Department of Veterans Affairs' Lack of Timely and Accurate Information on Unexpended Balances Limits Effective Management and Congressional Oversight
Gao ID: GAO-07-410R May 16, 2007The Department of Veterans Affairs (VA) holds about 5 percent of the real property owned by the federal government in terms of building floor area, including such facilities as hospitals and office buildings. VA's responsibility for managing its real property includes the construction of its facilities and cemeteries. Because these construction projects can span several years, VA is authorized to carry forward fund balances from year to year in its construction accounts. VA is responsible for keeping track of and managing these balances to ensure that any unexpended balances that remain after construction projects are completed are redirected to other construction project needs within the agency. VA's budgets for new construction exist in two accounts--Major Construction and Minor Construction--which are funded as separate line items within the appropriation. For purposes of this report, we refer to the Major and Minor Construction accounts as VA's construction accounts. Construction projects undertaken to replace existing facility components are funded through the Non-Recurring Maintenance (NRM) portion of the Medical Facilities budget account. For purposes of this report, we refer to the NRM as VA's facility account. Under the Comptroller General's authority to conduct evaluations on his own initiative, and as part of a continued effort to assist Congress in overseeing real property management issues, we examined VA's management of unexpended construction balances. Specifically, we addressed the following question: To what extent does VA have readily available information about unexpended balances in its construction and facility accounts to effectively manage these funds?
VA did not have readily available information in its construction and facility accounts about unexpended balances that were no longer needed and could have been redirected to other needs. Two issues hindered VA officials from identifying these unexpended balances in a timely manner. First, VA's systems lacked readily available information to track projects and provide timely and accurate information to VA management. Second, VA lacked effective policies and procedures for identifying unexpended balances when construction projects are completed and the funds designated for those projects are no longer needed. As a result of these two issues, unexpended balances on completed construction project accounts have been allowed to accumulate. We identified about $11 million in unexpended balances from completed construction projects during our review. Furthermore, the Veterans Health Administration (VHA) lacks tools to monitor financial project information in its facility account projects at its Washington, D. C., headquarters. Although there were no unobligated construction balances from completed projects in VHA's facility accounts, there was a related issue concerning its practice of obligating most facility funds in the last month of the fiscal year, which poses a risk. Our past work has shown that year-end spending can place government programs at risk for waste. GAO reported in September 2006 that VA did not include the status of the facility account funds in the three quarterly reports that VA had provided. Our review found that VA's two subsequent reports on the financial status of VHA--for the fourth quarter of fiscal year 2006 and the first quarter of fiscal year 2007--reported the status of NRM funds. However, in these reports, VA did not explain (1) its practice of holding the majority of NRM funds from OMB's quarterly apportionment until the end of the fiscal year and (2) its use of the $69 million difference between planned and actual NRM funds for fiscal year 2006.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Mark L. Goldstein Team: Government Accountability Office: Physical Infrastructure Phone: No phone on recordGAO-07-410R, Department of Veterans Affairs' Lack of Timely and Accurate Information on Unexpended Balances Limits Effective Management and Congressional Oversight
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May 16, 2007:
Congressional Committees:
Subject: Department of Veterans Affairs' Lack of Timely and Accurate
Information on Unexpended Balances Limits Effective Management and
Congressional Oversight:
The Department of Veterans Affairs (VA) holds about 5 percent of the
real property owned by the federal government in terms of building
floor area, including such facilities as hospitals and office
buildings. VA's responsibility for managing its real property includes
the construction of its facilities and cemeteries. Because these
construction projects can span several years, VA is authorized to carry
forward fund balances from year to year in its construction accounts.
VA is responsible for keeping track of and managing these balances to
ensure that any unexpended balances that remain after construction
projects are completed are redirected to other construction project
needs within the agency.[Footnote 1]
VA's budgets for new construction exist in two accounts--Major
Construction and Minor Construction--which are funded as separate line
items within the appropriation.[Footnote 2] For purposes of this
report, we refer to the Major and Minor Construction accounts as VA's
construction accounts. Construction projects undertaken to replace
existing facility components are funded through the Non-Recurring
Maintenance (NRM) portion of the Medical Facilities budget account. For
purposes of this report, we refer to the NRM as VA's facility account.
Under the Comptroller General's authority to conduct evaluations on his
own initiative, and as part of a continued effort to assist Congress in
overseeing real property management issues, we examined VA's management
of unexpended construction balances.[Footnote 3] Specifically, we
addressed the following question: To what extent does VA have readily
available information about unexpended balances in its construction and
facility accounts to effectively manage these funds?
To do this work, we reviewed the President's fiscal years 2006 and 2007
budgets, VA's fiscal year 2007 congressional budget justification,
previous years' appropriations laws, conference reports, committee
reports, VA Inspector General (IG) reports, and previous GAO reports.
