 

obligations to permit the VHA finance office to monitor progress toward meeting the 

thresholds. Once total contract changes using expired funds reach $4 million, the VHA 

finance office is responsible for informing VISN fiscal officers when the threshold is met 

so that higher approvals can be obtained, as required, and that field stations need to 

submit specific requests for the use of expired funds to headquarters for approval. 

Despite the above requirements, VHA finance officials told us that they monitored 

contract changes using expired funds through requests submitted by field stations rather 

than monitoring accounting records. Requests to central office provided an incomplete 

record of contract changes because such reporting was not required until the 

$4 million national threshold is reached. Also, finance officials acknowledged no 

procedures were in place to inform VISN fiscal officers when centralized approvals 

became necessary. In addition, VHA policy was unclear as to whether station-level 

projects required VISN-level review. The 1997 OIG audit had noted that station-level 

projects should be subject to the standard NRM approval process, but this requirement 

was not included in any VHA directives. 

For FY 2007, the VHA finance office determined that the NRM program had met the 

$4 million threshold using expired FY 2006 funds in June 2007 and notified the Assistant 

Secretary for Management that the program would need an estimated $1.8 million for the 

remainder of the fiscal year. On August 1, 2007, the Assistant Secretary told the VHA 

finance office he “approved” the use of an additional $1.8 million in expired FY 2006 

funds for contract changes for June through September 2007. The Assistant Secretary’s 

approval of this funding estimate did not satisfy the legal requirement for his 

authorization of specific obligations. Further, VHA’s request for additional funding did 

not contain sufficient information to approve an obligation, such as specific amounts or 

purposes. 

VHA did not accurately estimate the date when higher-level approval became necessary 

or the amount of expired funds to be used. Based on a combination of our sample data 

and VHA finance records, we determined that the NRM program had spent $4 million in 

expired FY 2006 funds by April 27, 2007. After approval by the Secretary or Assistant 

Secretary for Management became necessary, we projected that VHA obligated an 

additional $6.5 million in expired funds without legally sufficient approvals for 410 (43.5 

percent) of 942 contract modifications during the remainder of FY 2007. 

VA Office of Inspector General 5 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

In April 2008, VHA issued Directive 2008-019, “Use of Prior-Year Funds for NonRecurring Maintenance Projects,” which revised policy on the use of expired funds for 

NRM projects. As an improvement to national monitoring, the directive mandated that 

all requests to use expired funds for NRM projects be submitted through the VISN to the 

VHA finance office for approval. However, the new directive does not include any 

mention of station-level projects. Officials from the VHA finance office told us they had 

intended the directive to apply to station-level as well as NRM projects and they were 

open to further revisions. They also told us they planned to begin monitoring the use of 

expired funds using financial statements during FY 2008. 

The absence of oversight for station-level projects is important because the misuse of 

expired funds at the Boston Healthcare System occurred outside of VHA’s control and 

monitoring process. The funds were used for station-level projects rather than formal 

NRM projects. In addition, our sample results demonstrated that facilities continued to 

obligate expired funds for station-level projects without documented approval by the 

VISN chief financial officers. 

The VA Office of Management limited its efforts to implement the Expired Funds 

Control Act only to the NRM program rather than adopting controls over expired funds in 

other budget object classes or other term appropriations. VHA has continued this 

practice after monitoring responsibilities were transferred to VHA in the late 1990s. 

However, since the Expired Funds Control Act applies to cumulative contract changes 

within all programs, projects, and activities with fixed appropriations, VHA needs to 

expand its processes to monitor and obtain approval for expired funds obligations to other 

applicable areas. The need for more comprehensive control was evident based on a 

recent internal review conducted by VA’s Management Quality Assurance Service, 

which identified significant use of expired funds in other categories, such as fee-based 

medical care.6

VHA Used Expired Funds for Additional Work Not Required in Original 

Contracts. VHA used expired funds to perform additional, out-of-scope work, including 

paying for new requirements identified subsequent to the expiration of the appropriation. 

As a result, we estimated that in FY 2007 285 obligations in 2007 using expired funds 

valued at $3.6 million were unlawfully funded because they contained changes that were 

out-of-scope of the original contracts or did not arise based on an antecedent liability in 

the original contract. 

Requests to use expired funds for contract changes are subject to both procurement and 

appropriation law and regulations. Concerning procurement requirements, the 

Competition in Contracting Act (41 U.S.C. §253), with limited exceptions, requires full 

and open competition in soliciting offers and awarding contracts. However, as an 

 

6

Office of Business Oversight, Management Quality Assurance Service, Review of Expired Funds Obligations, VA 

New England Healthcare System, Bedford, Massachusetts, October 19, 2007. 

