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Office of Budget

Fiscal Year 2004 Performance and Accountability Report
Published November 15, 2004

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Federal Managers' Financial Integrity Act

The Federal Managers' Financial Integrity Act (FMFIA) requires agencies to establish management controls over their programs and financial systems. Throughout the fiscal year, VA managers monitor and improve the effectiveness of management controls associated with their programs and financial systems. The results of monitoring and conducting other periodic evaluations provide the basis for the Secretary's annual assessment of and report on management controls. VA managers are required to identify material weaknesses relating to their programs and operations pursuant to sections 2 and 4 of the Act as defined:

  • Section 2 seeks to assess internal controls necessary to ensure compliance with applicable laws; protect against loss from waste, fraud, and abuse; and ensure receivables and expenditures are properly recorded.
  • Section 4 seeks to assess nonconformance with governmentwide financial systems requirements.

Progress on Material Weaknesses

VA managers continue to make progress in correcting existing material weaknesses and non-conformances. The FY 2004 Consolidated Financial Statements Audit Report disclosed no new material weaknesses. In addition, there are no new management control material weaknesses disclosed or reported under FMFIA. At the end of 2003, two audit-related material weaknesses (1) (Information Technology Security Controls and Lack of Integrated Financial Management System) and three management control weaknesses consisting of two nonconformances were carried forward in FY 2004.

Corrective actions were implemented and closure approved during FY 2004 for one of the material weaknesses - Compensation and Pension System - Lack of Adaptability and Documentation. The remaining four material weaknesses (two audit-related material weaknesses and two management control material weaknesses) are scheduled for correction according to the timelines shown in the below tables, which provide the current status of the Department's material weaknesses.

Audit Material Weaknesses
Description Current Status Resolution Target Date
Information Technology Security Controls - VA's assets and financial data are vulnerable to error or fraud because of weaknesses in information security management, access to controls and monitoring, and physical access controls. Plans are being implemented to address this weakness. The Department has maximized limited resources to make significant improvement in VA's overall security posture in the near term through prioritizing Federal Information Security Management Act remediation activities. September 2005
Lack of Integrated Financial Management System - Difficulties exist in the preparation, processing, and analysis of financial information to support the efficient and effective preparation of VA's consolidated financial statements. A board of directors, chaired by the Assistant Secretary for Information and Technology and including senior VA leadership, is examining the results of the CoreFLS pilot program at the Bay Pines VA Medical Center and the other two pilot sites and will make recommendations to the VA Secretary concerning the future of the program. TBD
Management Control Weaknesses
Description Current Status Resolution Target Date Section 2 Section 4
PAID System-Mission Performance - VA's central payroll and personnel system, PAID, lacked the ability to expand. The PAID system has been modified to allow an employee's pay/benefits to be allocated to four fund/cost center combinations and to pass this distribution labor cost to FMS. Final reports confirming this functionality were provided to the OIG in October 2004. November 2004 X
Internal Control Weaknesses in the Compensation and Pension Payment Process - Erroneous and fraudulent payments were found. Procedures are underway to augment internal controls in the area of erroneous payments. Measures are being taken to pinpoint the amount of overpayments in each program area and to determine the nature and causes of the overpayments. December 2005 X

(1) The use of the term "material weakness" should not be confused with use of the same term by government auditors to identify management control weaknesses, which, in their opinion, pose a risk or threat to the internal control systems of an audited entity, such as a program or operation. Auditors are required to identify and report those types of weaknesses at any level of operation or organization, even if management of the audited entity would not report the weaknesses outside the agency.