We reviewed Office of Management and Budget (OMB) guidance for budget
preparation, Circular A-11. We limited our review to VA construction
and facility budgets. We reviewed project financial information,
project management information, and facility financial information
provided by two of VA's agency entities--the Veterans Health
Administration (VHA) and the National Cemetery Administration (NCA). We
interviewed VA Washington, D. C., headquarters officials in budget,
finance, and construction management. Working with these officials, we
obtained budget authority and obligated and unexpended balances for
each project, identified and verified all financial information
gathered, and verified shortcomings we identified in gathering this
information. We determined that the information was adequate for our
purposes. We conducted our review from February 2006 to April 2007 in
accordance with generally accepted government auditing standards.
Results in Brief:
VA did not have readily available information in its construction and
facility accounts about unexpended balances that were no longer needed
and could have been redirected to other needs. Two issues hindered VA
officials from identifying these unexpended balances in a timely
manner. First, VA's systems lacked readily available information to
track projects and provide timely and accurate information to VA
management. For example, it took several months for VA to provide us
with corrected information on VHA and NCA construction projects.
Second, VA lacked effective policies and procedures for identifying
unexpended balances when construction projects are completed and the
funds designated for those projects are no longer needed. For example,
instead of identifying construction projects as they are completed, VA
identified projects for closure on an ad hoc basis. As a result of
these two issues, unexpended balances on completed construction project
accounts have been allowed to accumulate. We identified about $11
million in unexpended balances from completed construction projects
during our review. Although these unexpended balances were small
compared to VA's fiscal year 2007 congressional budget submission of
$597 million for its construction accounts, the inability to track
these funds leaves VA vulnerable to larger balances accumulating and
not being redirected in a timely manner to other construction project
needs within the agency. Furthermore, VHA lacks tools to monitor
financial project information in its facility account projects at its
Washington, D. C., headquarters.
Although there were no unobligated construction balances from completed
projects in VHA's facility accounts, there was a related issue
concerning its practice of obligating most facility funds in the last
month of the fiscal year, which poses a risk. For example, in September
2006, VA obligated about $248 million--almost 60 percent of its
approximately $424 million facility budget--even though OMB apportions
VHA's Medical Facilities appropriation (which contains facility
funding) quarterly. Our past work has shown that year-end spending can
place government programs at risk for waste. Additionally, the fiscal
year 2006 appropriations act required VA to submit a quarterly report
on the financial status of VHA to the Committees on Appropriations of
both Houses of Congress, and the accompanying Conference Report
specified that the quarterly report include the status of the facility
account funds.[Footnote 4] GAO reported in September 2006 that VA did
not include the status of the facility account funds in the three
quarterly reports that VA had provided. Our review found that VA's two
subsequent reports on the financial status of VHA--for the fourth
quarter of fiscal year 2006 and the first quarter of fiscal year 2007-
-reported the status of NRM funds. However, in these reports, VA did
not explain (1) its practice of holding the majority of NRM funds from
OMB's quarterly apportionment until the end of the fiscal year and (2)
its use of the $69 million difference between planned and actual NRM
funds for fiscal year 2006. We are making recommendations to VA aimed
at strengthening its ability to manage and track unexpended balances
and reporting the status of facility account funds to Congress. VA
agreed with our recommendations related to tracking and managing
unexpended balances that could be redirected but disagreed with our
recommendation to be more transparent with regard to reporting NRM
funds in its quarterly reports to the Committees on Appropriations of
both Houses of Congress.
Background:
VA receives funding for major and minor construction projects as
separate line items within its appropriation. Funds for projects
considered to be major construction must be specifically authorized by
law before they are appropriated.[Footnote 5] Typically, major and
minor construction project funds that are not NRM are appropriated as
"no-year" money (that is, the funding is available until expended
without time constraints). As shown in table 1, for fiscal year 2007,
VA requested $399 million for major construction projects and $198
million for minor construction projects.[Footnote 6] As also shown in
table 1, in VA's fiscal year 2007 congressional budget submission, two
entities were responsible for almost 90 percent of the funds requested
for VA's construction accounts--VHA ($457 million) and NCA ($78
million).
Table 1: VA's Fiscal Year 2007 Construction Request by Organization:
Dollars in millions:
Agency: Veterans Health Administration;
Major construction [A]: $307;
Minor construction [A]: $150;
Total request: $457.
Agency: National Cemetery Administration;
Major construction [A]: 53;
Minor construction [A]: 25;
Total request: 78.
Agency: Veterans Benefits Administration;
Major construction [A]: 0;
Minor construction [A]: 14;
Total request: 14.
Agency: Staff Offices;
Major construction [A]: 38;
Minor construction [A]: 9;
Total request: 47.
Total [B];
Major construction [A]: $399;
Minor construction [A]: $198;
Total request: $597.
Source: GAO analysis of VA fiscal year 2007 congressional budget
submission.
[A] Major construction projects are greater than $7 million; minor
construction projects, $7 million or less.
[B] Non-Recurring Maintenance is identified within VA's Veterans Health
Administration Medical Facilities Land and Structures budget and not
included in this total.