VA Office of Inspector General 6 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

authorized exception, contract modifications within the scope of the contract may be 

processed noncompetitively in accordance with Federal Acquisition Regulation (FAR) 

§6.01(c). Some Government contracts, including construction and architecturalengineering contracts, generally incorporate clauses authorizing modifications 

appropriate to the type of contract, as provided in FAR Part 43. Other Government 

contracts, such as purchase orders using simplified acquisition procedures or delivery 

orders for goods or services from indefinite-delivery/indefinite-quantity contracts may 

not contain provisions authorizing their modification. Factors such as the following are 

used when determining whether a modification is within the scope of a contract: (1) 

whether the offerors should have reasonably anticipated the modification under the 

contract terms, (2) the nature of the procured goods or services and the extent of any 

changes introduced by the modification, and (3) the impact of the modification on 

competition requirements (Comptroller General Decision B-274990, B-274990.2, 

January 14, 1997). 

In addition to procurement requirements, the use of appropriated funds must be consistent 

with the bona fide needs rule, which provides that the balance of an appropriation limited 

for obligation to a definite period is available only for payment of expenses properly 

incurred during the period of availability or to complete contracts properly made and 

obligated within the period of availability (31 U.S.C. § 1502(a)). In accordance with this 

provision of law, an appropriation may not be used for the needs of a time period 

subsequent to the expiration of its period of availability. Although some contracts may 

be lawfully modified to increase the price or expand the work, expired funds may only be 

used for contract changes that involve an antecedent liability enforceable by the 

contractor (65 Comp. Gen. 741, B-219829, July 22, 1986). 

We determined that 285 transactions valued at $3.6 million were for additional work 

outside the scope of the original contract and/or did not meet a bona fide need of the 

relevant appropriation year. Some examples of these transactions follow: 

• In September 2007, officials at the New York Harbor Healthcare System used 

$52,870 in expired funds for a modification to an equipment replacement contract. 

The scope of the original contract, which had been completed the previous year, was 

to replace two air conditioning chillers. The modification required the contractor to 

perform additional, out-of-scope work such as adding a ladder and platform to access 

the elevated chiller control panels and to install fencing and lighting in the area. The 

original contract had been completed and the additional work was severable and not 

reasonably foreseeable based on the terms of the original contract. The additional 

work should have been incorporated into a new procurement. 

• In March 2007, officials at the James E. Van Zandt Medical Center, Altoona, PA, 

used $11,284 in expired FY 2006 funds to modify an architectural-engineering 

contract. The original April 2006 contract had required the contractor to provide 

drawings, specifications, estimates, and related construction period services for a 

VA Office of Inspector General 7 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

computer room renovation. The contract had a provision permitting the contracting 

officer to issue change orders within the general scope of the contract in the services 

to be performed. The contract modification required the architectural-engineering 

contractor to modify the previously provided plans into two separate projects under 

$400,000 each so that one could be built immediately and one deferred until later. 

Although the additional work appeared to be within the general scope of the contract, 

it did not satisfy the bona fide needs rule for using expired FY 2006 funds. The 

additional work was severable and based on budgetary constraints in 2007 rather than 

a bona fide need for which the Government had been properly obligated in FY 2006 

when appropriations were available for obligation. 

Besides violations of appropriations law, VHA violated procurement requirements when 

modifying contracts. We found 78 percent of the out-of-scope modifications in the 

sampling universe procured additional, out-of-scope work without documentation of an 

exemption for a non-competitive action permissible under the Competition in Contracting 

Act (41 U.S.C. §253(a)). In addition, 21 percent of the contract actions in the universe 

lacked evidence that the contracting officer had properly assessed the reasonableness of 

the contract prices prior to award as required 

(FAR §13.106-3, 15.406-3). 

VHA Guidance on Using Expired Funds Needed Clarification. VHA policy on the use of 

expired funds needed to be revised to ensure compliance with Federal appropriations law. 

VHA field personnel made erroneous decisions to use expired funds, in part, because 

VHA policy did not clearly explain appropriation law requirements. The 1997 OIG audit 

noted that VA needed to provide improved guidance on when expired funds could be 

used, such as defining terms like “contract scope.” The subsequent VHA directives, 

including the 2008 version, incorrectly stated that the same “tests that contracting officers 

apply to determine whether a modification is within scope of the contract should be 

applied when determining whether expired funds may be charged.” The directives 

further added: 

If the upward price adjustment occurs and is enforceable under a provision 

in the original contract, it is to be charged against the appropriation current 

at the time the contract was originally executed, even though the adjustment 

is necessitated in a subsequent year. The reasoning is that a contractually 

permissible change order does not give rise to a new liability, since the 

liability arises at the time the original contract is executed.7

The paragraph is misleading in that it suggests that the determining factor in whether 

expired funds can be used is whether the contract permits changes. This is incorrect as 

the determining factor is whether there is an antecedent liability enforceable by the 

 

7

VHA Directive 99-048, 2b, October 22, 1999; VHA Directive 2007-011, 2b (1), March 7, 2007; and VHA 

Directive 2008-019, 2c (1), April 7, 2008. 

