Report I2011-0837 Recommendation 3 Responses

Report I2011-0837: California Department of Veterans Affairs: Wastefulness, Failure to Comply With State Contracting Requirements, and Inexcusable Neglect of Duty (Release Date: October 2013)

Case Number I2011-0837

Recommendation #3 To: Veterans Affairs, Department of

For all contracts that involve recreation fund moneys or involve recreation fund enterprises, institute policies that require the contracts to be reviewed and approved by the secretary of Veterans Affairs, or upon delegation of the authority to do so, by a deputy secretary, prior to the contracts being executed.

Agency Response From October 2016

Veterans Affairs stated that it achieved the objectives of this recommendation by requiring headquarters staff to assist the homes in the development of Morale, Welfare, and Recreation-funded contracts. Additionally, beginning in 2017, its Homes Division staff will conduct quarterly audits on each home's use of the Morale, Welfare, and Recreation funds and adherence to the administrative procedures. Lastly, Veterans Affairs stated that the new procedures requires that the veteran's homes inform headquarters of any purchases or contract plans that would amount to an expenditure of $5,000 or more, or that fall into a variety of categories that warrant additional leadership awareness.

California State Auditor's Assessment of Status: Fully Implemented

Agency Response From October 2015

Veterans Affairs reported that it is working with the Department of General Services regarding this recommendation. Veterans Affairs also stated that it will ensure this recommendation is incorporated into its procedures explicitly or is substituted by steps outlined in the State Contracting Manual. Regardless, Veterans Affairs stated that it expects to have the procedures in place by the end of 2015.

California State Auditor's Assessment of Status: Pending

Agency Response From April 2015

Veterans Affairs reported that it believes additional steps may be needed before implementing the draft procedures it provided to us in December 2014. Thus, Veterans Affairs stated that it convened a team to further explore potential issues and identify options to resolve them. However, Veterans Affairs did not provide us with an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending

Agency Response From December 2014

Veterans Affairs stated in December 2014 that the new policy it has drafted to address this recommendation would be in place by January 2015. A draft version of the policy was provided to our office for our review.

The draft policy requires that many, but not all, expenditures must be granted individual approval by Veterans Affairs headquarters before goods or services are procured, in addition to being listed on the home's annual budget. Examples of purchases requiring preapproval include purchases for events or holiday celebrations, entertainment or educational items, costs for seminars, and tickets and transportation to events. Together with the other internal controls the draft policy establishes, such as detailed quarterly financial statements and preapproval requirements for individual transactions by the undersecretary or his designee, Veterans Affairs' approach to addressing our recommendation appears to be sufficient. We will review the final policy after its implementation.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From September 2014

In July 2014 Veterans Affairs reported that it planned to complete the new policies and procedures in October 2014. In addition, Veterans Affairs stated that it expected the final policies and procedures to require the secretary or his designee to approve recreation funds contracts prior to execution of the contracts. However, until we are given the opportunity to review the new policies and procedures, we are unable to determine whether Veterans Affairs has fully implemented this recommendation.

California State Auditor's Assessment of Status: Pending

Agency Response From May 2014

Veterans Affairs stated that all recreation fund contracts are being reviewed by an official at Veterans Affairs headquarters, regardless of the amount of the expenditures required by the contract. This statement is different from the statement we received a few months ago, when we were told that the undersecretary for veterans homes only reviews recreation fund expenditures rather than all contracts, but we welcome this information. In addition, Veterans Affairs told us that the only home with "zero dollar" or "revenue-generating" agreements is the home that was the subject of our investigation, and no agreements of that kind have been entered into since we issued the report in October 2013.

Veterans Affairs stated that its policy of requiring all recreation fund contracts to be reviewed by a headquarters official will be incorporated into a policy manual that it expects to complete by July 1, 2014. It anticipates that the policy manual will require approval of all recreation fund contracts by the Secretary or a designee. We await the issuance of the policy manual to confirm that this recommendation has been implemented fully.

California State Auditor's Assessment of Status: Partially Implemented

Agency Response From March 2014

In January 2014, Veterans Affairs reported that its undersecretary for veterans homes sent an e-mail in August 2013 to the administrators of the veterans homes notifying them that she would be approving all future recreation fund expenditures until Veterans Affairs implements a "policy on approval authority." We subsequently contacted Veterans Affairs to inquire whether it had established the "policy on approval authority" that the undersecretary referenced in her e-mail. Veterans Affairs responded in March 2014 that since the e-mail was "a direct, written order from an [u]ndersecretary, and has been referred to and reiterated on multiple occasions, [it] believes [the e-mail] constitutes sufficient direction, until a written policy is developed as part of the ongoing review." In addition, it stated that since "[recreation fund] contracts involve an expenditure of funds, the [u]ndersecretary is approving new [recreation fund] contracts."

Although we accept the undersecretary's review of all recreation fund expenditures as partial implementation of our recommendation, we note that her review of all recreation fund expenditures does not equal compliance with our recommendation that the secretary or his designated deputy approve all contracts involving recreation fund enterprises. As stated in our report, the adventure park contract was written in a manner that did not require any expenditure from the recreation fund, yet it created significant financial risk for the State. Thus, Veterans Affairs should revise its current guidance to veterans homes to require review by the undersecretary of any contract that involves recreation fund money or enterprises, rather than just any expenditure from the recreation fund.

We also call on Veterans Affairs to specify a date by which it will institute a written policy regarding the approval of recreation fund contracts.

California State Auditor's Assessment of Status: Pending

Agency Response From November 2013

Veterans Affairs has not provided any additional information.

California State Auditor's Assessment of Status: Pending

Agency Response From September 2013

Veterans Affairs reported that it agreed with our recommendation to have the secretary or the undersecretary for Veterans Homes review and approve all recreation fund contracts. It stated that this recommendation will be addressed with the new recreation fund policies it plans to implement within the next 90 days. Veterans Affairs also stated that the undersecretary will be designated to perform the task of reviewing contract concepts, prior to the commencement of negotiations, to ensure that they are consistent with Veterans Affairs' mission.

California State Auditor's Assessment of Status: Pending

All Recommendations in I2011-0837