[End of table]
The funds VA receives for Medical Facilities, which includes NRM
construction projects, are primarily annual (1-year) funding that is
available to be obligated only in the fiscal year it is
appropriated.[Footnote 7] VA requested almost $514 million for its NRM,
which is about 99 percent of the nearly $519 million Land and
Structures portion of VHA's Medical Facilities congressional budget
submission.[Footnote 8] According to VHA headquarters officials, NRM
projects are those undertaken to replace existing facility components,
whereas major and minor projects are generally new work. Past NRM
projects include replacements of a power plant, roofs, and elevators.
In the President's budget for fiscal year 2007, it was estimated that
at the end of fiscal year 2006 its construction accounts would contain
unexpended balances collectively totaling approximately $1 billion
dollars--$966 million in the Major Construction account and $61 million
in the Minor Construction account. VA informed us that the facility
account did not have any unobligated balances as of September 2006, the
end of the fiscal year.
VA Lacks Readily Available, Accurate Data on Unexpended Balances Needed
to Manage Construction and Facility Funds:
VA did not have readily available information about unexpended balances
in its construction and facility accounts to ensure effective
management of these funds at VHA and NCA. Furthermore, different VA
systems contained conflicting information and errors. VA headquarters
officials in Washington, D. C., took several months to provide us with
information we requested on major and minor construction projects.
Specifically, in response to our request in May 2006, it took VHA
almost 2 months to identify 64 major projects that could be closed and
almost 5 months to identify minor project funds that could be
reallocated.[Footnote 9] In response to our request in June 2006, it
took NCA almost 3 months to identify 21 major projects that could be
closed and minor project funds that could be reallocated.
We found that VA's systems lacked readily available and accurate
information to track projects and provide to VA management for the
following types of project accounts we reviewed.
* VHA Minor Projects. VHA provided documents--generated from different
systems--that contained conflicting information and mathematical
errors. Specifically, VHA provided construction data for those projects
that had been generated by (1) its Financial Management System (FMS),
which listed 1,466 projects with about $256 million in unobligated
funds, and (2) its Project Tracking Report (PTR), which listed 701
projects. VHA headquarters officials in Washington, D. C., told us FMS
listed more projects than PTR because it did not delete projects that
are closed out. We also found almost $1 million in math errors in the
FMS document, along with some projects showing negative balances. VHA
headquarters officials confirmed the mathematical errors and stated
that the negative balances reflected interest payments on invoices that
had not been paid promptly. VA officials explained that to comply with
the prompt payment requirements, interest charges are paid
automatically by an electronic payment system, which takes the funds
from an account other than the project account.[Footnote 10] Because
the system did not notify VA management that the interest charges had
been paid, the project had a negative balance. As a result of our
review, VHA made several corrections to its project and financial data.
* NCA Minor Projects. NCA headquarters officials in Washington, D. C.,
told us that its project management information system consisted of
text reports on each project that were entered in headquarters.
According to these officials, a list of projects was not normally
compiled and, thus, was unavailable. Nevertheless, NCA provided data in
a spreadsheet that showed contradictory financial and project
information. Specifically, NCA identified 172 line items for minor
projects, with projects separated into several line items. Of these,
there was no information on project status for about 105 project line
items. Of the almost 67 remaining project line items that contained
status information, about 44 line items for projects where construction
had been completed had unexpended balances totaling about $1.5 million.
However, NCA data noted that reallocations from about 29 project lines,
amounting to about $0.9 million, had been made. After we requested
clarification, NCA headquarters officials provided another spreadsheet
that listed 97 projects that were no longer separated into several line
items. Of these, we found about 29 projects with unexpended balances
totaling about $1.1 million that were identified as having construction
completed and one project with no project information and almost
$141,000 in unexpended balances. However, NCA data identified about 24
projects as having reallocations totaling about $0.9 million.
Additionally, we received an FMS report that showed math errors, lacked
project status, and had negative balances, similar to the FMS report on
VHA's minor projects.
* VHA and NCA Major Projects. Both VHA and NCA have an electronic
project information system to track the status of major projects.
However, these information systems did not contain readily available
data, as both VHA and NCA relied on contacting project management
personnel to update the project status before providing these data to
us.
A related issue compounds these problems with the lack of readily
available, accurate project information in VA's systems. VA lacks
effective policies and procedures designed to identify completed
construction projects that have funds remaining in VHA's and NCA's
Major and Minor Construction accounts. We found in past work that
clear, consistent, and enforceable policies and procedures can help
ensure the best value when acquiring goods and services.[Footnote 11]
However, VHA and NCA lack effective policies and procedures related to
how completed projects with unexpended balances are to be identified,
despite the fact that unexpended balances are common in construction
projects and authorized transfers between VA project accounts take
place. For example, according to VHA headquarters officials in
Washington, D. C., when active projects need additional funds, VHA
identifies some completed projects and redirects any unexpended
balances to the active projects. NCA also periodically identifies
completed projects and transfers any unexpended balances to other
construction projects. For example, in January 2006, NCA reallocated
about $6.2 million from 13 completed projects.