VA Office of Inspector General 8 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

contractor. The question that should be asked is whether the additional work is severable 

from the original contract. If not, there is an antecedent liability. A contract may allow 

for change orders but the need must have existed at the time of the award; otherwise 

current year funds must be used. Also, the first sentence in the paragraph quoted above 

incorrectly implies that the price adjustment could be enforceable by either party; 

however, only the contractor’s right to enforce the contract allows the use of an expired 

appropriation. 

The VHA directives provided that the contracting officer has the sole responsibility for 

making a determination whether a change that requires additional obligation authority 

may be charged to an expired appropriation. As a reflection of this provision, many of 

the justifications we reviewed relied on the contracting officer’s determination that a 

change was within scope, rather than also presenting the additional information necessary 

for the approving officials to agree that the request is consistent with appropriations law. 

VHA Funded New Contracts with Expired Funds. Another type of misuse of expired 

funds involved contracting officers improperly awarding new contracts with expired 

funds or modifying contracts with funding that had expired prior to the original award. 

Appropriations law (31 U.S.C. § 1501) provides, in part, that an amount shall be recorded 

as an obligation of the Government only when supported by documentary evidence of a 

binding written agreement between an agency and another person executed before the 

end of availability of the appropriation to be used for specific goods, services, or real 

estate. As a result, we estimated that in 2007 a total of 52 obligations valued at $3.1 

million were made with appropriations that had expired before the original contracts were 

awarded. In addition, six procurements were funded with expired funds totaling $5.8 

million prior to FY 2007. Examples of contracts funded with expired funds follow: 

• In November 2006, a contracting officer at the VA Medical Center in Coatesville, PA, 

awarded a $123,900 painting contract even though the appropriation expired on 

September 30, 2006. To secure funding for this transaction, the contracting officer 

made an inaccurate entry into the procurement accounting system to indicate that the 

award had been made on September 29, 2006. 

• On September 29, 2006—the last business day in the fiscal year—a contracting 

officer at the VA Medical Center in Denver signed an electronic funding document 

obligating $1.1 million from FY 2006 funds for a heating and air conditioning 

contract. However, the contracting officer did not award the contract necessary to 

establish this obligation until December 14, 2006—10 weeks after the appropriation 

had expired. In September 2007, a contracting officer modified the contract using 

funds from FY 2006. The contracting officer should not have used FY 2006 funds for 

either the original award or the modification because the appropriation had expired 

prior to the award. 

VA Office of Inspector General 9 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appropriations sometimes expired prior to the award of NRM contracts because the 

procurements were delayed until the end of the fiscal year when contracting officers did 

not always have sufficient time to negotiate and award requested contracts. For example, 

73 percent of the original obligations associated with the contract actions in our sample, 

some of which were from as far back as FY 2004, were awarded during or after the last 

month in the fiscal year. In June 2006, the OIG reported that NRM spending was 

deferred during the first half of FY 2006 due to medical care funding concerns.8

 VHA 

finance officials told us that VHA used to have a pattern of scheduling the award of NRM 

contracts at the end of the fiscal year. However, according to VHA finance officials, 

many NRM contracts were expected to be awarded earlier in FY 2008 due to new efforts 

undertaken by the VISNs. VHA finance officials told us they had no way of detecting 

contracts awarded with expired funds, other than auditing obligations, because the actual 

award dates were not included in the accounting records. 

VHA employees were able to use expired funds improperly by making inaccurate entries 

in the procurement accounting system.9

 In the aforementioned cases, the contracting 

officer made inaccurate entries in the system making it appear as if contracts were 

awarded prior to the expiration of the funds when the contracts had not been signed and 

an obligation did not exist. Fiscal officers relied on these inaccurate entries when 

recording obligations that had not actually been created. Contracting officers apparently 

made inaccurate entries into the system to commit funds for future awards and to 

“extend” the availability of an appropriation. While contracting officers may have 

believed that the contracts were necessary, they are also responsible for ensuring they are 

lawfully executed. 

Conclusion 

VHA management needs to improve oversight and strengthen controls over the use of 

expired funds. The audit identified unapproved and improper use of expired funds in at 

least 80 percent of VISN contracting activities nationwide amounting to a total of $16.4 

million during FY 2007. Frequent unauthorized or improper use of expired funds 

occurred because VHA has not established effective internal controls to ensure 

compliance with the provisions of the Expired Funds Control Act. Reliably tracking the 

use of expired funds and submitting all requests exceeding the $4 million cumulative 

threshold to the Assistant Secretary would ensure contract changes using expired funds 

receive the approval required by law. Revising policy to provide that expired funds may 

only be used to fulfill a bona fide need incorporated into the contract when the 

appropriation was available for obligation would better ensure expired funds are used 

appropriately. Furthermore, requiring requests to use expired funds to specifically 

address the legal elements necessary to approve such requests would improve controls on 

 

8

VA OIG, Report of Audit: Congressional Concerns over Veterans Health Administration’s Budget Execution, 

Report No. 06-01414-160, June 30, 2006. 

9

The Integrated Funds Distribution, Control Point Activity, Accounting, and Procurement system. 

