[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
U.S. DEPARTMENT OF VETERANS AFFAIRS
INTERNAL CONTRACTING OVERSIGHT DEFICIENCIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 27, 2007
__________
Serial No. 110-31
__________
Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
BOB FILNER, California, Chairman
CORRINE BROWN, Florida STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South RICHARD H. BAKER, Louisiana
Dakota HENRY E. BROWN, JR., South
HARRY E. MITCHELL, Arizona Carolina
JOHN J. HALL, New York JEFF MILLER, Florida
PHIL HARE, Illinois JOHN BOOZMAN, Arkansas
MICHAEL F. DOYLE, Pennsylvania GINNY BROWN-WAITE, Florida
SHELLEY BERKLEY, Nevada MICHAEL R. TURNER, Ohio
JOHN T. SALAZAR, Colorado BRIAN P. BILBRAY, California
CIRO D. RODRIGUEZ, Texas DOUG LAMBORN, Colorado
JOE DONNELLY, Indiana GUS M. BILIRAKIS, Florida
JERRY McNERNEY, California VERN BUCHANAN, Florida
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
Malcom A. Shorter, Staff Director
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
HARRY E. MITCHELL, Arizona, Chairman
ZACHARY T. SPACE, Ohio GINNY BROWN-WAITE, Florida,
TIMOTHY J. WALZ, Minnesota Ranking
CIRO D. RODRIGUEZ, Texas CLIFF STEARNS, Florida
BRIAN P. BILBRAY, California
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
June 27, 2007
Page
U.S. Department of Veterans Affairs Internal Contracting
Oversight Deficiencies......................................... 1
OPENING STATEMENTS
Chairman Harry E. Mitchell....................................... 1
Prepared statement of Chairman Mitchell...................... 27
Hon. Ginny Brown-Waite, Ranking Republican Member................ 3
Prepared statement of Congresswoman Brown-Waite.............. 28
Hon. Timothy J. Walz............................................. 4
WITNESSES
U.S. Department of Veterans Affairs:
Belinda J. Finn, Assistant Inspector General for Auditing,
Office of Inspector General.................................. 5
Prepared statement of Ms. Finn............................... 29
Hon. Robert J. Henke, Assistant Secretary for Management....... 12
Prepared statement of Hon. Henke............................. 31
MATERIAL SUBMITTED FOR THE RECORD
Post Hearing Questions and Responses for the Record:
Hon. Harry E. Mitchell, Chairman, and Hon. Ginny Brown-Waite,
Ranking Republican Member, Subcommittee on Oversight and
Investigations, Committee on Veterans' Affairs, to Hon.
George J. Opfer, Inspector General, U.S. Department of
Veterans Affairs, letter dated July 16, 2007, and response
letter dated August 14, 2007................................. 34
Hon. Harry E. Mitchell, Chairman, and Hon. Ginny Brown-Waite,
Ranking Republican Member, Subcommittee on Oversight and
Investigations, Committee on Veterans' Affairs, to Hon. R.
James Nicholson, Secretary, U.S. Department of Veterans
Affairs, letter dated July 16, 2007, and VA responses........ 37
U.S. DEPARTMENT OF VETERANS AFFAIRS
INTERNAL CONTRACTING OVERSIGHT
DEFICIENCIES
----------
WEDNESDAY, JUNE 27, 2007
U. S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:12 a.m., in
Room 340, Cannon House Office Building, Hon. Harry E. Mitchell
[Chairman of the Subcommittee] presiding.
Present: Representatives Mitchell, Walz, and Brown-Waite.
OPENING STATEMENT OF CHAIRMAN MITCHELL
Mr. Mitchell. Good morning and welcome to the Subcommittee
on Oversight and Investigations for the June 27th meeting. The
hearing this morning will be on the U.S. Department of Veterans
Affairs' (VA's) internal contracting oversight deficiencies.
This hearing will come to order. And I want to thank everyone
for being here this morning.
I am pleased that so many folks could attend this oversight
hearing on the VA's internal contracting oversight
deficiencies. This will not be the last. We all have work to
do.
We are going to begin today by hearing from the Office of
Inspector General (IG) concerning the IG's recently completed
audit of contracting practices at the Boston Healthcare System
in Veterans Integrated Services Network (VISN) 1. The IG's
report is extremely disturbing. Senior contracting and fiscal
officers at the Boston Healthcare System executed contract
modifications in excess of $5 million that were illegal.
As just one example, in fiscal year 2002, Boston executed a
contract for $16,000 to repair asphalt roadways. In March of
2004, this paving contract was modified to add electrical panel
and emergency generator projects totaling $900,000. These
modifications were clearly outside the scope of the original
contract and clearly in violation of laws governing the use of
expired appropriations.
These were not just technical violations. Not only did the
contract modifications violate some of the most basic precepts
of government contracting and appropriations law, they also had
the following pernicious effects. First, the modifications were
not completed. We have no way of knowing whether the taxpayers'
interests in obtaining a fair price and good service were
protected. Second, the Boston Healthcare System decided to put
its own needs above all other priorities in VISN-1.
VA does not have unlimited funds and has a process of
prioritizing expenditures that Boston evaded. The Inspector
General found that VISN-1 deferred renovation of a cardiology
unit in another VA hospital because of concerns about an
insufficient budget. The VISN had no opportunity to decide
whether the cardiology unit at the other hospital was of higher
priority than the parking lot in Boston.
We are not here to assess individual responsibility. There
are no witnesses from VISN-1 present and we will not be asking
the IG or VA about individuals. VA is conducting an
Administrative Board of Investigation and we leave that
assessment of individual responsibility to that process.
We are here to inquire about VA's internal controls over
acquisition, controls that Boston certainly suggests are
seriously lacking. For example, VA has a policy that all
contract modifications in excess of $100,000 must be submitted
for legal review. This was not done in Boston and the Inspector
General indicated in his report that the improper contracting
might have been prevented if this policy had been followed. The
obvious question is: why did VA's internal controls not require
verification of legal review prior to disbursement of funds for
contract modifications in excess of $100,000? Policies are
practically worthless if VA has no way of knowing if they are
being followed.
In February of this year, the Inspector General told this
Subcommittee that the VA does not know what it purchases, who
it purchases from, who made or approved purchases, whether a
purchase was made by contract or on the open market, what was
paid, and whether the prices were fair and reasonable. And this
is not a new problem.
In May of 2001, the Inspector General issued a report
evaluating VA's purchasing practices. In July of that year,
then-Secretary Principi formed a task force to correct the many
problems identified by the IG. The task force issued its report
in February 2002 with 62 recommendations for change. We look
forward to the VA telling us which of these recommendations
have been successfully implemented and what VA is currently
doing to monitor their completion.
We have little reason to be optimistic about VA's response.
Since 2002, VA has spent hundreds of millions of dollars on
procurement and deployment of the Core Financial and Logistics
Systems, or CoreFLS. CoreFLS has been a complete failure.
Congress mandated that VA develop the Patient Financial
Services System.
From 2003 to 2006, VA paid a contractor $30 million for
this project, received nothing and terminated the contract with
the $30 million of taxpayers' money wasted. There is a list of
Inspector General reports recounting similar problems with VA
contracting.
Finally, the Subcommittee cannot help but note that VA's
external auditors have found material weaknesses in VA's
internal controls that were repeat deficiencies from prior
years. Those material weaknesses include VA's integrated
financial management system and its operational oversight. As
the Inspector General has said, ``The risk of materially
misstating financial information remains high because of these
material weaknesses.''
We all share the goal of ensuring that the $10 to $12
billion VA spends on acquisition each year is well spent. That
goal can only be met if VA has reliable internal controls. It
is a truism in business--if you can't measure it, you can't
manage it. VA cannot manage its spending without dramatic
improvements in its controls.
I can assure you, we will all be back here in a few months
to see what progress VA has made. Between now and then, the
Subcommittee expects the VA will work closely with the
Subcommittee's staff so that Congress can stay informed about
VA's progress.
