Significant Deficiencies Found in VA’s Denver Logistics Center Inventory Management Operations and Systems

Report Information

Issue Date
Report Number
22-02739-210
VISN
State
Colorado
District
VA Office
Acquisitions, Logistics, and Construction (OALC)
Report Author
Office of Audits and Evaluations
Report Type
Audit
Report Topic
Supplies and Equipment
Major Management Challenges
Benefits for Veterans
Leadership and Governance
Stewardship of Taxpayer Dollars
Recommendations
19
Questioned Costs
$0
Better Use of Funds
$0
Congressionally Mandated
No

Summary

Summary

VA’s Denver Logistics Center (DLC) manages millions of dollars of supplies intended for Veterans Health Administration (VHA) facilities and patients. According to VA policy, VA staff who use, supervise, or control VA-owned goods are accountable for those goods from acquisition to disposition.

The VA Office of Inspector General (OIG) audited to determine whether the DLC maintained accurate inventories of VA-owned goods and identified significant deficiencies in inventory management operations and systems. Specifically, the DLC’s inventory records did not align with on-hand supplies or include all goods, and the DLC lacked an effective internal control system. Inaccurate inventories, weak internal controls, and lack of reporting outside of the DLC created the risk of misleading financial reporting and increased costs to VHA. Further, supplies and veteran information kept at DLC warehouses were not physically secured.

The audit also revealed the DLC did not have appropriate system controls to protect inventory data. The DLC’s inventory management system software has access and security vulnerabilities and lacked transparency. Like the VA-owned supplies on hand, the DLC system hardware was also vulnerable to physical access and security risks. Overall, the DLC’s inventory ordering system is becoming unsustainable.

The DLC has largely operated under minimal oversight of its inventory operations, and the OIG found that oversight to be ineffective at ensuring VA policies were followed and VA-owned goods protected. The independent nature of DLC operations, along with the deficiencies identified in this audit, impedes the DLC from effectively fulfilling its mission and creates a heightened risk of fraud, waste, and abuse.

VA concurred with the OIG’s 11 recommendations to improve the inventory management operations and oversight of the DLC and with another eight recommendations that address information system deficiencies.

Open Recommendation Image, SquareOpenClosed and Implemented Recommendation Image, CheckmarkClosed-ImplementedNot Implemented Recommendation Image, X character'Closed-Not Implemented
No. 1
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Implement oversight, monitoring, and quality assurance mechanisms that routinely ensure all goods received by the Denver Logistics Center are accurately and promptly recorded in the inventory management system at the time of receipt.

No. 2
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Properly record all apnea stock in the inventory management system.

No. 3
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Ensure Denver Logistics Center management routinely assess the appropriateness of manual adjustments to the inventory system and document the findings and causes, review trends in error codes, and develop action plans to minimize inaccuracies in future physical counts.

No. 4
Closed and Implemented Recommendation Image, Checkmark
to Acquisitions, Logistics, and Construction (OALC)

Strengthen controls over inventory adjustments to ensure the accountable officer or designee reviews and approves supply variances above an established threshold.

No. 5
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Establish and implement policy that clearly defines roles and responsibilities for Denver Logistics Center logistics and warehouse employees, separates duties to avoid conflicts of interest, and enhances the quality assurance function.

No. 6
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Establish and implement formal policies and procedures specific for inventory management operations at the Denver Logistics Center, to include cycle counts, regular inventory audits, adjustments and forecasting demand, safety levels, reordering, and tools to allow for automated scanning.

No. 7
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Develop and deliver formal training to logistics and warehouse staff on inventory management policies, procedures, and tools.

No. 8
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Implement routine reporting of all Denver Logistics Center inventory adjustments to the National Acquisition Center and the Office of Acquisition, Logistics, and Construction.

No. 9
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Ensure the Denver Logistics Center staff complete reports of survey for adjustments to inventory in accordance with VA logistics management policy, and communicate such information to the National Acquisition Center.

No. 10
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Address the physical security issues identified and develop, implement, and provide initial and recurring training and guidance to Denver Logistics Center’s logistics, distribution, and contract staff on proper physical security controls and procedures, including the proper disposal of personally identifiable information.

No. 11
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Conduct an independent, comprehensive, and multiyear financial audit that includes wall-to-wall inventory assessments of the Denver Logistics Center.

No. 12
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Transfer the stewardship and responsibility for Denver Logistics Center systems to the Office of Information and Technology.

No. 13
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

In collaboration with the Office of Information and Technology, establish information system controls for user access, segregation of duties designations, permission access, and privilege access for the inventory management systems and data.

No. 14
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Establish and perform routine reviews of the access levels for users with direct access to the inventory management systems and ensure that access is limited to those who have a defined business purpose.

No. 15
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

In collaboration with the Office of Information and Technology, ensure the Denver Logistics Center meets physical access, security, and contingency planning requirements for its information management systems.

No. 16
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Establish a connection for Denver Logistics Center inventory data to VA’s Corporate Data Warehouse.

No. 17
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

In collaboration with the Office of Information and Technology, ensure the information technology system application does not bypass internal control restrictions, has a complete audit trail, and does not introduce errors in the information system.

No. 18
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Ensure the Denver Logistics Center develops and maintains comprehensive documentation of the information system to support operations and train information resource management staff.

No. 19
Open Recommendation Image, Square
to Acquisitions, Logistics, and Construction (OALC)

Ensure security documentation accurately supports the proper controls are implemented, tested, and representative of the system security.