VA Office of Inspector General 10 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

the approval process. Example elements include the contract provision that authorizes 

the change, the tasks or specifications affected by the change, when the need for the 

change was first identified, and why there is an antecedent liability to the Government. 

In addition to policy revisions, ensuring officials with responsibilities involving expired 

funds receive appropriate training on the revised policies would reduce 

misunderstandings created by prior policies. 

Requiring fiscal employees to review obligation documents to ensure that entries made 

by contracting officers are properly supported would prevent erroneous recordings of 

obligations during year-end spending. Initiating appropriate administrative action against 

contracting officers awarding new contracts with expired funds would help deter 

repetition of these improper actions. Adjustments to correct the funding of contract 

actions with expired funds, including obtaining approvals from the Assistant Secretary 

for Management when required, would ensure these actions comply with Federal law. 

Finally, developing plans to control the obligation of funds in other programs, projects, 

and activities would ensure expired funds are used appropriately. 

Recommendations 

1. We recommended the Under Secretary for Health establish effective controls and 

processes to centrally track, review, and obtain approval for requests to fund all NRM 

contract actions using expired appropriations. 

2. We recommended the Under Secretary for Health revise VHA policy to require 

requests to use expired funds include justifications that specifically address legal 

elements necessary for approval, such as whether the additional work is based on an 

antecedent liability in the original contract and meets a bona fide need of the 

appropriation year. 

3. We recommended the Under Secretary for Health ensure that VHA officials with 

responsibilities concerning use of expired funds receive appropriate training on the 

revised VHA policy and relevant appropriations law. 

4. We recommended the Under Secretary for Health revise VHA policy to require fiscal 

employees to verify that obligations recorded during year-end spending are supported 

by adequate documentation prepared while the funds were legally available for 

obligation. 

5. We recommended the Under Secretary for Health initiate appropriate administrative 

action against contracting officers who entered inaccurate contract award dates in the 

electronic procurement accounting system and later signed the contracts after they 

should have known the funds had expired. 

VA Office of Inspector General 11 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

6. We recommended the Under Secretary for Health ensure that necessary accounting 

adjustments are made to correct the funding of contract actions with expired funds, 

including obtaining any additional approvals necessary from the Assistant Secretary 

for Management. 

7. We recommended the Under Secretary for Health consult with the Assistant Secretary 

for Management to develop plans to implement controls over obligation of expired 

funds in other VHA programs, projects, or activities. 

Under Secretary for Health Comments 

The Under Secretary for Health agreed with our findings, recommendations, and 

estimated monetary benefits. The Under Secretary said that revisions to VHA policies 

during the audit improved controls concerning the use of prior-year funds for NRM 

maintenance and that the recent reorganization of VHA’s procurement oversight 

responsibilities would further enhance relevant controls. He also agreed to initiate 

additional policy revisions needed to address issues presented in the report. He stated 

that, under new procedures, requests to use prior-year funds and related obligation 

records would be reconciled quarterly and requests to use expired funds will be required 

to address the legal justification issues we identified. 

The Under Secretary said that financial and acquisitions staff would receive appropriate 

training on revised VHA policies and appropriation law and VHA would consult with the 

Assistant Secretary for Management to develop plans to implement controls over the use 

of prior-year funds in other VHA activities. The Under Secretary’s action plan provided 

that VHA would implement appropriate procedures to verify obligations recorded during 

year-end spending, take action regarding contracting officers who misused prior-year 

funds, and make appropriate accounting adjustments to correct funding issues identified 

in the report. (See Appendix C for the full text of the Under Secretary’s comments and 

action plan.) 

Office of Inspector General Comments 

We consider the planned actions acceptable and will follow up on their implementation. 

VA Office of Inspector General 12 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

Sampling Methodology and Estimates 

Sampling Universe 

Our universe consisted of 1,511 transactions that increased obligations in FY 2007 using 

Medical Facilities Appropriations from FY 2004–2006. We also included the few 

transactions for these years from the Medical Care appropriations, which used to be the 

primary funding source of maintenance funding prior to a change in the appropriations in 

2004. The total value of the universe was approximately $51 million. The value of the 

universe was greater than the cumulative increase in obligations in this area because the 

universe did not include transactions to reduce obligations, which were not subject to our 

tests. 

Evaluation Design and Sampling 

We designed our evaluation to test attributes, such as whether transactions had been 

properly approved, as well as variables, such as the estimated value of misused funds. In 

order to improve the efficiency of our dollar estimates, we divided the sampling universe 

into four strata based on transaction amounts. We tested all transactions in the highestvalue stratum and random samples from the three other strata, for a total sample size of 

166 transactions. Unless otherwise noted, the results of our evaluation for all sampled 

strata were projected to the universe and combined to calculate weighted point estimates 

and associated margins of error at the 90 percent confidence interval. The proportions 

between the sample and projected results may differ depending on the relative weights in 

the statistical projections given to sample units based on their strata. Additional universe 

and sample information is presented in Table 1. 