[The prepared statement of Chairman Mitchell appears on p.
27.]
Mr. Mitchell. Before I recognize the Ranking Republican
Member for her remarks, I would like to swear in our witnesses.
Would all the witness that are here today please stand and
raise their right hand?
[Witnesses were sworn.]
Mr. Mitchell. Thank you. Now I would like to recognize Ms.
Brown-Waite for opening remarks.
OPENING STATEMENT OF HON. GINNY BROWN-WAITE
Ms. Brown-Waite. I thank the Chairman very much, and I
thank him for holding this hearing. It is important that we
bring these concerns about procurement forward for discussion.
I have a feeling that it has happened before and we are just
repeating history. I know that the Chairman and I have no
intention of just having history be repeated, that we are going
to take some action. Our Nation's veterans are certainly a
valuable asset and caring for them has to be our first
priority.
Procurement is an area in which we can provide services and
care to veterans. But it is also an area where if it is not
done properly and within the letter of the law, it is subject
to abuse and impropriety. According to the VA's own Office of
Acquisitions web page updated last on October 14th, 2006, VA
states that its annual expenditures are more than $5.1 billion
for supplies and services, including construction. VA is one of
the largest procurement and supply agencies in the Federal
Government. Drugs, medical supplies and equipment, information
technology (IT) equipment, services and other critical patient
care items must be procured and distributed to VA's healthcare
facilities, mainly because it is the largest healthcare
delivery system in the country.
Supply support is also provided to regional offices,
national cemeteries, automation centers and other various VA
activities. Yet today, VA testifies that the $5.1 billion is
now over $10 billion, almost double the amount from last
October. VA's procurement practices are so decentralized with
very little oversight. I wonder if VA really knows how much is
being procured and how efficiently resources are being spent.
I also believe that an unknown amount, probably a lot, is
listed under that very benign category of miscellaneous
obligations. What a great place to put purchases. I hope that
we see some clarity to these issues during today's hearing. I
understand that we will hear from the VA's IG about the
egregious procurement improprieties that occurred at the Boston
VA Healthcare System.
VA can have policies and procedures stacked all the way to
the ceiling, but if there are no controls in place to ensure
compliance or noncompliance, what good are these policies. With
reports dating back as far as April 1997, ten years ago, it
appears the IG and the VA have recognized the existence of the
systemic procedure problems. Yet, little has been done to
address them. Oh, yes, we have generated reports and
recommendations countless times over the past years. But when
we see the same recommendations over and over again, we have
got to wonder why no one took these seriously and why there has
been no effort to punish the perpetrators.
I have strong concerns that VA has failed to act on what
they have known has been a problem. These reports speak of
professionalizing the VA, optimizing and monitoring the
procurement process and making the contracting process fair and
accessible. Yet, cases like those found in the Boston VA
Healthcare System provide a glaring example of perpetual lack
of accountability.
We owe it to our veterans to address the mismanagement in
VA procurement once and for all. While we know that there are
good VA employees working within the current procurement
system, we need assurances that VA is working to fix a broken
system. As of today, 19 of the 21 VISNs have taken steps to
protect and update their procurement process. The other two
VISNs must follow suit.
With backlogged patients not getting the resources they
need and the VA executives asking for more and more money, we
need to make sure that funds are going where they need to go
and not in the hands of procurement employees who spend more
than the allotted and legal procurement amounts and methods.
The first step of all recovery programs is to admit there is a
problem.
So I hope that the facts brought out in today's hearing and
the IG's report, coupled with the incidents at Boston, are
indicative of a long history of very dysfunctional
decentralized acquisition and procurement programs with very
little oversight. We hope that these will be a springboard for
change within the VA.
Thank you, Mr. Chairman, for yielding. It is important to
bring these concerns about procurement forward for discussion.
Our Nation's veterans are a valuable asset and caring for them
should be our first priority. Procurement is an area in which
we can provide services and care to our veterans. But it is
also an area where if it is not done properly and within the
letter of the law can be subject to fraud, abuse and lots of
impropriety.
According to the VA's own Office of Acquisitions Web site
which was updated, they said $5 billion. We're now at $10
billion. We hope to uncover today exactly what those problems
were. And I appreciate the gentleman for yielding.
[The prepared statement of Congresswoman Brown-Waite
appears on p. 28.]
Mr. Mitchell. Thank you. I would like to now recognize Mr.
Walz.
OPENING STATEMENT OF HON. TIMOTHY J. WALZ
Mr. Walz. Thank you, Mr. Chairman, and thank you, Ms.
Ranking Member, for your comments.
Thank you, each of you, for coming today and we appreciate
your expertise, your experience and your guidance to help us on
this. This hearing is making certain we fulfill our obligation
of oversight because we are all partners in this and our
ultimate goal is to provide the best care possible for our
veterans. And our second obligation is to make sure we are good
stewards of the public trust.
So I look forward to having the opportunity to learn from
this experience, making sure, as the Ranking Member said, that
we do more than learn, that we act on those to ensure that the
precious resources that are allocated for our veterans are
having the biggest impact. So I see this as an absolute piece
of what needs to happen in terms of accountability. I see it as
an absolute piece of what needs to happen to make sure that we
increase our effectiveness.
So I want to thank each and every one of you for coming and
sharing with us what we can do to make this better. And I yield
back, Mr. Chairman.
Mr. Mitchell. Thank you. We will now proceed to panel one.
Ms. Belinda Finn is the Assistant Inspector General for
Auditing. She's accompanied by Ms. Maureen Regan, the Counselor
to the Inspector General and a recognized contracting expert;
and Mr. Nick Dahl, the Director of the Bedford Audit Operations
Division, which was responsible for the report on the recent
abuses in Boston. We look forward to hearing from Ms. Finn and
her views on the VA's internal contracting and oversight
process and procedures.
Would you please come forward? Ms. Finn, you will have five
minutes.
Ms. Finn. Thank you.
Mr. Mitchell. Thank you.
STATEMENT OF BELINDA FINN, ASSISTANT INSPECTOR GENERAL FOR
AUDITING, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF
VETERANS AFFAIRS; ACCOMPANIED BY MAUREEN T. REGAN, COUNSELOR TO
THE INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S.
DEPARTMENT OF VETERANS AFFAIRS; AND NICHOLAS DAHL, DIRECTOR,
BEDFORD AUDIT OPERATIONS DIVISION, OFFICE OF INSPECTOR GENERAL,
U.S. DEPARTMENT OF VETERANS AFFAIRS
Ms. Finn. Mr. Chairman and Members of the Subcommittee,
thank you for the opportunity to be here today. I will be
testifying about our report on the audit of alleged
mismanagement of government funds at the VA Boston Healthcare
System. The issues we reported in our recommendations were
specific to VISN-1 and the Boston Healthcare System. However,
we believe that the Veterans Health Administration (VHA) can
improve controls to prevent similar incidents elsewhere.
We began our review in response to an anonymous hotline
complaint that alleged contract irregularities and the misuse
of government funds on contract modifications. The original 24
contracts were executed between fiscal years 2000 and 2003 at a
value of $1.3 million. From 2002 to 2006, Boston Healthcare
modified the original contracts 40 times to perform
nonrecurring maintenance programs with a combined value of $5.5
million.
Our review determined that 37 of the 40 contract
modifications were outside the scope of the original contracts
and should have been competed as new procurements. As
illustrated in Chairman Mitchell's opening statement, the work
required by the modifications had little bearing in connection
to the original contract. The modifications were worth a total
of $5.4 million, all of which was paid with expired funds.
Because the contract modifications were not within the scope of
the original contracts, funding the actions with expired funds
violated Federal appropriations laws.
Boston Healthcare also failed to comply with Federal
acquisition regulations. Several of the actions lacked an
adequate statement of work to describe the work or services
being required, and by modifying existing contracts, they also
avoided competition requirements and did not perform the
analyses that would have allowed them to determine if the
prices were fair and reasonable.