As a result of our review, VA reallocated about $11 million in
unexpended balances from completed construction projects. Specifically,
from the 64 major projects that VHA found could be closed, it
reallocated about $3.8 million, along with about $2.1 million of
unexpended balances from minor projects. Also, as a result of our
review, NCA reallocated about $4.2 million from its 21 major projects
and about $0.9 million from unexpended balances for minor projects.
While these amounts are small given the size of VA's FY 2007
construction budget request of $597 million, VA Washington, D. C.,
headquarters officials acknowledged that the approximately $11 million
in unexpended balances that we found were no longer needed for the
projects they were originally designated for. Also, in some cases the
projects had been completed for several years. For example, one VHA
construction project with a balance of almost $100,000 was completed in
1995 but not closed out. Without readily available information on
completed construction projects with unexpended balances, funds in
these project accounts can accumulate and not be redirected in a timely
manner to other construction project needs within the agency.
VHA Non-Recurring Maintenance Construction Projects:
We also found during our review that VHA lacks tools to monitor project
financial information at its headquarters in Washington, D. C., on NRM
construction projects for the 21 Veterans Integrated Service Networks
(VISN) that function as VHA's regional construction oversight offices.
VHA headquarters officials do not have readily available financial
information on individual NRM projects, as they have access only to FMS
summary information. Specifically, VHA headquarters officials do not
have access to the financial information system that VISN regional
offices use to track the status of individual NRM projects.
Furthermore, VHA did not obligate the bulk of NRM funds until
September, the last month of the fiscal year. For example, in September
2006, VHA obligated almost 60 percent (about $248 million) of the total
NRM budget of about $424 million for NRM work. Although the funds for
NRM within the Medical Facilities account are apportioned quarterly by
OMB, VHA headquarters officials told us that VHA's regional officials
hold onto the NRM funds in case there are other needs or expenses that
require funding. VHA headquarters officials also believe that retaining
these funds and deferring NRM work until the end of the fiscal year
gives them flexibility to address any unforeseen needs or shortfalls
that may arise within VHA's overall budget.[Footnote 12] However, these
officials also noted that the funds cannot be transferred from the VHA
Medical Facilities account into other VHA medical accounts without
congressional notification.[Footnote 13] The practice of year-end
spending is discouraged in VA guidance[Footnote 14] and VA has also
published guidance stating that expenditure planning "should be
consistent with the activity's obligation plan and should reflect the
need for an even and orderly flow of procurements."[Footnote 15] Our
previous work has shown that when budget execution is not monitored
effectively, fiscal year-end spending can be wasteful, as agencies
sometimes attempt to spend funds that would otherwise expire and no
longer be available for new obligations after the fiscal year
ends.[Footnote 16] Therefore, when the bulk of the NRM funds are not
used for unforeseen needs or shortfalls, there is a risk of wasteful
year-end spending when the funds, which were apportioned quarterly, are
finally used for the NRM work in the last month of the fiscal year.
This practice has been brought to the attention of VA management and
Congress through recent GAO and VA Inspector General reports.[Footnote
17] Furthermore, the fiscal year 2006 appropriations act required VA to
submit a quarterly report on the financial status of VHA to the
Committees on Appropriations of both Houses of Congress, and the
accompanying Conference Report specified that the quarterly report
should include the status of NRM funds.[Footnote 18] GAO reported in
September 2006 that VA did not include a status of NRM funds in the
three quarterly reports that VA provided for fiscal year 2006.[Footnote
19]
We found that VA's two subsequent reports on the financial status of
VHA--one for the fourth quarter of fiscal year 2006 and one for the
first quarter of fiscal year 2007--reported the balance of NRM funds.
In the fiscal year 2006 fourth quarter report, VA provided an end-of-
year summary of obligations and collections that showed the actual
spending had been 14 percent (almost $69 million) less than planned. In
our discussions concerning the use of fiscal year 2006 funds, VA
officials said the NRM funds were to be used for other unforeseen needs
or shortfalls but did not provide us with detailed information on their
use for such purposes. Furthermore, we found that in its financial
reports, VA did not explain (1) its practice of holding the majority of
NRM funds from OMB's quarterly apportionment until the end of the
fiscal year or (2) the unforeseen needs or shortfalls for which it used
the variance between planned and actual NRM spending. VA's lack of
reporting NRM status has hindered congressional oversight of these
funds.
Conclusions:
Although the amount of unexpended balances that could be redirected to
support other agency priorities is small compared to the size of VA's
construction and facilities budget, the sums we found point to larger
concerns. Without updated and current project information, VA did not
have readily available information about unexpended balances in its
construction and facility accounts to ensure effective management of
these funds at VHA and NCA. Additionally, because VA lacks effective
policies and procedures designed to identify completed construction
projects with funds remaining in VHA's and NCA's Major and Minor
Construction accounts, much greater amounts could potentially
accumulate and not be redirected in a timely manner to other
construction project needs within the agency, hindering VA's ability to
efficiently and effectively use all available resources at its
disposal. Furthermore, congressional oversight of VA has been hindered
by VHA's lack of transparency when reporting on the status of NRM funds
in the congressional quarterly reports that VA provided for fiscal
years 2006 and 2007.