Table 1. Stratified Universe and Sample Information

Strata Defined by 

Dollar Values 

Universe 

Units 

Sample 

Units 

Stratum 

Weight 

Total Universe 

Dollars 

Total Sample 

Dollars 

$1,000 to $9,999 845 16 845/16=52.8 $ 3,292,094 $ 58,967 

$10,000 to $49,999 466 38 466/38=12.3 $10,467,367 $ 835,717

$50,000 to $99,999 100 12 100/12=8.3 $ 7,193,659 $ 880,884

$100,000 and above 100 100 100/100=1 $30,412,048 $30,412,048

Total 1511 166 $51,365,168 $32,187,616

In some instances, our review of transactions resulted in identification of misused funds 

from contracts that were awarded prior to FY 2007, as presented in Table 8. The results 

of these earlier transactions are reported separately and were not included in the 

projections from the statistical evaluation. 

VA Office of Inspector General 13 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

Methodology and Limitations 

Our sampling plan provided cost-effective national results of tests concerning the use of 

expired funds for contract changes. Since VA lacked a national database of contract 

changes, we obtained the audit universe based on adjustments to obligations in the VA 

Financial Management System. This approach successfully produced a national universe, 

but the obligation records also contained accounting transactions that affected the 

precision of our sample. 

We selected transactions for maintenance of VA healthcare facilities by targeting relevant 

budget object codes related to maintenance and repair as well as capitalized projects.10 

Although NRM projects are capitalized, we did not limit our universe to this area because 

officials at the VA Boston Healthcare System had used maintenance codes for their 

projects. Transactions were reviewed using procurement, accounting, and approval 

records; the results of facility responses to OIG questionnaires; and telephone or 

electronic mail contacts with knowledgeable facility or VISN officials. 

Results 

Our audit identified the types and values of transactions in our sampling universe, as 

presented in Tables 2 and 3. The prevalence of transactions lacking required approvals is 

presented in Table 4. Summary and detailed exception information on transactions that 

were out-of-scope or not a bona fide need is provided in Tables 5 and 6. Summary and 

detailed information on transactions awarded with funds that expired prior to the original 

awards appear in Tables 7 and 8.

Table 2. Transactions Types in Universe 

Projected Results 

Sample Universe Margin of Error 

Transactions Funding Additional Contract Actions 68 942 +/- 187 

Transactions with Obligation Valuation Issues 26 367 +/- 176 

Transactions with Other Accounting Adjustments 72 202 +/- 101 

Total 166 1511 

 

10Selected budget object codes were maintenance and repair services (2543) and codes for capitalized alteration or 

renovations to land, buildings, or facilities (3215, 3220, 3223 & 3240). 

VA Office of Inspector General 14 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

Table 3. Value of Transactions in Universe

Projected Results 

Sample Universe Margin of Error 

Transactions Funding Additional Contract Actions $ 7,147,581 $18,151,860 +/- $2,556,110 

Transactions with Obligation Valuation Issues $ 6,232,259 $10,710,521 +/- $2,336,139 

Transactions with Other Accounting Adjustments $18,807,777 $22,253,090 +/- $2,128,885 

Total $32,187,617 $51,115,471 

Note for Table 3: The total dollars in the universe is slightly less than the actual figures because it is 

based on the sum of three statistical projections. 

Table 4. Transactions Lacking Required 

Assistant Secretary for Management Approval

Projected Results 

Sample Universe 

Margin of 

Error 

Transactions using FY 2006. 24 410 +/- 178 

Value of transactions using FY 2006. $1,609,440 $6,523,564* +/- $2,142,092 

Table 5. Total Transactions Out-of-Scope or Not a Bona Fide Need 

for the Appropriation Year

Projected Results 

Sample Universe 

Margin of 

Error 

Transactions containing work that was out-of-scope 

or not meeting a bona fide need. 

21 285* +/- 152 

Value of transactions containing work that was outof-scope or not meeting a bona fide need. $987,962 $3,581,114 +/- $1,459,947 

Transaction details supporting Table 5 are found in Table 6. 

 

*

Each sample record is multiplied by the weight of the strata shown in Table 2 and then summed to provide the 

projected total value of the transactions. 

VA Office of Inspector General 15 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

Table 6. Sample Transactions Identified as Out-of-Scope or 

Not a Bona Fide Need for the Appropriation Year

VISN & 

Facility 

Locations Exceptions Amount 

VISN 3 

Manhattan, NY 

An October 2006 contract modification using FY 2005 funds was out-of 

scope because it significantly expanded the scope of work for a contract 

on the facility sprinkler system. The original FY 2005 contract required 

replacement of sprinkler heads and piping. The contractor proceeded to 

perform the original work, but it informed VA in August 2006 that 

repairs were also necessary to the shut-off valves and the main riser 

lines. 

$167,020

VISN 3 

Manhattan, NY 

A September 2007 contract modification using FY 2006 funds was outof-scope because it added additional work to an air conditioning chiller 

project after the original work was completed. The additional work 

required the contractor to install additional items to improve access and 

safety to the rooftop chiller. 