As already stated, policies and procedures were in place to
prohibit the out-of-scope contract modifications and the
improper use of expired funds. Controls were not in place to
enforce compliance. Policies require VA approval to use expired
funds, legal reviews of the contract modifications over
$100,000, and even tracking of the nonrecurring maintenance
projects at the VISN level.
Boston Healthcare complied with none of these policies. But
neither network nor VHA personnel were aware of the contract
modifications, the use of expired funds, or the various
nonrecurring maintenance projects being performed.
In closing, the Office of Inspector General (OIG) is
committed to working with VA and VHA to correct these
deficiencies and help to prevent similar occurrences in the
future.
Mr. Chairman, thank you again for the opportunity to be
here. My colleagues and I will be happy to answer any questions
from you or the other Members of the Subcommittee.
[The prepared statement of Ms. Finn appears on p. 29.]
Mr. Mitchell. Thank you, Ms. Finn. I have a couple
questions. First of all, what control weaknesses allowed the
contracting irregularities and the misuse of funds to occur at
the Boston Healthcare System?
Ms. Finn. The control weaknesses basically were to ensure
compliance. There were no system controls that would have
prevented people below the VISN level from charging expired
funds. There was no control in place to assure or ensure that
the legal reviews were performed. There was no control to
perform a further supervisory check on the contract
modifications to determine if they were out of scope.
Mr. Mitchell. Then comes a follow-up. What corrective
actions has the VISN-1 Director taken in response to your
recommendations and are you satisfied with their actions?
Ms. Finn. Mr. Dahl is going to address that.
Mr. Mitchell. All right.
Mr. Dahl. In response to recommendations we made to improve
controls over the execution of contract modifications, the use
of expired funds, following the ``nonrecurring maintenance''
(NRM) approval process, and staying in compliance with the
Federal Acquisition Regulation (FAR), the VISN has developed
and issued a number of standard operating procedures and
guidance to the field facilities within the VISN to improve the
management controls over those aspects of the process.
For example, they have a policy in place that is designed
to better ensure that modifications that are funded with prior
year funds are within the scope of the original contract. They
also have a process in place where modifications that are going
to be funded with prior year funds are approved at a level
above the contracting officer.
We also made recommendations that they take administrative
action against the Chief of the Fiscal Service in Boston and
the Chief of the Purchasing and Contracting Section in Boston
and we also recommended that they conduct an administrative
investigation of the facts surrounding the issues we found
during our audit.
In response to that, the VISN Director has charged an
administrative board of investigation to conduct an
investigation surrounding the facts of the improper
modifications and use of expired funds. The board is comprised
of employees from outside of VISN-1. They have a short
deadline. Their report and conclusions are due to the VISN
Director by the end of July and based on their findings and
conclusions, the VISN Director has informed us that she plans
to take action against any officials for whom it is warranted.
Now, one other recommendation we made was that they make
corrective accounting adjustments to properly record the
funding of these improper contract modifications. The VISN
Director has informed us that these modifications were made in
accordance with instructions provided by headquarters.
I would like to close this answer by saying we feel these
are steps in the right direction. But we have not validated the
actions reported, nor assessed their effectiveness. And I would
also like to point out that they are specific to VISN-1. They
are not specific to the entire VHA.
Mr. Mitchell. Thank you. And that brings up the last one I
want to ask. Are there any assurances that these deficiencies
and problems that have occurred in VISN-1 are not incurring in
other VISNs?
Ms. Finn. No. We have no assurance that these actions are
not occurring in other locations across the network, or across
VHA.
Mr. Mitchell. Are you looking into others besides just this
one? I understand you looked at this one because you had a tip.
What about the other VISNs?
Ms. Finn. At present, we don't have any work going on in
that area. But in the future we could look at that.
Mr. Mitchell. Thank you. I yield to Ms. Brown-Waite.
Ms. Brown-Waite. I thank the Chairman for yielding. Ms.
Finn, you have got to have the most frustrating job in the
whole wide world, second only to Members of Congress. How many
similar reports of lack of controls in this, in the purchasing
area? We know they go back to 1997. How frequently have they
been issued? Do you know that?
Ms. Finn. Ms. Brown-Waite, I am fairly new at VA, so I
really can't give you an answer on the number. But I know it
has been extensive. I did bring help with me and Maureen Regan
is the Counselor to the IG. She has done a lot of work in
contracting.
Ms. Brown-Waite. Perhaps Ms. Regan could answer?
Ms. Regan. We have done a series of reports primarily on
individual contracting actions. There hasn't been the broad
national type of audit in a number of years on this issue. But
various contracts--even in the past year I think we have put
out three or four, maybe even five reports on various large
contracts in which there has been problems at all levels in the
contracting process. This is because there are no controls to
make sure that the acquisition is properly planned, to make
sure that it is properly administered, to be sure that the
bills are properly paid. There are problems in all those
various areas.
So there is a series of reports from 2001 with our
purchasing report, our evaluation of sole source contracts at
the medical centers, to affiliates which came out in 2005 and
we put out this year the patient financial services system
contract, the central incident report center contract, the
contract that had to do with hiring the forensic auditors or
investigators to look at the data lost last year. We have
several CAP reports that I know we have worked with healthcare
inspections on contracting actions at various medical centers.
I know Dallas is out. We have a couple others coming out there.
And all of them show similar lack of controls in planning and
administration of contracts.
Ms. Brown-Waite. The reason why I said it has got to be the
most frustrating job is because you make recommendations that
certainly would improve the systems and it appears as if your
recommendations are ignored. Would that be a fair statement,
Ms. Regan?
Ms. Regan. A lot of times recommendations end up in
policies and whether or not those policies are complied with,
there is no oversight to ensure it. With respect to the
purchasing report, former Secretary Principi, I think it was
mentioned in Mr. Mitchell's statement, put out a Procurement
Reform Task Force Report with 62 recommendations. There has
been no oversight at all to see if they have been implemented.
In the sole-source to the affiliate, the contract report,
VA did put out directive 1663. We are not seeing that that has
been complied with in the work that was ongoing in that area.
So there is no--even if you put out a policy, there is no
oversight for compliance.
Ms. Brown-Waite. Ms. Finn, or Mr. Dahl, or Ms. Regan, what
would lead the Chief of Fiscal Services to suppose that funds
were available from a prior year appropriation? Is it ``I want
to spend it, so I do it?''
Mr. Dahl. We don't have a--I don't have a clear answer for
you on that. I assume that is something similar to that. In the
past, I think that these medical centers had more, more control
over their own projects before the VISN concept came into
place. If a medical center needed work done, they did their own
contracting. They had their own funding. That has changed with
the whole VISN structure.
They found----
Ms. Brown-Waite. Well----
Mr. Dahl. They found creative ways to basically hide money
in Boston so that money would be available to them down the
road to complete projects that they wanted to have completed.
Ms. Brown-Waite. But it was not legal what they did. And
Mr. Dahl, you said that actions that are warranted will be
taken--that you have been told actions that were warranted
would be taken. Do you feel--do any of the three of you feel as
if anybody really is accountable? Just a simple yes or no.
Ms. Regan. In this particular case or in general?
Ms. Brown-Waite. Let's take the Boston case.
Mr. Dahl. Yes.
Ms. Finn. I believe that people are accountable for their
actions, yes.
Ms. Brown-Waite. No. Do you think that people, the people
who were involved should be--are accountable and should be held
accountable?
Ms. Finn. Yes.
Mr. Dahl. Yes.
Ms. Brown-Waite. Do you believe that will take place?
Mr. Dahl. I have high hopes that that will take place.
Ms. Brown-Waite. Would you define accountable to me? Maybe
that is where I need to go.