Recommendations for Executive Action:
To help strengthen VA's ability to track and manage unexpended balances
and report the status of facility account funds to Congress, we are
making four recommendations to the Secretary of Veterans Affairs.
Specifically, we recommend that the Secretary establish policies and
procedures to:
* update and keep the project information systems current,
* update and keep current the project financial management system that
will notify VA management when payments have exceeded project funding,
* periodically identify completed projects for close-out and redirect
the unexpended balances in a timely manner to other construction
project needs within VA, and:
* explain (1) VA's rationale for holding the majority of NRM funds from
OMB's quarterly apportionment until the end of the fiscal year and (2)
how VA used the variance between planned and actual NRM in the
quarterly report on the financial status of the Veterans Heath
Administration to the Committees on Appropriations of both Houses of
Congress.
Agency Comments and Our Evaluation:
We provided a draft of this report to VA for review and comment. VA
provided written comments, which are reprinted in enclosure I together
with our responses to specific points VA raised. VA concurred with our
first, second, and third recommendations--which relate to keeping the
electronic project information system and electronic financial
information system current, periodically identifying completed projects
for close-out, and redirecting unexpended balances in a timely manner
to other construction project needs within VA. Additionally, VA said
that it is updating existing procedures to improve fund recovery from
unexpended balances. VA further stated that the $11 million in
unexpended balances represents .0037 percent of the available budgetary
resources, and while this does not excuse the handling of these
individual projects, VA believes it does not point to a mismanagement
of the program. We did not include a discussion on the materiality of
the unexpended balances in the report--nor did we use the phrase
"mismanagement of the program" in the report--as we are discussing VA's
inability to track these project funds, which leaves VA vulnerable to
larger balances accumulating and not being redirected in a timely
manner to other construction project needs within the agency. VA agreed
to work on those recommendations that relate to construction projects.
However, VA disagreed with our fourth recommendation to explain (1) its
rationale for holding the majority of NRM funds from OMB's quarterly
apportionment until the end of the fiscal year and (2) how it used the
variance between planned and actual NRM in the quarterly report on the
financial status of the Veterans Health Administration to the
Committees on Appropriations of both Houses of Congress. We agree with
VA (1) that agencies do have some flexibility to manage funds within
apportionment classifications and (2) that VA makes decisions on where
to reallocate resources to address current issues and needs. Although
VA's spending for NRM differs from the apportionment OMB sets for the
Medical Facilities account as a whole, we did not recommend--for the
reasons VA cited--an even spending of funds throughout the year.
However, we did not find transparent explanations of NRM funds in the
VA quarterly reports to Congress provided for our review. For example,
regarding the OMB apportionments, it would be helpful for Congress to
know the reasons for the year-end spending of NRM funds. Furthermore,
we found that VA is not offering transparent explanations of the
variances between actual and planned NRM spending as part of the
quarterly report. For example, the explanation VA provided was given in
a footnote in the last two reports we reviewed (fourth quarter of
fiscal year 2006 and first quarter of fiscal year 2007) and states that
NRM is included in the Medical Facilities total and is shown as a non-
add item on this table (of financial data). As a result, we continue to
make this recommendation because VA's lack of transparency in reporting
NRM status has hindered congressional oversight of these funds.
We are sending copies of this report to interested congressional
committees, the Secretary of VA, and the Director of OMB. We will also
make copies available to others on request. In addition, the report
will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staffs have any question, please contact me at (202) 512-
2834 or goldsteinm@gao.gov. Contact points for our Office of
Congressional Relations and Office of Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to
this report include David Sausville (Assistant Director), Lindsay Bach,
and George Depaoli.
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure Issues:
List of Congressional Committees:
The Honorable Tim Johnson:
Chairman:
The Honorable Kay Bailey Hutchison:
Ranking Minority Member:
Subcommittee on Military Construction and Veterans' Affairs:
Committee on Appropriations:
United States Senate:
The Honorable Daniel K. Akaka:
Chairman:
The Honorable Larry E. Craig:
Ranking Minority Member:
Committee on Veterans' Affairs:
United States Senate:
The Honorable Susan M. Collins:
Ranking Minority Member:
Senate Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Chet Edwards:
Chairman:
The Honorable Roger F. Wicker:
Ranking Minority Member:
Subcommittee on Military Construction, Veterans' Affairs, and Related
Agencies:
Committee on Appropriations:
House of Representatives:
The Honorable Bob Filner:
Chairman:
Committee on Veterans' Affairs:
House of Representatives:
The Honorable Michael Michaud:
Chairman:
The Honorable Jeff Miller:
Ranking Minority Member:
Subcommittee on Health:
Committee on Veterans' Affairs:
House of Representatives:
The Honorable Henry A. Waxman:
Chairman:
The Honorable Tom Davis:
Ranking Minority Member:
Committee on Oversight and Government Reform:
House of Representatives:
[End of section]
Enclosure I: Comments from Veterans Affairs:
The Secretary Of Veterans Affairs:
Washington:
April 16, 2007:
Mr. Mark Goldstein:
Director:
Physical Infrastructure Team:
U. S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Goldstein:
The Department of Veterans Affairs (VA) has reviewed your draft report,
Veterans Affairs: VA Needs to Better Manage Unexpended Balances and
Improve Related Reporting to Congress (GAO-07-410) and agrees with its
findings. VA concurs with the Government Accountability Office's (GAO)
recommendations to establish policies and procedures to strengthen VA's
ability to track and manage unexpended balances and to improve
reporting the status of facility account funds to Congress.