52,870

VISN 3 

Northport, NY 

A March 2007 modification for sewer maintenance services using FY 

2006 funds was out-of-scope because the contract contained no 

provision allowing contract changes and the contracting officer had 

determined the requirement was a bona fide need for FY 2007. 

7,125

VISN 4 

Altoona, PA 

A June 2007 modification for architectural and engineering services 

using FY 2006 funds was not a bona fide need in 2006, because VA 

asked the architect to redo drawings in FY 2007 based on new 

requirements. 

11,284

VISN 4 

Pittsburgh, PA 

A November 2006 modification using FY 2006 funds included out-ofscope requirements, such as design changes to add spectroscopy 

equipment and a common control room for future equipment. 

110,100

VISN 4 

Wilkes-Barre, 

PA 

A September 2007 modification requiring a significant design change 

was improperly funded with FY 06 funds. The original contract had 

been funded with FY 05 funds and there was no basis to establish that 

the change was a bona fide need of FY 06. 

170,000

VISN 5 

Washington, 

DC 

A March 2007 modification of a 2005 contract was partially out-ofscope because it required the contractor installing electrical upgrades to 

extend a grounding study that was previously performed by a different 

architect-engineering contractor for the electrical improvement contract. 

81,961

VISN 5 

Washington, 

DC 

A March 2007 modification of a 2005 contract was out-of-scope 

because it contained additional tasks that expanded a contract to install 

specific electrical upgrades to also revise and extend design work 

previously performed by the architect-engineering contractor and to 

replace an additional component not included in the contract. 

180,791

VA Office of Inspector General 16 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

VISN & 

Facility 

Locations Exceptions Amount 

VISN 10 

Cincinnati, OH 

A November 2006 modification for architectural and engineering 

services using FY 2005 funds was out-of-scope because in FY 07, VA 

asked the architect to redo drawings that had already been completed 

based on new requirements. 

10,250

VISN 15 

Leavenworth, 

KS 

A December 2006 modification using FY 2005 funds was out-of-scope 

because the requirement was to repair damage by a recent lightning 

strike, rather than to perform the 2005 project. 

13,064

VISN 16 

Alexandria, LA 

A January 2007 modification using FY 2005 funds was out-of-scope 

because it was based on a change in requirements for the fire alarm 

system created by adding another building to the project that had been 

renovated during a separate project completed in 2006. 

65,069

VISN 16 

Houston, TX 

An August 2007 modification using FY 2006 funds was out-of-scope 

because the requirement was for an increase in quantity for a fixedquantity delivery order for computer software for kiosks installed as 

part of a maintenance project. 

16,820

VISN 16 

Houston, TX 

A March 2007 modification using FY 2006 funds was out-of-scope 

because the requirement was to replace a broken transformer discovered 

in FY 2007, which was not included in the original statement of work. 

10,729

VISN 17 

San Antonio, 

TX 

A May 2007 modification for architectural and engineering services 

using FY 2006 funds was out-of-scope because VA asked the architect 

to redo drawings in FY 2007 based on different requirements. 

 3,680 

VISN 18 

Tucson, AZ 

A July 2007 modification should not have used FY 2005 funds to pay 

the contractor to repaint an area based on a color change in 2007, 

because it was not a bona fide need of FY 2005. 

2,671

VISN 20 

Roseburg, OR 

An August 2007 modification for architectural-engineering services 

using FY 2005 funds was out-of-scope, because it included 

requirements for additional areas and purposes. 

20,084

VISN 20 

Seattle, WA 

A June 2007 modification using FY 2006 funds was out-of-scope 

because it included work in an additional area not contained in the 

original contract. 

52,206

VISN 21 

San Francisco, 

CA 

An October 2006 modification to trace and label wiring was out of 

scope of the original 2004 procurement to replace electrical equipment. 

10,000

VISN 22 

Loma Linda, 

CA 

A September 2007 modification to remodel the Canteen Service area 

was out-of-scope because it expanded work into the canteen dining 

room. The dollars for this modification are claimed in Table 8 because 

the funding for the entire contract expired prior to award. 

0

VA Office of Inspector General 17 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

VISN & 

Facility 

Locations Exceptions Amount 

VISN 22 

Long Beach, 

CA 

An October 2006 modification using FY 2006 was out-of-scope 

because it was a change in quantity to a June 2006 sole-source door and 

lock repair service order for another location. 

1,238

VISN 23 

Minneapolis, 

MN 

An October 2006 modification using FY 2006 funds to perform work in 

the laundry was out-of-scope because the original scope of work 

concerned another location—the canteen. 

1,000

21 

Transactions 

 Totals $987,962

Table 7. Transactions in FY 2007 Made with Expired Funds 

Projected Results 

Sample Universe 

Margin of 

Error 

Transactions in FY 2007 made with funds that 

expired prior to original awards 

11 52 +/- 37 

Value of transactions in 2007 made with funds that 

expired prior to original awards 

$1,690,662 $3,131,122* +/- $1,375,852 

Transaction details supporting Table 7 are in Table 8. 