Mr. Dahl. Well, for instance, already----
Ms. Brown-Waite. Should they be demoted? Should we make
sure they, you know----
Mr. Dahl. The Chief of the Purchasing and Contracting
Section, we had also made a recommendation to the Deputy
Assistant Secretary for Acquisition and Materiel Management
that he determine whether her contract warrant should be
revoked. He has already taken action to pull her warrant. I
don't know that that is a final action until the Administrative
Board has done their work. But that would seem to me, in my
opinion, to be suitable, that she can no longer function as a
contracting officer.
Ms. Brown-Waite. Does she have an ugly twin sister who is
doing it also? I mean maybe that is what the problem is.
Mr. Chairman, I appreciate--I have gone over my time and I
yield back to you.
Mr. Mitchell. Thank you. Mr. Walz?
Mr. Walz. Well, thank you, Mr. Chairman and thank you, Ms.
Finn, for your testimony, and each of you. And on this I may
be--because I know we are talking more on a micro level about
this Boston incident. But having you here in the Office of
Inspector General, one of the things that I am concerned about
is looking at the macro level, if there is anything we can
extrapolate from this to see if the scope of this extends.
I know I may be asking you to maybe make a little bit of a
reach. But one of the things we are trying to get a grasp on in
this Committee, this Subcommittee and this Committee as a whole
and this Congress last week passed some of the most sweeping
legislation dealing with the VA in terms of resourcing in the
77-year history of the VA. There is going to be a massive
amount of resourcing and my colleagues on these Committees
asked what I think were some very pertinent questions and some
very important questions.
Resourcing is one piece of it and we all agree that--at
least 409 of us and 2 didn't agree that that was appropriate
use of taxpayer money. My question is, do you believe that this
experience is the tip of an iceberg? Are there systems in place
for us to deal with expanding some of the coverage, opening up
some traumatic brain injury centers, making sure we reduce that
number of the backlog in cases?
What this makes me wonder about is, are we setting
ourselves up to have more of this happen as we get those
resources in? So I know it is not a pointed or specific
question, but the Office of the OIG I see as a very, very
important tool in the delivery of quality services at the best,
the best use of resources. So Ms. Finn.
Ms. Finn. We have reported in our financial statement audit
that the financial management systems at VA are a material
weakness for the department. Until we have really an integrated
financial system with adequate controls through, that will
remain a material weakness.
The lack of a financial management system to truly track
and record our obligations and expenditures will prove a
problem as we deal with additional resources and requirements.
Mr. Walz. And one final question, again, I know I am asking
you maybe to help us understand this. Again, going back to the
OIG and it may extend the scope of this or step outside a
little bit of this hearing. I am intrigued, I guess encouraged
by, that this came from the use of a hotline, that this system
of oversight appears to have worked in this case, at least on a
very informal manner.
My question to you is, I guess, do you feel like--being new
to this and you are stepping into it, does the OIG have the
resources to be able to follow up on these? And I think that
the Chairman and the Ranking Member's question was, and
Chairman Mitchell's question was, if we had it in Boston, I
think, at least my gut feeling would tell me, perhaps we should
look at the other VISNs too. But I am wondering if you have the
resources or the ability or the authority or if you could help
me understand that.
Ms. Finn. We have the ability and the authority. The
resources, we would be balancing this need against all of the
competing priorities that we have to deal with and we have
many. Specifically on hotline complaints, we receive a lot and
we have to judge each one of those as to whether we can do a
review of that complaint with OIG personnel. Many times we do
not have the resources and we would refer it to management to
review.
In this case, I think I made the comment and my colleagues
all seem to agree with me, that the one control that did work
was the OIG hotline.
Mr. Walz. Yeah. Okay. Well, very good. I appreciate it and
I yield back, Mr. Chairman.
Mr. Mitchell. I have one final question. Do you believe
that the VA is in the process of getting an adequate financial
management system in place?
Ms. Finn. I know they are in the process of developing a
system, but we have not done a review specifically of that. So
I would like to defer really until we have resources and time
to take a look at that system to give you an honest, complete
assessment of that.
Mr. Mitchell. Thank you. Do you have any other questions?
Ms. Brown-Waite. First of all, I am glad to know that the
hotline is working and whoever reported it has to also feel
very good that actions, you know, that this was followed up. I
know sometimes the constituents out there think the hotlines
are useful because nobody ever does anything. And I will be
very happy to go home and sing your praises because of the
follow-up that took place here.
Any of the three of you can try to answer this question.
For these egregious acts to have taken place, did the
individuals involved have multiple opportunities to catch
themselves violating procedure and circumventing controls, like
the hurdles of using expired contracts, modifying contracts
outside their scope, obtaining proper legal concurrence from
the VA regional council, and or the VA expired funds manager,
you know, where they saw fit to use prior year's appropriate
funds?
I, at one point in my life before I came to Congress,
actually was a contracts administrator in a large water
management district. That is one of the reasons why I find this
whole process so out of control and, you know, there is a way
to stop this. So if you could just tell me if they had these
multiple opportunities to stop themselves?
Ms. Finn. Yes. I mean they modified the contracts. They did
40 modifications over the years. So obviously, everybody
involved had multiple opportunities to stop.
Mr. Dahl. And I would add that, you know, contracting
officers are well trained. They know their responsibilities.
Also, people that have worked in fiscal service for any amount
of time should be well aware of appropriation law and the
proper use of funds. I really don't think, in my opinion, that
these people had an excuse for what they did.
Ms. Brown-Waite. Are we on our way to somebody up there
seeing the light that Congress has caught on, that they have
ignored all of these other reports?
Ms. Finn. Are you talking about the larger procurement
issues?
Ms. Brown-Waite. Yes.
Ms. Finn. Yes, I hope so. But I think time will tell.
Ms. Brown-Waite. Mr. Chairman, I yield back.
Mr. Mitchell. Thank you very much. We appreciate you being
here and answering our questions. Thank you.
Ms. Finn. Thank you.
Mr. Mitchell. I would like to welcome panel two to the
witness table. Mr. Robert Henke is the Assistant Secretary for
Management of the VA and the Department's Chief Financial
Officer (CFO). He is accompanied by Mr. Jan Frye, the Deputy
Assistant Secretary of Acquisition and Materiel Management, and
Mr. Frederick Downs, Jr., the Chief Prosthetics and Clinical
Logistics Officer for the Veterans Health Administration who
oversees contracting and procurement for the VHA.
We look forward to hearing Assistant Secretary Henke's
testimony and if you could please keep it to five minutes, we
would appreciate that.
STATEMENT OF HON. ROBERT J. HENKE, ASSISTANT SECRETARY FOR
MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY
JAN R. FRYE, DEPUTY ASSISTANT SECRETARY, OFFICE OF ACQUISITION
AND MATERIEL MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS;
AND FREDERICK DOWNS, JR., CHIEF PROSTHETICS AND CLINICAL
LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, U.S.
DEPARTMENT OF VETERANS AFFAIRS
Mr. Henke. Yes, sir, Mr. Chairman. Let me do that and just
basically cut right to the chase. We recognize--I personally
recognize that VA's procurement practices are one of the top
five major management challenges that our IG has identified for
the Department. What I want you to know today is that we
understand the challenges and we have many efforts underway to
improve our systems and our processes.
Our leadership is engaged from the Secretary down and is
committed, and is clearly articulating an expectation that VA
must work to improve the quality, efficiency and productivity
of our acquisition services.
Mr. Chairman, if I might, I would like to highlight for the
Committee some of the things we have accomplished and things we
are working to accomplish in the area of acquisition, just to
put the problem, the issue in context.
We have reduced from over 200 to 31 the number of heads of
contracting activities who oversee contracting, and have
implemented 60 of the 62 recommendations in the VA Procurement
Reform Task Force. We have consolidated the contracting
function at 19 of our 21 healthcare networks and the other two
will be done by the end of this year. We established contract
review boards and required their use at three critical points
in the acquisition process for contracts valued at $5 million
and above.