Nevertheless, we disagree with GAO's premise that VA deviates from the
Office of Management and Budget (OMB) apportionments. OMB does not
specifically apportion non-recurring maintenance funds; rather, OMB
apportions the entire medical facilities appropriation. It is important
to note that Veterans Health Administration (VHA) spending for the
medical facilities appropriation has not exceeded OMB's quarterly
apportionment.
It is also important to note that the amount of funds unexpended on
closed-out projects cited in this report is insignificant on a
percentage basis when measured against the total funding VA has
received for Major and Minor Construction projects over the past 3
years. VA has received around $3 billion in combined funding for these
projects. When compared to the $11 million in funds not timely managed;
this represents .0037 percent of the available budgetary resources. If
some of these funds relate to older projects, the percentage is even
smaller. While this does not excuse the handling of these individual
projects, it does not point to a mismanagement of the program.
Finally, during the course of GAO's review, VHA's Office of Facilities
Management underwent a reorganization to become the Department's Office
of Construction and Facilities Management (OCFM) within the Office of
the Secretary. OCFM consolidates the major construction execution/real
property responsibilities of the National Cemetery Administration and
the major/minor construction financial execution responsibilities of
VHA's Chief Financial Officer. The Administrations will continue to be
responsible for the programmatic execution of their maintenance and
minor construction programs.
The enclosure addresses your recommendations in detail as well as
specific issues within your report that need clarification. VA
appreciates the opportunity to comment on your draft report.
Sincerely yours,
Signed by:
R. James Nicholson:
Department of Veterans Affairs (VA) comments to:
Government Accountability Office (GAO) draft report, Veterans Affairs:
VA Needs to Better Manage Unexpended Balances and Improve Related
Reporting to Congress (GAO-07-410):
To help strengthen its ability to track and manage unexpended balances
and reporting the status of facility account funds to Congress, GAO
recommends that the Secretary of Veterans Affairs establish policies
and procedures to:
* Update and keep current the project information systems; and:
Concur - VA will begin updating existing policies and procedures to
address this recommendation. The Veterans Health Administration's (VHA)
draft Minor Construction Handbook details procedures and
responsibilities for ensuring that project information is accurate and
entered timely into the project tracking database. For minor projects,
reminders are sent monthly to the medical center engineers to update
the project tracking reports. Required fields, such as project status
and the percentage of project completion, are tagged to ensure certain
data are entered prior to allowing an exit of the project tracking
database. As an added measure in April 2007, VHA's Capital Asset
Management and Planning Service (CAMPS) will begin reviewing the
monthly updates to ensure 95 percent of active projects have been
updated within the month.
For non-recurring maintenance (NRM) projects, reminders are currently
sent monthly to the medical center engineers to update the project
tracking reports. Required fields, such as project status and
percentage of project completion, are tagged to ensure certain data are
entered prior to allowing an exit of the project tracking database. As
an added measure in April 2007, the Veterans Integrated Service Network
Support Center will begin reporting to Health Care Engineering the
results of the monthly reviews of NRM project tracking reports to
ensure active projects have been updated within the month.
The National Cemetery Administration (NCA) currently uses a desk-top
management information system to update project information on a
monthly basis. To address this recommendation, NCA will adopt the use
of a Web-based COTS project management tool for minor projects that
will allow multiple users to access and input real-time project
information.
* Update and keep current the project financial management system that
will notify management when payments have exceeded project funding;
and:
Concur - VA will begin updating existing polices and procedures to
address this recommendation.
* Periodically identify completed projects for close-out and redirect
the unexpended balances, in a timely manner, to other construction
project needs within VA; and:
Concur - VA will begin updating existing policies and procedures for
general ledger and maintenance of funding allotments to address this
recommendation. VHA's draft Minor Construction Handbook will be updated
to reflect a quarterly review of project completions versus unexpended
balances by April 2007. Prior to the GAO audit, VHA's Capital Asset
Management and Planning Service (CAMPS) had established a course of
action to compare the project tracking database to the financial
database to ensure unexpended balances were not left on closed
projects. However, this practice was done annually and will now be
completed quarterly. Using VHA's draft Minor Construction Handbook as a
guide, NCA will initiate a quarterly review of unexpended balances and
formalize the process in a directive.
* Should explain (1) its rationale for deviating from OMB's quarterly
apportionment, or (2) how it used the variance between planned and
actual NRM, in the quarterly report on the financial status of the
Veterans Health Administration to the Committees on Appropriations of
both Houses of Congress.
