VA violated law in funding outsourcing studies, GAO says

The Veterans Affairs Department has violated a 1981 law that prohibits the diversion of funds appropriated to medical care accounts to research on the cost of keeping work in-house versus that of contracting it out, the Government Accountability Office reported this week. VA officials disagree.

Between fiscal 2001 and fiscal 2004, the department used Veterans Health Administration appropriations to conduct cost comparisons associated with a larger effort to determine whether health care services at existing facilities would be able to meet future needs, GAO said. Language in Title 38 of the U. S. Code bars VA from using the health administration's appropriations for this purpose unless Congress provides specific instructions to do so, the auditors said.

VA also used the accounts to finance research on the costs of keeping medical center laundry services in-house versus that of outsourcing them, the report (GAO-06-124R) stated. At least 16 of the cost comparison studies listed in the department's fiscal 2002 annual performance report also were illegal, GAO said.

Agencies that spend money that hasn't yet been appropriated, or that exceeds the appropriated levels for a given activity, are in violation of the Antideficiency Act and must report the transgression to Congress and the White House unless they are able to correct the problem, the auditors noted.

VA could avoid the reporting requirement, and punishments for noncompliance, by rescinding the amounts improperly charged to the health administration accounts and taking the money from other departmental appropriations accounts with balances left, GAO said. But the department failed to track how much it spent on the illegal cost-comparison studies, and would have difficulty determining how much money would need to be de-obligated from the health accounts, the auditors said.

It is also unclear whether the balances from previous fiscal years remaining in accounts that could legally fund the studies--such as those for construction projects--would be high enough to cover all expenses related to the cost comparisons, GAO said.

VA officials disagree with GAO's interpretation of the 1981 law and with the auditors' recommended fixes. In a Nov. 4 letter to McCoy Williams, director of financial management and assurance at GAO, VA Secretary R. James Nicholson said the language is intended only to prevent the unsanctioned use of health administration funds for cost-comparisons related to formal competitive sourcing studies run using rules in Office of Management and Budget Circular A-76.

Many of the violations cited by GAO did not involve official A-76 studies, the department argued. For instance, the auditors said cost comparisons conducted as part of the Capital Asset Realignment for Enhanced Services effort, a broader restructuring project initiated in 2000, were illegal. With the exception of contractors used in the initial phases of the CARE project, the employees conducting those comparisons were paid primarily from health administration accounts, GAO said.

That would have been OK had appropriators designated money in those accounts for cost comparisons, the report stated. But for fiscal years 2001 to 2004, the department sought appropriations--ranging from $16 million to $50 million--to conduct cost comparison studies, and lawmakers denied the requests.

Nicholson acknowledged that VA cannot use health administration funds for formal competitive sourcing studies, but argued that "Congress clearly did not intend to preclude all manner of cost analysis necessary for the day-to-day administration of our health-care system and, to the contrary, has directed [VA] . . . to establish and manage our programs in a manner promoting cost-effective care delivery."

GAO's interpretation of the 1981 law "makes sense only if one ignores its legislative history and the rest of Title 38," Nicholson wrote.

But in the report, auditors argued that both the legislative history and the "clear and unambiguous words in the . . . cost comparison funding prohibition" indicate that the law applies to more than traditional A-76 studies.

"At the crux of our disagreement with VA is the meaning of the word 'study,' " GAO noted. "According to a well-recognized dictionary of the sort that might have been available to the Congress in 1981, a 'study' is defined broadly as a careful examination or analysis of a phenomenon, development or questions, or the publication of a report of such an examination or analysis."

"The other important word in the language of the prohibition is the word 'any,' which modified the word 'study,' " the auditors noted.

Regardless of how the law is interpreted, VA would benefit from keeping better track of the costs associated with cost comparisons, the report said. The department's inability to say how much it spent on such research is "part of a bigger problem," the report stated.

"VA lacks reliable cost accounting information needed to manage its operations and budget effectively."

That problem manifested itself over the summer, the report noted, when Congress had to provide $1.5 billion in emergency fiscal 2005 funding for the department's health care programs. The shortfall necessitating the supplement stemmed from "inaccurate data and outdated assumptions," department officials acknowledged at a congressional hearing.