Note for Table 7: We excluded the stratum containing transactions less than $10,000 (#1 in Table 1) 

when calculating the results for Table 7 because the results in that stratum had insufficient precision to 

project results. 

VA Office of Inspector General 18 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

Table 8. Listing and Values of Modifications to Contracts Awarded After 

Appropriations Were No Longer Available for the Obligation of New Contracts 

VISN/Location 

Funds 

Expired 

Contract 

Signed 

Sample 

Transaction in 

FY 2007 

Expired Funds 

Obligated Before 

FY 2007 

VISN 1 White River 

Junction, VT 

9/30/2004 10/06/2004 $150,000 $1,640,682 

VISN 3 

Castle Point, NY 

9/30/2006 12/14/2006 370,814 0 

VISN 4 Coatesville, PA 9/30/2006 11/27/2006 123,900 0 

VISN 6 Fayetteville, NC 9/30/2006 10/04/2006 462,500 0 

VISN 19 

Denver, CO 

9/30/2006 12/14/2006 36,039 1,115,520 

VISN 20 Portland, OR 9/30/2006 10/23/2006 Excluded 482,977 

VISN 21 

San Francisco, CA 

9/30/2006 3/13/2007 140,000 0 

VISN 21 

San Francisco, CA 

9/30/2006 7/05/2007 148,000 0 

VISN 21 

San Francisco, CA 

9/30/2004 3/11/2005 145,000 1,999,960 

VISN 21 Honolulu, HI 9/30/2006 2/23/2007 34,190 0 

VISN 22 Loma Linda, 

CA 

9/30/2006 1/12/2007 64,649 265,549 

VISN 23 Fargo, ND 9/30/2005 10/13/2005 15,570 302,451 

12 Transactions Totals $1,690,662 $5,807,139 

Note for Table 8: The exceptions occurring in the sample transactions for 2007 are included in our 

statistical projections, but the exceptions occurring in expired funds obligated before 2007 are reported 

on an actual basis. The results for the transaction marked “excluded” fell within the stratum we 

eliminated from our projection in Table 7 due to a lack of precision. 

Remaining Transactions: Valuation Issues or Other Accounting Adjustments 

An estimated 24 percent of the transactions in the audit universe were accounting 

transactions to address obligation errors. Proper recording practices are essential to 

sound fund control. Under-recorded or undervalued obligations increase the risk of 

violating the Antideficiency Act. The most frequent type of error that resulted in the 

obligation corrections was that the obligations were recorded below their actual amount. 

The undervaluation of obligations occurred because of a variety of causes, such as system 

settings that caused obligations to automatically accrue, errors in establishing the original 

obligation amount, and errors in de-obligating orders believed to have been completed. 

Contracting activities in VISNs 1, 4, and 10 added contingency funds valued at $320,116 

to their project obligations in order to reserve funds for future contract changes that might 

be needed. Contingency funds should not be recorded as obligations because there is no 

binding agreement that makes VA liable to use them. VHA finance officials told us that 

VA Office of Inspector General 19 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities

 Appendix A 

VA did not currently have a method to formally commit additional funds to NRM 

projects, which would eliminate the motivation to record obligation amounts in excess of 

the contract value. 

An estimated 13 percent of the transactions in the universe were prior-period adjustments 

that were made to correct previous accounting coding errors, such as wrong budget object 

code, type of order, or vendor name. The most common correction involved changing 

the budget object code for a NRM project from maintenance and repair services to a 

capitalized project. Incorrect coding of NRM projects like maintenance and repair was 

noted in the incidents reported in the May 2007 OIG audit at the VA Boston Healthcare 

System. We used budget object codes to identify our universe; uncorrected errors in this 

area could result in our underestimating the actual size of maintenance-related 

transactions and the magnitude of the audit results. However, we believe our results are 

adequate to substantiate that VHA had national problems in the control and use of 

expired funds. 

VA Office of Inspector General 20 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appendix B 

Monetary Benefits in Accordance with 

IG Act Amendments 

Recommendation Explanation of Benefits Questioned Costs11

1 Implementation of the recommendation 

would reduce obligations of expired funds 

without the approvals required by law. 

$ 6,523,564 

2 Implementation of the recommendation 

would reduce misuse of expired funds 

obligations for work that was out-of-scope 

or other than a bona fide need of the 

appropriation year. 

 3,581,114 

4 Implementation of the recommendation 

would reduce expired funds obligations for 

new contracts and their modifications.12

 8,938,261 

 Subtotal $ 19,042,939 

Adjustment to eliminate duplication in 

combined projections for transactions 

having more than one exception. 

-2,565,320 

 Total $ 16,477,619 

 

11Our estimates of questioned costs are conservative because they do not include calculations of recurring misuse in 

previous years. 

12This benefit is based on the projection in Table 7 for transactions during FY 2007 and funds improperly used prior 

to FY 2007 listed in the last column of Table 8. 