Do not concur - VA does not agree with the conclusion that it deviates
from its apportionments. All funds are made available up to the limits
and conditions set by each apportionment. Agencies do have some
flexibility to manage funds within apportionment classifications, and
VA makes decisions on where to re-allocate resources to address current
issues and needs. Nevertheless, VA is offering explanations on the
variances between actual and planned non-recurring maintenance (NRM)
obligations as part of the, quarterly report.
Additional Comments:
Pages 6 and 7:
(VA Lacks Readily Available Data on Unexpended Balances Needed to
Manage Construction and Facility Funds...)
GAO comment-"...We found that VA's systems lacked readily available
information to track projects and provide such information to VA
management for the following types of project accounts (VHA and NCA
minor projects, and VHA and NCA major projects) we reviewed."
VA comment - For major and minor projects, the unexpended balance data,
along with unreleased holdbacks are readily available from the
Financial Management System (FMS). The FMS obligation data even
includes the contract number to tie the project to the obligation.
Determining the status of these projects in relation to the funding is
not difficult.
GAO comment - "Specifically, VHA provided construction data for those
projects that had been generated by (1) its Financial Management System
(FMS) that listed 1,466 projects with $256 million in unobligated funds
and (2) its Project Tracking Report (PTR) that listed 701 projects. VHA
headquarters officials in Washington, DC, told us that the reason more
projects existed on the FMS documents was because FMS did not delete
projects that are closed out."
VA comment - It is true that FMS lists all projects, open and closed.
The projects that do not have unliquidated obligations are closed and
awaiting to be archived.
Page 13 (Conclusions):
GAO Comment - "Additionally, because VA lacks policies and procedures
aimed at identifying completed construction projects that have funds
remaining in VHA's and NCA's Major and Minor Construction accounts, the
potential exists that much greater amounts could accumulate and not be
redirected, in a timely manner, to other construction project needs
within the agency, hindering VA's ability to efficiently and
effectively use all available resources at its disposal."
VA Comment - We disagree with the above comment. Construction projects
are treated the same financially as undelivered orders. Therefore, they
are reviewed for validity and proper disposition of unexpended funds.
In addition, VA does have policies and procedures in place which are
described below under MP-4, Part V, Chapter 3, "Allotment Accounting,"
Section 3B.03j "Maintenance of Allotment Ledgers," and 3C.01 a "Closing
of Allotment Ledgers for Unexpired Annual Appropriations."
Chapter 3. Allotment Accounting:
3B.03 Maintenance Of Allotment Ledgers:
j. The undelivered order and accrued services files will be analyzed
monthly, and the initiating offices notified of those documents which
appear to have been outstanding for an unreasonable length of time. FL4-
297, Request for Information Re: Undelivered Orders and Commitments, or
computer generated listings, may be used for this purpose. The
initiating office will ascertain the status of such authorizations or
orders and notify the Fiscal activity accordingly. During the monthly
reconciliation of undelivered orders, the undelivered order file will
be reviewed to identify those undelivered orders inactive for 90 days
or more. Those outstanding undelivered orders inactive for more than 90
days will be called to the attention of the Supply activity for review
and verification of validity of the order. Once identified as inactive
for 90 days or more, such identified inactive undelivered orders will
continue to be reviewed and verified for validity every 90 days. In
addition, general ledger account 2242, accrued expenditure and
undelivered order adjustments-expired appropriations, will be analyzed
monthly to ascertain the propriety of entries.
3C.01 Closing Of Allotment Ledgers For Unexpired Annual Appropriations:
a. Allotment ledger sheets maintained for unexpired annual
appropriations will be closed as of September 30. As part of the year
end closing procedures all documents in the undelivered order file will
be reviewed, and, where there is a slight possibility that the order
will be received, action should be taken to have the order canceled.
Upon completion of the above action the balances remaining in the
accrued expenditure, undelivered order, allotment, and unobligated
columns should be verified with the related account balances in the
general ledger. Any remaining unobligated balance will be dropped.
The following are GAO's comments on the Department of Veterans Affairs
(VA) letter dated April 16, 2007.
GAO Comments:
1. We agree with VA that agencies do have some flexibility to manage
funds within apportionment classifications--VA makes decisions on where
to reallocate resources to address current issues and needs. However,
we do not find transparency in the quarterly reports to Congress
provided for our review because VA did not explain (1) its practice of
holding the majority of non-recurring maintenance (NRM) funds from
OMB's quarterly apportionment until the end of the fiscal year and (2)
the unforeseen needs or shortfalls for which it used the variance
between planned and actual NRM spending. For example the explanatory
footnote given in the last two reports (fourth quarter of fiscal year
2006 and first quarter of fiscal year 2007) states that NRM is included
in the Medical Facilities total and is shown as a non-add item on this
table. Although VA's spending for NRM differs from the apportionment
OMB sets for the Medical Facilities account as a whole, we did not
recommend-- for the reasons VA cited--an even spending of funds
throughout the year. Additionally, our report did not find that VA has
exceeded OMB's apportionment and, in response to VA's comments, we have
removed the word "deviated." However, because VA's lack of transparency
in reporting NRM status has hindered congressional oversight of these
funds, we continue to make this recommendation.