We recognize the need for much stronger, more deliberate
and more rigorous acquisition planning and have launched cross-
functional IPT's or integrated product teams to develop those
requirements and assure the contracting process meets the need.
We have deployed nationally an Electronic Contract Management
System that automates contract writing, promotes
standardization and ensures better accuracy of contracting
data. And what this system will do is give management better
oversight and better reporting and analytical tools to track
and oversee contracting actions that are underway.
We have hired a new Deputy Assistant Secretary for
Acquisition. He has 30 years of Army experience in logistics
and contracting to include senior command positions in Korea,
the UK and stateside. We hired a new executive as VA's
acquisition lead. He has 20 years of experience in industry,
the Department of Justice, Department of Commerce.
We designated VHA's Prosthetics and Clinical Logistics
Officer, that is Mr. Downs seated to my left. And forgive me,
Mr. Frye is my Deputy for Acquisition. He is the guy with the
Army logistics background.
We have completely reorganized my 440-person acquisition
office. We separated in the office the functions of operations
and execution from policy development which over time had grown
intertwined and, frankly, a bit confused. I asked for and
received two additional executive positions and they were
approved by the Deputy Secretary to improve that organization.
We performed the first ever external independent audit of
VA's supply fund, the first audit since that fund was
established in 1953. We hired a fantastic young executive to
lead our national Acquisition Center in Chicago. That position
had been vacant for almost two years and now it is filled.
I designated a senior executive at VA as my Acquisition
Career Manager to reflect the importance of getting this
acquisition work force right and giving them the tools they
need to succeed. We have completed a total rewrite of VA's
acquisition regulations, the first complete rewrite of them
since 1984 and we are going to publish that final rule here
sometime this summer.
We have defined the acquisition work force at VA and are
dedicating resources to educate, train and certify that work
force. At the IG's suggestion, we have established a data
mining program to improve compliance and oversight in our
purchase card program. In 2004, we established a Business
Oversight Office in Texas and staffed it with 108 auditors,
system experts, financial experts and acquisition
professionals.
We have directed--I have directed a comprehensive, third-
party assessment of VA's acquisition model and governance. That
solicitation is on the streets and I expect to have an award of
a nationally reputable firm here in August and they will come
back to us with their assessment of our governance model for
acquisition, and whether we are organized properly or not.
We performed 1,632 acquisition reviews last year in my
acquisition resources service.
We have embarked on the government's version of Sarbanes-
Oxley. We have hired a major national accounting and audit firm
to test, to rigorously test our internal controls and to give
me the assurance as the CFO that I can sign off on the
integrity of our financial statements.
We are in year two of that process and we have identified
the 11 key business activities we are looking at and we are
testing the controls in every one of them. This year we are
testing controls in, among other things, contracting, purchase
cards and equipment inventories. And I have established a
separate Internal Controls Service in Austin and I am staffing
it now.
In summary, Mr. Chairman, we recognize the challenges we
have. We know that much work remains. We brought in new
leadership to tackle the problem. The people at the table and
the people behind us are working together to solve the problem.
We believe we are moving forward and making strong progress and
we recognize there is more work to do.
That concludes my opening statement and I would be pleased
to take your questions, sir.
[The statement of Hon. Henke appears on p. 31.]
Mr. Mitchell. Thank you, Mr. Henke. The reason we are here
today is because of a hotline tip. And I assume that if that
tip hadn't come in, business would still be going on as usual.
Hopefully that is not the case, but that sure seems to be the
case.
Let me ask, could you assure us that the control weaknesses
that we found in VISN-1 are not occurring and have not occurred
in any of the other VISNs?
Mr. Henke. Sir, I can assure you that I view what occurred
in Boston as an aberration in the system. Frankly, it is
unfortunate that it had to get to a hotline inquiry to get it,
to bring it to resolution. The hotline is obviously the court
of last resort for something. We have literally dozens of
actions underway and increased oversight to ensure that a
Boston doesn't happen again.
When I read the report and talk to the people in Boston who
are involved with this, it is clear to me that the contracting
office there, the Chief of the Purchasing Section--anyone in
contracting 101 knows you don't do out-of-scope modifications
to contracts. Any fiscal officer knows you don't move around
expired funds without a very good reason and a under very
limited circumstances that get to bona fide need in
appropriations law.
I can tell you that we are going to take a number of
actions specifically in the VISN-1 area to support them and
assist them and assure that they come up to compliance with
standards. Sir, I do want to point out that what occurred in
Boston occurred in the timeframe of 2000 to 2003, if I recall
correctly. That was before we had centralized or consolidated
the contracting function at 19 of 21 of our VISNs.
Since that time, we have established positions at the
network level to take contracting officers out of the chain of
command of the facility director and put them in at the network
level, meaning there is a network contract manager who is an
1102 contracting professional. There is a Chief Logistics
Officer and a Deputy Network Director at senior levels to
oversee the business functions in that network.
Mr. Mitchell. I understand what you are saying. I think
this practice went on clear up until about 2006. But in any
case, what I am asking you again is, can you assure us that the
things that happened in Boston have not happened in the other
VISNs? Have you checked them as you are doing it? And Boston is
an aberration that has not occurred in the others?
Mr. Henke. Can I assure you with a hundred percent
certainty that it is not happening anywhere else?
Mr. Mitchell. Yes. Are you looking into the other VISNs or
you are just looking into Boston?
Mr. Henke. We are looking into other VISNs. I can't assure
you that it is not happening elsewhere. But I am taking steps
to find out if it is.
Mr. Mitchell. Thank you. Ms. Brown-Waite?
Ms. Brown-Waite. Thank you, Mr. Chairman, for yielding. Mr.
Henke, this is not the first instance of contracting going awry
at the VA. Earlier this year, we learned of a problem with the
contract with UNISYS where the VA ended up paying $12 million
for software that now sits on a shelf unfinished and unusable.
Tell me how you are going to prevent this kind of absolute,
total complete waste from happening again.
Mr. Henke. Yes, ma'am. I am painfully aware of all the IG
reports that point out where we have fallen short. What we are
doing to fix it is--and the core problem in that case was we
don't have a very strong culture of program management, program
management expertise partnered with the acquisition community
and acquisition work force to develop clear statements of
requirements for what the contract is supposed to do, to
develop that contracting vehicle in a collaborative way with
legal in the room, with finance in the room, with acquisition
and program officials in the room.
So too often we write vague requirements that then aren't
executed by a contractor. We also need to improve post-award of
that contract. We need to improve our ability to manage that
contract. Once the contract is in place, we can't put it on a
shelf and hope that things come to fruition. We need to
actively manage the contractor to ensure they perform and they
deliver.
Ms. Brown-Waite. Sir, are you saying you don't have
contract managers? You have been in--VA has been in existence
and doing these multi-million dollar contracts all these years
and you don't have contract managers?
Mr. Henke. No, ma'am. We need to professionalize our
program management work force, not the acquisition people, but
the people who determine, ``I have a need to acquire
something.'' The program management expertise that frankly DoD
is very good at, is lacking in other agencies and the OMB is
directing us to make similar improvements in civilian agencies.
Ms. Brown-Waite. Sir, you brought up the term ``culture''
and I think that is exactly what is wrong with the VA's whole
purchasing debacles, a decade now of debacles. It is the
culture there of anything goes and just spending the taxpayer
dollar. You know, the culture of let's just go ahead and spend
with little or no oversight is absolutely an insult to the
taxpayers. And I hope that you three gentlemen know this and
that you take this message back.
It is a complete insult to the taxpayers who want to do
right by our veterans. Their tax dollars are paying your
salaries and the salaries of people who are supposed to be
watching over the procurement process and it just doesn't seem
to happen.
Now, one of the things that was mentioned was that you now
have contract oversight and you have a person actually in
charge of this; is this accurate?
