Veterans Health Administration: Improvements Needed in Design of Controls over Miscellaneous Obligations
Published: 2008-07-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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's testimony provides preliminary findings related to (1) how VHA used miscellaneous obligations during fiscal year 2007, and (2) whether the Department of Veterans' Affairs (VA) policies and procedures were designed to provide adequate controls over their authorization and use. GAO recently provided its related draft report to the Secretary of Veterans Affairs for review and comment and plans to issue its final report as a follow-up to this testimony. 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. GAO's related draft report includes four recommendations to strengthen internal controls governing the authorization and use of miscellaneous obligations, in compliance with applicable federal appropriations law and internal control standards.
section_title: What GAO Found
paragraphs: 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 the 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, based on GAO's preliminary results, 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 the case studies at Pittsburgh, Cheyenne, and Kansas City. In May 2008, VA issued revised guidance concerning 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 in ensuring that the policies and procedures comply with applicable federal appropriations law and internal control standards.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss the Veterans Health  Administration’s (VHA) use of miscellaneous obligations. VHA officials  said that they have been using miscellaneous obligations for over 60 years  to record estimates of obligations to be incurred at a later time.  According to the Department of Veterans' Affairs (VA) policy,  miscellaneous obligations can be used to record estimated obligations to  facilitate the procurement of a variety of goods and services, including fee- based medical and nursing services; beneficiary travel; and for other  purposes.
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. 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. 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.
Today, my testimony will focus on our preliminary observations related to  (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. We recently provided our draft report, including  recommendations, on the results of our audit to the Secretary of Veterans  Affairs for review and comment. We plan to incorporate VA’s comments as  appropriate and issue our final report as a follow-up to this testimony. 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. Details on our scope and methodology are  included in appendix I. Further background information on VHA’s  operations is included in appendix II.
subsections: section_title: Miscellaneous Obligations Used Extensively for Mission-Related Activities in Fiscal Year 2007
paragraphs: According to the IFCAP database, 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,   located in every Veterans Integrated Services Network (VISN) throughout  the country, for a variety of mission-related activities. (See app. III for a  listing of the use of miscellaneous obligations by VISN, and app. IV for a  listing of the use of miscellaneous obligations by station.)
According to available VHA data, VHA used record estimated obligations of over $6.9 billion for mission-related goods  and services. As shown in figure 1, 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,  transportation of veterans to and from medical centers for treatment, and   miscellaneous obligations to  logistical support and facility maintenance for VHA medical centers  nationwide.
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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, such as drugs, medicines, and transportation, and for goods and services for which no  pre-existing contracts exist, such as fee-basis medical and dental service 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 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 num 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.
section_title: Deficiencies in Design of Controls over Miscellaneous Obligations Increase the Risk of Fraud, Waste, and Abuse
paragraphs: Our preliminary observations on VA policies and procedures indicate they  were not designed to provide adequate controls over the use of  miscellaneous obligations. According to GAO’s Standards for Internal  Control in the Federal Government, 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.
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.
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.
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  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 the 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 and  prevent miscellaneous obligations from being used for the acquisition of  such assets, it is possible that the 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.
subsections: section_title: New Guidance Does Not Address All Control Weaknesses
paragraphs: In January 2008, VA issued interim guidance effective for all miscellaneous  obligations created after January 30, 2008, concerning required procedures  for using miscellaneous obligations. 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.
In May 2008, VHA management finalized the interim guidance. 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 vendor, contract number, and purpose 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. Such a review 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 Regulations, 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. In addition, a 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 as a designated  representative of a contracting officer. 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.
In conclusion, Mr. Chairman, 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 amount, and to the correct vendor. 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.
To that end, our draft report includes specific recommendations, including  a number of preventive actions that, if effectively implemented, should  reduce the risks associated with the use of miscellaneous obligations. We  are making recommendations to VA 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.
Mr. Chairman, this completes my prepared statement. I would be happy to  respond to any questions you or other Members of the Subcommittee may  have at this time.
section_title: GAO Contact
paragraphs: For more information regarding this testimony, please contact Kay Daly,  Acting Director, Financial Management and Assurance, at (202) 512-9095  or dalykl@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  testimony.
section_title: Appendix I: Scope and Methodology
paragraphs: 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 obligations,  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 station 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 polices 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  Regulations (FAR); VA’s Acquisition Regulations; appropriation law; and  GAO’s Standards for Internal Control in the Federal Government in  assessing the design of VA's policies and procedures, and we met with VA  and VHA officials in Washington, D.C., and coordinated with VHA’s Office  of Inspector General staff to identify any previous audit findings relevant  to our audit work. We also 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. 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 walk-throughs 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  studies: 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  obligation selected, we accumulated information on the extent and nature  of control design weaknesses concerning miscellaneous obligations:  review and documentation by contracting officials;     segregation of duties during the procurement process; and  the purpose, timing, and documentation for 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 and/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 correct, 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 its full extent.
subsections: section_title: Data Reliability Assessment
paragraphs: We assessed the reliability of the IFCAP data provided by (1) performing  various testing of 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 to  Subcommittee staff during a September 7, 2007 briefing. 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 they can be used to provide an assessment of how miscellaneous  obligations were used during fiscal year 2007.
We briefed VA and VHA headquarter officials, including the Deputy  Assistant Secretary for Logistics and Acquisition, as well as VHA officials  at the three case study locations, on the details of our audit, including our  findings and their implications. During the briefings officials generally  agreed with our findings and said that they provided useful insights into  problems with the miscellaneous obligation process and corrective actions  that could be taken to address them. 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  recently provided our draft report to the Secretary of Veterans Affairs for  review and comment. Following this testimony, we plan to issue a report,  which will incorporate VA’s comments as appropriate and include  recommendations for improving internal controls over miscellaneous  obligations.
section_title: Appendix II: Background
paragraphs: The Department of Veterans Affairs (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.
The Veterans Health Administration (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 2, VHA has organized its health care centers under 21  Veterans Integrated Services Networks (VISN), 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.
subsections: section_title: VA Policies and Procedures Concerning the Use of Miscellaneous Obligations
paragraphs: 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, 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; rent; utilities; and other purposes. 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 regarding 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.
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. The revision states that miscellaneous  obligations should not be used as an obligation control document unless  the head contracting official for the station has determined that a purchase  order 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, as well as for public utilities. In  January 2008, VA issued interim guidance regarding the use of  miscellaneous obligations; however, the guidance did not apply to the  fiscal year 2007 miscellaneous obligations we reviewed.
In recent years VHA has attempted to improve its oversight of  miscellaneous obligations. For example, VHA’s Clinical Logistics Group  created the Integrated Funds Distribution, Control Point Activity,  Accounting and Procurement (IFCAP) system database in April 2006 to  analyze the use of miscellaneous obligations agencywide. The database is  updated on a monthly basis 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 the miscellaneous obligations nationwide  was not readily available to VHA upper level management.
section_title: VHA’s Current Miscellaneous Obligation Process
paragraphs: 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 3.
section_title: Appendix III: Miscellaneous Obligations by VISN in Fiscal Year 2007
subsections: section_title: VA Heart of Texas Health Care Network
section_title: Appendix IV: VHA Stations Ranked by Use of Miscellaneous Obligations
subsections: section_title: Central California HCS (Fresno)
paragraphs: Pacific Islands HCS (Honolulu)
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