2. VA reiterated our discussion that unexpended balances were small
compared to VA's fiscal year 2007 congressional budget submission of
$597 million for its construction accounts by describing them as
insignificant on a percentage basis when measured against the total
funding VA has received for Major and Minor Construction projects over
the past 3 years. However, VA further stated that the $11 million in
unexpended balances represents .0037 percent of the available budgetary
resources, and while this does not excuse the handling of these
individual projects, VA believes it does not point to a mismanagement
of the program. We did not include a discussion on materiality of the
unexpended balances in the report--nor did we use the phrase
"mismanagement of the program" in the report--as we are discussing VA's
inability to track these project funds, which leaves VA vulnerable to
larger balances accumulating and not being redirected in a timely
manner to other construction project needs within the agency:
3. In providing more details on its belief that information on
unexpended balances is readily available from its financial system,
VA's comments do not address our central concern related to unexpended
balances--that is, while it is true that VA's financial systems provide
information about unexpended balances, they do not identify unexpended
balances that are no longer needed and can be directed to other needs.
Having such information would allow VA to better ensure effective
management of these funds and not allow them to accumulate. For each
project balance, VA had to manually determine whether the funds were no
longer needed, demonstrating our point that VA is unable to make this
determination in a systematic manner.
4. VA agreed with our report that FMS listed all projects, open and
closed. VA further stated that the closed reports were waiting to be
archived. However, VA did not provide evidence that any projects had
been archived or that it had any guidelines or procedures for archiving
projects.
5. VA said that the conclusions should show that policies and
procedures are in place to identify completed projects and that VA was
not hindered in its ability to efficiently and effectively use all
available resources. As discussed in comment 2, our findings focus on
the fact that VA does not know when unexpended funds are available for
other purposes. We clarified the report to recognize that policies and
procedures exist but have not been effective in identifying unexpended
balances that could be redirected.
(543184):
FOOTNOTES
[1] Unexpended balances are the cumulative total of past fiscal years'
unobligated and obligated-but-not-yet-outlayed balances.
[2] At the time of our review, major construction projects were those
estimated to cost more than $7 million, while minor construction
projects were those estimated to cost $7 million or less. See P.L. 109-
114, 119 STAT. 2386-2387; 38 USC 8104(a)(3)(A).
[3] GAO, High-Risk Series: Federal Real Property, GAO-03-122
(Washington, D. C.: January 2003); High-Risk Series: An Update, GAO-07-
310 (Washington, D. C.: January 2007).
[4] Section 222 of P.L. No. 109-114; H. R. Rep. No. 109-305, at 50
(2005) (Conf. Rep.)
[5] 38 USC 8104(a) (2).
[6] Department of Veterans Affairs FY 2007 Budget Submission,
"Construction and 5 Year Capital Plan," Volume 3 of 4, 1-1, Office of
Management and Budget, Budget of the United States Government, Fiscal
Year 2007 (Washington, D. C., Feb. 6, 2006), 980 - 981.
[7] P.L. 109-114, 119 STAT. 2385.
[8] Department of Veterans Affairs FY 2007 Budget Submission. "Medical
Programs," Volume 1 of 4, 5-13, Office of Management and Budget, Budget
of the United States Government, Fiscal Year 2007 (Washington, D. C.,
Feb. 6, 2006), 961.
[9] We could not obtain a definitive number of completed minor
construction projects from the data provided by VHA and NCA.
[10] 5 CFR §1315.10.
[11] GAO, Transportation Security Administration: High-Level Attention
Needed to Strengthen Acquisition Function, GAO-04-544 (Washington, D.
C.: May 2004).
[12] GAO, VA Health Care: Budget Formulation and Reporting on Budget
Execution Need Improvement, GAO-06-958 (Washington, D. C.: September
2006); Department of Veterans Affairs Office of Inspector General,
Report of Audit: Congressional Concerns over Veterans Health
Administration's Budget Execution, Report No. 06-01414-160 (Washington,
D. C., June 30, 2006).
[13] Section 216 of P.L. No. 109-114; H.R. Rep. No. 109-305, at 49
(2005) (Conf. Rep.)
[14] VA Office of Acquisition & Material Management, Policies &
Regulations, VA Acquisition Regulations, Part 807, Acquisition
Planning: §807.172.5.
[15] VA, Office of Acquisition & Material Management, Policies &
Regulations, VA Acquisition Regulations, Part 807, Acquisition
Planning: §807.102.4.
[16] GAO, Year-End Spending: Reforms Underway But Better Reporting and
Oversight Needed, GAO/AIMD-98-185 (Washington, D. C.: July 31, 1998).
[17] GAO-06-958; Department of Veterans Affairs Office of Inspector
General, Report No. 06-01414-160.
[18] Section 222 of P.L. No. 109-114; H. R. Rep. No. 109-305, at 50
(2005) (Conf. Rep.)
[19] GAO-06-958.
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