Mr. Henke. We have, we have staffed up long vacant
executive positions in my organization with new leadership. We
have established formal contract development processes with
integrated product teams and formal contract review boards at
critical stages in the acquisition process to ensure that the
contracting officer brings their work forward, lays it out for
the most senior experienced contracting professionals. Mr. Frye
would call them the gray beards in the acquisition world. But
those contract officers come in and lay their work out and say
here is my plan to accomplish this objective. And they get
guidance and direction and oversight from this contract review
board with the most senior people.
Ms. Brown-Waite. Do those people actually have oversight?
Mr. Downs, first of all, thank you very much for your very
distinguished military career. But do you actually have
oversight? I see your title is Chief Prosthetics and Clinical
Logistical Officer. Do you actually have real oversight that
ensures tax dollars are spent appropriately?
Mr. Downs. The issues before us in oversight means being
able to know what is going on out there. And what I--we have
done a lot of activities within VHA to begin to conduct the
kind of oversight that all of us want to do. So the oversight
that we have in VHA is the instruments that we are developing--
we have put together in response to the IG for instance, we
have put together a crosswalk. When I came into this job I
asked what is happening with all these IG reviews.
So what we did is put together a crosswalk and I think it
is important to understand that this office in VHA is new. I am
the first Chief Officer of Logistics in VHA. There was no
office at all. So there was no one to implement national policy
at the field level that was developed at the national level. So
I think it is important to help put this in perspective,
because one of the thing that we now need to do is work as a
team with now the national policy developers and first of all,
what is going wrong.
And so we built this crosswalk and then we put together,
there were 26 groups that I put together. We addressed the OIG
cap reviews for 2004 and 2006. We built a crosswalk of what old
things have been found. It is embarrassing and the Veterans
Health Administration wanted to get it fixed. So I have put
this together. We have presented it to our chain of command in
VHA.
And Mr. Feeley is the one who has direct line authority
over the field. So my authority to accomplish things in the
field comes from the chain of command. I provide information to
him. And the key to this are compliance reports. So as you said
earlier, we can pass policy until the cows come home, but if we
can't find out what they are really doing, then it sort of is
not productive.
So getting back, we developed these work groups and they
are addressing each one of these IG recommendations. We have
addressed--and now follow-up is important. The key to this also
is the development of a data system so that we can
electronically, objectively find out what exactly is happening.
And this ties in with lots of other issues that perhaps come
forward in this hearing today. So yes, in compliance I feel
confident that we are developing the process to conduct the
compliance we need.
Now, another thing that goes along with this compliance is
the fact that we have this centralization within the VISN,
taking the contracting officers away from the facility
directors, centralizing under a network contract manager. Now,
this was a major change that occurred. It didn't happen perhaps
as fast as we would have liked to have had it happen at first,
but it has happened. And we have two, as you said, two VISNs
that yet have to accomplish this, but they will have it done by
October. All 21 VISNs then will have a centralized contracting
office. All contracting officers will answer to that individual
who then answers to the Chief Logistics Officer and the Network
Director.
That is one of the major accomplishments we have made in
assuring that we are going to be able to force compliance on
contracting within that VISN, because the network contract
manager has responsibilities which we have and are in the
process of developing instruments, electronic instruments to
verify what is being done.
Ms. Brown-Waite. Mr. Chairman, I know my time has expired,
but I do have some additional questions. And would it be your
preference that I yield back or continue?
Mr. Mitchell. No, go ahead.
Ms. Brown-Waite. Who actually--so at the VISN level you
have network, a network contract manager?
Mr. Downs. Yes, ma'am.
Ms. Brown-Waite. Does that person have staff----
Mr. Downs. Until recently----
Ms. Brown-Waite [continuing]. In each of the VISNs?
Mr. Downs. All the VISNs except one have various numbers of
staff. VISN-1 did not have staff, but VISN-1 has rectified that
in May. The Boston leadership in VISN-1 approved a number of
changes. The VA hospital in Brockton will become the primary
location in the consolidating contracting activity for all of
New England and the CLO, which is the Chief Logistics Officer,
the Network Contract Manager and the entire Boston contracting
staff which is currently located in Jamaica Plain, will all
immediately move to that Brockton facility.
Now, in addition, all positions approve and they have
approved 10 new additional staff which will be hired in this
consolidation for a total of 16 staff that will be located at
Brockton to support that consolidated contracting group and
that is----
Ms. Brown-Waite. Okay. Who looks at the contracts at the
152 hospitals?
Mr. Downs. Excuse me?
Ms. Brown-Waite. Who looks at the contracts for the 152
hospitals?
Mr. Downs. Each one of the NC--each one of the network
contract managers is responsible for reviewing the contracts
within their VISN that are being written by the contracting
officers who now report to them. And there is something new
that has been added too. The contracts are now required to be
entered into the new electronic management writing system that
Mr. Frye has brought into our agency and this will allow
electronic overview of contracts at the national level into the
VISN level.
Now, this is going to enable us to, us being anyone
actually, even the IG, to look at specific contracts anytime
they wish, to review those contracts. Now, the contracts that
are written over a certain dollar amount of course have to come
back to legal and technical review and the business clearance
review through Mr. Frye's shop.
Ms. Brown-Waite. One last question, Mr. Chairman, and Mr.
Henke, you may want to answer this. Have you looked at and
found one VISN that has what would you consider best management
practices, BMP's, on procurement and said they are doing it
right, let's clone that process?
Mr. Henke. Ma'am, that is what we, that is what we want to
find and identify is a collection of practices, if they are not
all in one VISN, they are across VISNs, but share those
practices and get them all to adopt the same standards. I would
be happy to get back to you on the record for which VISN we
think has it most right, or if Mr. Downs could address who has
made the most progress in terms of centralizing and improving.
But I--we have made, we have centralized consolidated 19 of
21. The next two are going to get onboard by the end of this
year. What we need to do better is find and propagate who does
it right in the system to ensure these things don't happen
again.
But Mr. Downs, do you have----
Mr. Downs. I can recommend that you can go to VISN-6, for
instance. They have a superb supplies contracting facility.
VISN-12, VISN-22, those are some of our VISNs around the area
and we have more centralized contracting facility, or systems
that have been set up within the VISN. All of the VISNs are
moving in that direction. But VISN-6 is close by, certainly
easier for you to get to and I think you will see a superb
operation down there.
Ms. Brown-Waite. I yield back the balance of my time. Good
luck in changing the course of that VA cultureship, wide birth.
Mr. Mitchell. Thank you. Mr. Walz?
Mr. Walz. Thank you also, Mr. Henke. Thank you also for
coming and of course thank you for your service. We really
appreciate your commitment to our veterans. And Mr. Downs, this
is a place where your Combat Infantry Badge (CIB) will always
get the respect that it so rightfully deserves. And so I thank
you for your commitment on this.
As I said, and again, I can't stress this enough, the
commitment of this Congress is unwavering, not just in word,
but in deed. And we really need to get the part of it, the
accountability part right, because we risk undermining the
public support for this and nothing can be more important in
making sure we provide these services.
I would also at this point say that, I would argue some of
the issues, especially with the OIG, which I think has been
vastly, maybe draconically short-changed in the past and as the
VA being the system that it is and the government system that
it is, is a key component of this, yet we see some of the
largest ratios of IG's to the amount of ground they have to
cover of anywhere in the Federal Government. So it seems to me
that we were setting up a self-fulfilling prophecy that they
were going to not be able to do what needed to happen.
And I would like to comment on a couple things. And also,
with you, Mr. Henke, I really appreciate--I know, I believe you
were at GE before; is that correct, so you've come from the
private sector?
Mr. Henke. Yes, sir.
Mr. Walz. And you were over at DoD, so you bring knowledge
of this from the private sector, from a different governmental
agency that is very well known for procurement and then coming
into the VA. So I hope you can help me with this. Again, I am
going to be a little bit macro on this in trying to have you
help me figure out what we can do on this and what we can do to
get this right, because I think that--I think Ms. Brown-Waite
is well-founded in being concerned that as we look at this, how
widespread is this, how many problems are we going to have,
especially at a time when we are ready to inject huge amounts
of resources to get a lot of this right.
