Report I2011-0837 Recommendation 1 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 #1 To: Veterans Affairs, Department of

For all contracts that involve recreation fund moneys or involve recreation fund enterprises, as a best practice, institute policies that require the contracts be awarded and administered in a manner consistent with the policies and procedures set forth in the State Administrative Manual and the State Contracting Manual.

Agency Response From October 2016

Veterans Affairs reported that in consultation with the Department of General Services, it developed procedures for the administrative operation of the Morale, Welfare, and Recreation Fund. In its procedures, Veterans Affairs incorporated contracting and purchasing processes that are rooted in the same principles as those that govern the State Contracting Manual. It stated that it is finalizing the implementation of the new procedures and is overseeing the development of contracts accordingly.

California State Auditor's Assessment of Status: Fully Implemented


Agency Response From October 2015

Veterans Affairs reported that due to unforeseen resource challenges, it experienced difficulty in fully implementing the draft procedures it developed last year. Regardless, Veterans Affairs stated that it is working with the Department of General Services regarding certain components of the procedures. 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 it believes that 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 to us an expected completion date for these actions.

California State Auditor's Assessment of Status: Pending


Agency Response From December 2014

In December 2014, Veterans Affairs stated that the new policy it has drafted to address this recommendation would be in place by January 2015. Currently, the policy is being reviewed by auxiliary divisions within Veterans Affairs for final review. However, a draft version of the policy was provided for our review.

Veterans Affairs' new policy requires goods or services purchased at $5,000 or more to follow the procedures established in the State Contracting Manual, State Administrative Manual, and its department administrative manual for bidding, procurement, and contracting. Although purchases under $5,000 do not appear to be similarly obligated to follow the State Contracting Manual and State Administrative Manual as we recommended, Veterans Affairs listed a number of additional controls in the new policy, such as detailed quarterly financial statements and preapproval requirements for individual transactions by the undersecretary or his designee, to ensure that contracts involving the recreation fund are preapproved and reviewed by headquarters prior to execution.

One deficiency we identified in the draft policy was that it did not explicitly require the veterans homes to obtain preapproval for any contracts that involved the use, modification, or leasing of state property to an outside vendor, such as in the case of the zip line contract mentioned in this investigation. When we brought this deficiency to Veteran Affairs' attention, it stated that it intended to include such a statement and that it would ensure its inclusion in the final policy.

California State Auditor's Assessment of Status: Partially Implemented


Agency Response From September 2014

Veterans Affairs reported in July 2014 that the development of its new policies and procedures "changed hands" as it underwent a reorganization. It stated that it expected to complete the new policies and procedures by October 2014. In addition, Veterans Affairs stated in September 2014 that it had been working with the Department of Finance to obtain additional staffing resources to assist with increased contracting duties and responsibilities. Further, Veterans Affairs stated that because proposed legislation had failed (see Recommendation 7), it lacked the statutory authority to execute key aspects of its overall plan to reform and restructure the recreation fund that it intended to address in its new policies and procedures. However, Veterans Affairs did not specify how the proposed legislation impacted the policies and procedures. Nevertheless, Veterans Affairs reported that it continued its work on the new policy and procedures, and it stated that the policies and procedures were nearly completed. Regardless, we are unable to determine Veterans Affairs' progress on this recommendation until we have reviewed the policies and procedures.

California State Auditor's Assessment of Status: Pending


Agency Response From May 2014

Veterans Affairs reported in late March 2014 that a working group, consisting of homes division staff at its headquarters and recreation fund budget officers from each of its homes, convened in March. It stated that the working group discussed standardizing policies, determining and developing best practices, and improving checks and balances. Veterans Affairs also stated that the working group would continue to provide suggestions to the homes division on practical solutions that can be implemented within existing resources. In addition, Veterans Affairs reported that it was drafting a formal policy manual to serve as an addendum to the State Contracting Manual and State Administrative Manual, providing further clarification and additional structure for recreation fund oversight.

In April 2014 Veterans Affairs reported that staff had conducted several trips to the homes to obtain a ground-level view of how the recreation fund is used and how to feasibly improve accountability without preventing the homes from offering recreation. Veterans Affairs also stated that it was reviewing how to implement oversight capabilities within its existing resources and that it expects much of the basic framework to be in place by July 1, 2014. However, until Veterans Affairs provides us with the formal policy manual for our review, we cannot determine whether this recommendation has been fully implemented.

Veterans Affairs provided no new information in May 2014 as it is currently undergoing a major reorganization of responsibilities.

California State Auditor's Assessment of Status: Pending


Agency Response From March 2014

In January 2014, Veterans Affairs provided us with a copy of the updated legal opinion it requested from General Services. General Services' response was that a determination regarding whether recreation fund contracts must comply with state contracting and procurement requirements is a determination for Veterans Affairs to make. General Services suggested that as an alternative, Veterans Affairs could seek a formal opinion from the Attorney General.

Also in January 2014, the Department of Finance completed an audit of the accounting and contracting procedures of the veterans home. In the report that the Department of Finance issued regarding this audit, it concurred with our recommendation that recreation funds should be administered in accordance with the State Contracting Manual and the State Administrative Manual regardless of whether recreation fund enterprises are required by law to comply with their requirements. The audit report also recommended that Veterans Affairs develop written policies and procedures to complement the State Contracting Manual and the State Administrative Manual where necessary.

In light of these developments, Veterans Affairs reported that it has created a task force consisting of accounting, human resources, legal, and executive staff to review the audit and develop new procedures for handling recreation fund money at all veterans homes. Veterans Affairs also stated that it now is reviewing how to comply with the requirements of the State Contracting Manual and the State Administrative Manual within the constraints of its existing resources when managing recreation fund money. It stated that it plans to complete a basic framework for the implementation of these procedures by the end of fiscal year 2013-14.

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: No Action Taken


Agency Response From September 2013

Veterans Affairs stated that it sought an updated legal opinion from General Services in June 2013 to determine whether General Services continues to believe that recreation fund contracts are exempt from complying with state contracting and procurement requirements. It stated that if General Services no longer believes that recreation funds are exempt from these requirements, it will comply with General Services' recommendations.

However, our report did not assert that all recreation fund contracts are required by law to comply with the State Administrative Manual and the State Contracting Manual. Rather, we recommended that Veterans Affairs follow the policies and procedures set forth in these manuals as a best practice because, based on the outcomes of the two contracts discussed in this report, the department's current policies and procedures have demonstrated themselves to be insufficient. In addition, our review of Veterans Affairs' request to General Services revealed that it failed to ask whether Veterans Affairs must comply with state contracting requirements related to state land, including whether it could lease land without General Services' authorization. Instead, it asked whether recreation fund expenditures are subject to state contracting and purchasing requirements. Accordingly, the opinion Veterans Affairs has requested from General Services does not address our recommendation.

California State Auditor's Assessment of Status: No Action Taken


All Recommendations in I2011-0837


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