VA Office of Inspector General 21 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appendix C 

Under Secretary for Health Comments 

VA Office of Inspector General 22 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appendix C 

Under Secretary for Health Action Plan 

The Under Secretary for Health submitted the following action plan in response to the 

recommendations in the OIG report: 

Recommendation 1. We recommend the Under Secretary for Health establish 

effective controls and processes to centrally track, review, and obtain approval 

for requests to fund all NRM contract actions using expired appropriations. 

Concur. VHA’s Office of Finance issued VHA Directive 2008-019, Use of Prior-Year 

Funds for Non-recurring Maintenance (NRM) Projects, on April 7, 2008. This Directive 

provides guidance and clarification of requirements pertaining to the use of prior-year 

funds for NRM projects. Approved requests for use of prior-year funds are compared to 

prior-year increases in NRM obligations and are reconciled quarterly. Reconciliation 

results will be assessed and discrepancies will be resolved appropriately. 

Target Completion Date: In process: April 2008 and on-going. 

Recommendation 2. We recommend the Under Secretary for Health revise VHA 

policy to require requests to use expired funds include justifications that 

specifically address legal elements necessary for approval, such as whether the 

additional work is based on an antecedent liability in the original contract and 

meets a bona fide need of the appropriation year. 

Concur. VHA revised VHA Directive 2008-019 in response to the May 2007 OIG audit 

report. VHA will make further policy revisions to ensure that requests to use expired 

funds include justifications that address the issues identified in the current OIG audit 

report. 

Target Completion Date: In process. April 30, 2009. 

Recommendation 3. We recommend the Under Secretary for Health ensure that 

VHA officials with responsibilities concerning use of expired funds receive 

appropriate training on the revised VHA policy and relevant appropriations law. 

Concur. VHA’s Office of Finance (17) and Office of Procurement and Logistics (10F) 

will collaborate and develop educational training materials and certification on revised 

VHA policy and relevant appropriations law for all financial and acquisition staff at all 

levels. 

Target Completion Date: In process. December 30, 2008. 

Recommendation 4. We recommend the Under Secretary for Health revise VHA 

policy to require fiscal employees to verify that obligations recorded during yearend spending are supported by adequate documentation prepared while the 

funds were legally available for obligation. 

VA Office of Inspector General 23 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appendix C 

Concur. VHA will implement procedures to comply with requirements contained under 

38 USC Sec 1501, FAR 32.702 Contract Funding, and MP-4, Part 5, 1A.10 Internal 

Controls. 

Target Completion Date: In process. October 30, 2008. 

Recommendation 5. We recommend the Under Secretary for Health initiate 

appropriate administrative action against contracting officers who entered 

inaccurate contract award dates in the electronic procurement accounting system 

and later signed the contracts after they should have known the funds had 

expired. 

Concur. The Office of Procurement and Logistics (10F) will request appropriate 

administrative action be taken against the contracting officers who inappropriately used 

expired funds. A memo will be issued to the respective Heads of Contracting Activity 

(HCAs) for appropriate action. 

Target Completion Date: In process. October 30, 2008 

Recommendation 6. We recommend the Under Secretary for Health ensure that 

necessary accounting adjustments are made to correct the funding of contract 

actions with expired funds, including obtaining any additional approvals 

necessary from the Assistant Secretary for Management. 

Concur. VHA’s Office of Finance will coordinate with the respective Veterans Integrated 

Service Networks and facilities to process accounting adjustments to correct the sample 

transactions identified as being charged to the correct fiscal year. 

Target Completion Date: In process. September 30, 2008. 

Recommendation 7. We recommend the Under Secretary for Health consult with 

the Assistant Secretary for Management to develop plans to implement controls 

over obligation of expired funds in other VHA programs, projects, or activities. 

Concur. VHA’s Office of Finance will consult with the Assistant Secretary for 

Management to develop plans to implement controls and requirements for oversight of 

use of prior-year funds. 

Target Completion Date: In process. November 30, 2008. 

VA Office of Inspector General 24 
Audit of Procurements Using Prior-Year Funds To Maintain VA Healthcare Facilities 

Appendix D 

OIG Contact and Staff Acknowledgments 

OIG Contact Steven Wise 202-461-4551 

Acknowledgments Steven Cucina 

Malissa Green 

Henry Hoffman 

Frederick Livingstone 

Melvin Reid 

Sharee Smalls 

Felita Traynham 

William Woods 

VA Office of Inspector General 25 
Audit of Procurements Using Prior-Year Funds to Maintain VA Healthcare Facilities

Appendix E 

Report Distribution 

VA Distribution

Office of the Secretary 

Veterans Health Administration 

Veterans Benefits Administration 

National Cemetery Administration 

Assistant Secretaries 

Office of General Counsel 

Non-VA Distribution

House Committee on Veterans’ Affairs 

House Committee on Appropriations, Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Committee on Appropriations, Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be available in the near future on the OIG’s Web site at 

http://www.va.gov/oig/publications/reports-list.asp. This report will remain on the OIG 

Web site for at least 2 fiscal years after it is issued. 

VA Office of Inspector General 26