So you mentioned, and I am not sure if I have the
terminology right on this. I think in your testimony you said
1,632 audits. Are these like spot audits or----
Mr. Henke. They are contract reviews----
Mr. Walz. Okay.
Mr. Henke [continuing]. Above certain thresholds, contracts
receive both legal and technical review.
Mr. Walz. Okay. Of those, what percentage met the standards
or were done correctly, if you happen to know that?
Mr. Henke. I don't have that, but I am happy to get it to
you for the record, sir.
Mr. Walz. That would be great. I mean is it something that
stood out to you that there were an inordinate amount of
inaccuracies? And I don't know if I would--improper use of
fundings or whatever they might be. Does it stand out in your
mind or is it something you would rather wait and get the
numbers for?
Mr. Henke. I would rather wait and get the----
Mr. Walz. Very good.
Mr. Henke [continuing]. Nnumber right, sir. What I do know,
the IG report on Boston makes it clear that those reviews were
required but not sought. So that is the weak link we have in
that system----
Mr. Walz. Okay.
Mr. Henke [continuing]. That policy requires reviews, but
the compliance with those reviews is the challenge.
[The following was subsequently received:]
The legal/technical review process allows for changes and
corrections to be made as the project moves forward. Some
corrections are minor, others are more significant, but the
goal of the review is to bring the procurement up to standard
without unnecessarily delaying the project. This is not always
possible. Some findings are so significant that the submission
is rejected and returned for revision and resubmission before
it is allowed to continue forward. Of the 1,632 solicitations
that were reviewed, approximately 5 percent were rejected and
had to be resubmitted.
Mr. Walz. And I am interested, as you bring in and I know
you will be, bringing in the private sector of system analysis,
gap analysis, whatever you are going to use to find problems in
this. I bring a perspective where I worked as full-time as a
lowly technician in a national Guard Armory and it was like
moving a mountain to get a gallon of paint through the
procurement process.
And so it seemed like there were an incredible amount of
checks and balances over me, almost to the point of excess for
getting things done I needed to get done. Do you believe it is
maybe just the nature of an organization as it grows and gets
to the size it is that it becomes more unruly at the top? Maybe
either one of you can comment on that.
Mr. Henke. I take your point, sir, about the difficulty
experienced at a working level where work gets done in terms of
their challenges to procure items. One of the things that the
Federal Government has done as a Federal-wide initiative is
said below certain thresholds, micro purchases which they are
called, which are $3,000.00 and below, we now have a purchase
card program. So if someone needs a case of office copier paper
or something they can, they need to procure quickly, they have
the same ability I do to get online or get on the 1-800 office
supplies and get those supplies very quickly, not having to go
through the contracting formality and process to buy an item
that is a low dollar value.
Obviously, there are control risks and tradeoffs in that,
too. At VA we have got a great credit card, purchase card
program. We have worked to improve that much over time and we
think we have got it about right. So there are smart things you
can do, frankly, to take work off of the field so they can work
on more important, more focused things. And that is the mantra
that I try to repeat with the good folks who are in my office.
If there is a better way to fix the process and do it so it
takes work off the field and relieves them and helps them get
it right, that is what we want to do.
Mr. Walz. Do you believe--just the last question. I see my
time is about running out. And again, I am asking you to maybe
just kind of speculate a little bit for me. Is the system more
prone in your mind to maybe inefficiencies or is there a
possibility for fraud in this? Because I am concerned and I
know I can't, I am not going to get at the specifics of the
Boston thing. But I wonder how necessary those repairs were. It
is not going to justify that it was right, that it was,
violated the procedure. But I am wondering if this system
fraught with the fear that it could be steering contracts for
favors, that type of thing, I mean in your opinion, or do you
think it is just more unwieldy or they are just not executing
properly?
Mr. Henke. I don't think I would say, sir--I would not say
that the system is fraught with that opportunity. Whenever you
get, as in the Boston case, you get people who should have
known better, probably did know better--this is my opinion--and
they knew what controls were in place, but they found a way to
do what they needed to get done, what were perhaps valid
facility improvement projects, but they did it the wrong way.
Mr. Walz. Yeah.
Mr. Henke. So I give them credit for pursuing their
mission, but obviously they missed, they overstepped a number
of rules and policies.
Mr. Walz. Very well. Thank you so much. I yield back, Mr.
Chairman.
Mr. Mitchell. Thank you. But that is also the real weakness
in the VA because they did that and it was not caught for six
years. It should have been caught. They should have known
obviously that it was wrong and they shouldn't have done it.
But it shouldn't have gone on that long and it should not take
a hotline call catch something like this.
Let me just ask another question and it is kind of along
the lines of Ms. Brown-Waite's in terms of your procurement.
The Inspector General has identified procurement as one of the
VA's major management challenges. This past February the IG
testified before this Subcommittee that the most significant
problem facing deficiencies in the procurement process is VA's
decentralized organizational structure for acquisition.
As a result, the VA does not know what is purchased, who it
is purchased from, who made or approved the purchases, whether
it was a contract or open market, what was paid and whether the
price was fair or reasonable. First of all, do you agree with
that statement from the IG and second, if not, why is the IG
wrong?
Mr. Henke. Sir, what I would say about that is, I am not
convinced that the complete consolidation or centralized model
is necessarily the right way to pursue it. We have, as the
Procurement Reform Task Force (PRTF) identified, we have moved
in that direction by consolidating contracting functions at not
156 or more locations, but 21 locations. So that will improve
our span of control and our oversight.
We have, as I said, sir, we have asked for a think tank or
a contractor to come in and take a look at our governance
model, our acquisition structure in VA. We had a contractor
come in and look at Mr. Frye's organization and we have taken
steps to fix that because that is important. The next step is
the broader look at how we are organized for battle in VA
acquisition. What kinds of models are out there in forward-
leading Federal agencies for how they have structured their
acquisition authority, the acquisition authority that at the
end of the day I am responsible for in the Chief Acquisition
Officer's Act of 2003.
Mr. Mitchell. Would you agree or disagree and tell us if it
is your opinion. I want to again quote from the IG: ``The VA
does not know what is purchased, who it is purchased from, who
made or approved the purchases, whether it was a contract or
open market, what was paid or whether the prices were fair or
reasonable.''
Mr. Henke. If the statement is VA did not know in all those
cases, I don't agree with that statement, sir. I think that is
an excessive characterization.
Mr. Mitchell. The vast majority of the contracting the VA
does is done by VHA. The VHA fiscal and contracting personnel
report up through the Under Secretary for Health and not
through the Office of the Assistant Secretary for Management.
This question is for Mr. Frye. At what level of oversight do
you, as the senior procurement executive, have over VHA
contracting activities, in particular, those at the VISN and
medical center levels?
Mr. Frye. The level of oversight that we have, Mr.
Chairman, is essentially we are a decentralized organization by
design. My office develops the policy, the national broad
policy, if you will. That policy is promulgated in the field
and we rely on the VHA to execute that policy.
Now, we also provide oversight in effect because for
procurements over certain dollar amounts, we also require VHA
to send the requirement back to us for review, a technical
review and legal review. At the same time, I am the individual
that signs the warrants for VHA contracting officers so they
can execute their contracts.
But on a day-to-day basis, my office does not have purview
over those contracts by design.
Mr. Mitchell. Well, let me ask--it seems like then, that
you have responsibility but no real authority.
Mr. Frye. I have responsibility.
Mr. Mitchell. And no real authority, and to go on from
that, how can the VA expect to solve its serious internal
control deficiencies if the senior executive, that is you, for
procurement does not even have the direct line of authority
over VHA's contracting officers?
Mr. Frye. Well, I think the real key there is to work very,
very closely with the VHA and we are doing that now. Mr. Fred
Downs and I are working more closely now than two VA
counterparts probably ever have. I meet with him and his staff
once a week. I recently, within the last three weeks, went to
visit one of the VA hospitals down in Hampton, Virginia. So Mr.
