OIG Discovers Weaknesses in VA’s Financial Management Systems

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Congress has provided the Department of Veterans Affairs with nearly $20 billion to fight COVID-19. The money came with accountability. Now the VA Inspector General’s office has discovered that the department work hard to document his handling of money. But weaknesses in VA’s financial management systems raise questions. To learn more, VA Deputy Assistant Inspector General Nick Dahl spoke with Federal Drive with Tom Temin.

Tom Temin: Congress has provided the Department of Veterans Affairs nearly $20 billion to fight COVID-19. The money came with accountability. And now the VA Office of Inspector General has found that the department has worked hard to document its handling of that money. But weaknesses in VA’s financial management systems raise some questions. For more, VA Deputy Assistant Inspector General Nick Dahl. Mr. Dahl, good to have you.

Nick Dahl: Hello, Tom, thank you for inviting me.

Tom Temin: And tell us what you were specifically looking for. Part of it was the responsibility itself for the money, but also part of it was VA’s ability to even discharge the responsibility with all the voluntary intent to do so.

Nick Dahl: Our review focus on this was a first look at how VA was taking COVID into account. And our review objective for this first project that we did was to assess the internal controls of the Veterans Health Administration or VHA for accuracy in tracking and reporting at the detailed transaction level on how they spent those COVID funds.

Tom Temin: And what was your overall assessment of how they were doing?

Nick Dahl: Well, they met the weekly and monthly reporting requirements. But we certainly had concerns about the accuracy and completeness of the reports.

Tom Temin: And what gave rise to their inability to be totally accurate?

Nick Dahl: Well, VA relies on its antiquated financial management system. It’s not really an agile or modern financial management system. This therefore does not give VA at the highest level any real transparency or visibility on what is happening at the establishment level. Thus, the VA management office, which was responsible for reporting to the OMB and Congress, relied on local facility controls to ensure that data was complete and accurate. So that’s really what it was about. It is very laborious for VA at the office level of management to access transactions. They would really need to work with each of the approximately 170 medical centers to find out what the transactions were at those facilities.

Tom Temin: It’s almost a VA theme, it’s so deeply embedded in its federated nature that when it comes to the VISTA system or the accounting systems, it’s all in pieces. And it’s very difficult to trace what is happening at the departmental level, isn’t it?

Nick Dahl: Absoutely. We see it over and over again.

Tom Temin: And just some weird details that came out in the report. There were fields in the reports that had negative dollar amounts when there should have been positive dollar amounts. What causes a weird thing like this?

Nick Dahl: Well, I’ll give you two parts to this answer. VA reported to Congress and the OMB that the negative dollar amounts were related to their early COVID response efforts when incorrect accounting codes were used. And because the incorrect account codes were used, they had to make adjustments or transfer some of the transactions to ensure they were using the correct codes. The second part of this, however, is that when we interviewed VA officials, they couldn’t really say for sure what those negative dollar amounts represented. It was some level of speculation that, you know, at least some of them were transferred from an incorrect account code to a new account code. But it really could have been system errors or vendor credits. There’s really no way to know without really digging into the data.

Tom Temin: So the result is that they have to do a lot of editing on reports that they spent a lot of man hours producing in the first place.

Nick Dahl: They weren’t. There are so many manual processes involved in discovering the true nature of some of these transactions.

Tom Temin: We speak with Nick Dahl, he is assistant deputy inspector general in the Department of Veterans Affairs. And another strange thing that I noticed, at least in December or six months, seven months ago, they had only spent about a third of the money. They hired more, but they hadn’t really spent that much. And then what happens? Do they return it or is it reused? Shouldn’t we go to Congress to reschedule it?

Nick Dahl: It will be interesting. My understanding, and I apologize for not being 100% solid on this, but my understanding of the CARES Act funding is that it must be spent by September 30 if it is to be used. I expect VA to end up spending most of it. But if they don’t spend it by the end of the fiscal year, I assume it will have to be paid back.

Tom Temin: Well, they wouldn’t be a good federal agency if they didn’t rush in before September 30th. It’s me who says it, not you, I wouldn’t make that comment to you. But the question is, what are your recommendations? How do they get, you know, not just for the COVID pocket money, but for all the VA money? It looks like they need to do some serious system-level work here.

Nick Dahl: Yeah, and I’ll also give you two parts. We recommended that VA consider the risks inherent in VA and VHA’s outdated financial information technology infrastructure and develop procedures to validate data at the program activity level rather than at the funding level summary. And they said they would. But, you know, you bring up a good point about the FMS and the challenges it presents. They are going through a financial management business transformation, where they are trying to bring a system called iFAMS online, which will be a modern integrated financial management and procurement system. Now that’s probably a 10 year effort, Tom. And we’re probably about three years into that effort. So it’s going to be, right now, the current plan is to have everyone in VA online sometime in 2027. They’ve brought it online in pieces. It is used by the NCA, the National Cemetery Administration and parts of the VBA. But VHA, there are still a few years before we put this online. You know, I would say for accounting purposes, VHA is the most complex organization within VA.

Tom Temin: Sure. And again, this is a bit out of the scope of the report, but from what you’ve seen, does it work when installed at the cemetery administration? And insofar as it is in VBA?

Nick Dahl: We are currently conducting our first review of iFAMS implementation at the National Cemetery Authority. You know, I don’t feel like I can comment on this right now. But it is used, I’ll tell you.

Tom Temin: Very well. And in many ways, it feels like a parallel to their electronic health record system, where you just have to take it step by step. And it seems like just looking, again, from the IG level that they’ve undertaken a lot of modernizations on multiple fronts.

Nick Dahl: It’s a huge undertaking. Since EHR and iFAMS are two huge systems, they are also looking to bring a logistics system online. I hear about a global HR system. I guess it’s the result of them being late. I assume you know some of the past difficulties in updating the financial management system. They have tried many times in the past and failed. So they’re probably a good decade behind the financial system.

Tom Temin: And getting back to the COVID money, though, from what you can see, it looks like it was spent the way it was supposed to be spent and used and obligated, ultimately?

Nick Dahl: To the right. We have no indication that there were any problems with spending. I will say that we have just launched a project now, where we are going to address a specific network, which is a group of medical centers at VHA. And then this one, we’re actually going to go down, ourselves, are going to do some transaction-level testing to see how the funds were spent and see if the spending was appropriate. So stay tuned for that.

Tom Temin: So it’s like looking at rivets to see if the Titanic itself will float.

Nick Dahl: You got it.

Tom Temin: Nick Doll is Assistant Deputy Inspector General at the Department of Veterans Affairs. Thank you very much for joining me.

Nick Dahl: Thank you for receiving us. Appreciate your interest in our work.

Geraldine L. Melton