Downs and other members of his staff and my staff are working
probably more closely together. I think I would leave it to Mr.
Downs to characterize that. But we are working more closely
together than the two staffs ever have to make sure that there
is the proper oversight and that we are in compliance with the
Federal Acquisition Regulation and other rules and regulations.
Mr. Mitchell. I have to excuse myself. I have to go to a
markup and I would like to turn the gavel over to Mr. Walz. But
just before I leave, I would like to mention something I said
at the very beginning in my opening statement. We all share the
goals of ensuring that the $10 to $12 billion the VA spends on
acquisition each year is well spent. That goal can only be met
if VA has reliable internal controls. It is a truism in
business, if you can't measure it, you can't manage it.
VA cannot manage its spending without dramatic improvements
in its controls. I assure you we will all be back here in a few
months to see what progress the VA has made. Between now and
then, the Subcommittee expects the VA will work closely with
the Subcommittee staff so that Congress can stay informed about
the VA's progress. It is obvious that there are no more laws
that need to be made, or there are no more procedures or any of
those. We have got all those in place.
The fact is that we need people to enforce them. And I
think the responsibility of this Committee is one of oversight.
So you will see us again. Thank you.
Mr. Henke. Sir, thank you very much and I agree with your
statements.
Mr. Walz. Thank you, Mr. Chairman. Ms. Brown-Waite?
Ms. Brown-Waite. I thank the Chairman very much. I have
here a copy of a request for information (RFQ) that was issued
June 15th and it is to solicit GSA schedule contract holders
for this procurement. The object is: (1) to analyze, to examine
and analyze VA's current acquisition organization, (2) to
recommend a business model that provides three viable solutions
with one recommendation path.
However, when you open this up, inside I think is probably
even more revealing. It says, ``This request for quote has not
received the mandatory advisory and assistance approval from
the Office of the Secretary. It is, therefore, subject to
change or cancelation as a result of the Secretary's
decision.''
The timing of this RFQ I would have to say is somewhat
suspect. Was this put out because you knew this hearing was
going----
Mr. Henke. No, ma'am.
Ms. Brown-Waite [continuing]. To be this week?
Mr. Henke. No, ma'am, it was not. That has been in the
works for a number of weeks, if not months.
Ms. Brown-Waite. Well, if it was in the works for a number
of months, do you think you might have run it by the Office of
the Secretary and received approval?
Mr. Henke. Ma'am, what that reflects is, I have changed the
approval process for A&A, advisory and assistance contracts to
bring that down to an appropriate level. Every A&A action was
going up to the Secretary or the Deputy. That was too
cumbersome and frankly was just a burden on people. So that
action, I don't recall the expected costs of it, but it would
be either at my level or Mr. Frye's level to approve. That
reflects no change in our commitment to go ahead and do this
study and take it onboard.
Ms. Brown-Waite. Have you set aside a sufficient amount of
money in the budget for this outside study?
Mr. Henke. Yes, ma'am, we have. We have the resources to do
that, to perform that study. We found the resources to perform
the study for Mr. Frye's organization and we had Logistics
Management Institute (LMI) come in and give us their best
ideas, best brains on that. And we are going to find a similar
contractor or a think tank to do this here. We have those
resources.
Ms. Brown-Waite. Mr. Henke, I know you have only been with
the agency a little over a year; is that correct?
Mr. Henke. Yes, ma'am, 18 months. It might seem like longer
some days.
Ms. Brown-Waite. I know exactly what you mean. I am sure
that there are many new procedures that can be implemented. But
again, we get to the question of oversight. Harry Truman had a
wonderful plaque on his desk and it said, ``The buck stops
here.'' Now, certainly, some would say that the buck stops at
the Secretary's office, but I can just tell you that the way I
run my organization is, if my district director, which would be
comparable to a VISN Director or perhaps a hospital
administrator, if my District Office Director messes up or
misappropriates or spends money that she was not authorized to
do, she would be my former District Office Director.
That doesn't seem to be happening in the VA. I can mention
within the VISN that I am in where people don't get demoted,
they get moved on. And no one seems to be being held
accountable. If I were to say probably the biggest frustration
of having--this is my fifth year of serving on this Committee
and other Committees also with oversight. That is the biggest
frustration. Does anybody ever get fired for mismanagement, for
spending unauthorized funds, expired funds? I think the
taxpayers deserve an answer and I would appreciate any one of
your answering that question.
Mr. Henke. Yes, ma'am. If people break rules, break laws,
there are--first, there are personnel processes in place. The
VISN Director has one, if not two, investigation boards
underway. People should be held accountable for their actions.
I am not going to opine about actions that should be taken in
this case, because that would be inappropriate.
But obviously, the IG report has some fairly, in my view,
some fairly scathing things in it and the VISN Director has
taken action to investigate and mete out whatever
administrative or disciplinary action they deem is appropriate
and warranted.
Ma'am, I get your point. I understand that I am accountable
at the end of the day for the VA acquisition system. I am here
today and your oversight, frankly, is helpful to us to help us
get, make progress and to move forward. So this is a part of
the process as difficult as it is to talk about a report like
Boston, but the buck stops here with me as the Chief
Acquisition Officer and I hope you understand that we are
taking literally dozens of steps to improve and to fix this
problem.
Ms. Brown-Waite. This report making the recommendations for
seeking an outside organization to come in and make
recommendations was dated 2002 and I know you weren't at the
agency then.
Mr. Henke. Right.
Ms. Brown-Waite. Why has it taken so long to actually do
something? This is 2007. The recommendation to go for some
outside consulting and to take the problems serious, the
Procurement Reform Task Force (PRTF) Report made pretty much
the same recommendations that seem to finally now be being
implemented in this RFQ. Is it because you brought new eyes to
the agency? What took almost as long as I have been in
Congress?
Mr. Henke. Ma'am, the PRTF, that report you have there, did
not call for a complete look at VA's acquisition governance. So
we are taking this, the PRTF recommendations, goal four,
improve VA procurement organization effectiveness, and I could
walk down the list there and cite the recommendations 4.1, 4.2,
4.3 to 4.9, many of them are done or are completed and ongoing.
What this outside independent look will do is allow us to
take it to the next level and identify the governance approach
we need, centralized, decentralized, whatever it is in that
continuum and move out to implement that and give us ideas and
courses of action.
Ms. Brown-Waite. Sir, in this report, goal three, for
example, was to obtain and improve comprehensive VA procurement
information and goal four was improve VA procurement
organization effectiveness. So these recommendations, these
goals for the agency have been out there for five years. And,
you know, it has virtually been ignored.
Mr. Henke. Ma'am, I would not be able to agree with the
characterization that it has been ignored. We implemented--our
own IG has said we have implemented 60 of the 65 items in the
PRTF. Many of them are ongoing actions. The fifth
recommendation is to improve, ensure a talented and sufficient
VA acquisition work force. That is a never-ending challenge.
The labor market for qualified 1102 contracting officers is
very difficult. It has been acknowledged as a national
challenge among Federal agencies. So that goal is absolutely
ongoing.
So I would not characterize this report as being ignored.
We have taken action and we are going to take further action to
keep moving the ball down the field.
Ms. Brown-Waite. Sometimes I get the opinion that, or the
impression that you implement them, but there is no oversight,
and you know, it is one more sheet of paper in one more book
that gets put up on the bookshelf in an office and there
doesn't seem to be the oversight when something is implemented.
And I think that is exactly what has happened with the
whole procurement debacle that is taking place. And I would, I
would just encourage you to make sure that whatever the results
of this recommendation are, if they are implemented, they have
to have oversight. You can't just implement them and tell
people to go forward and do it and not ensure that they are
doing it, or you might as well just save your money, save the
taxpayers the money for the study, if there isn't the
accompanying oversight.
Mr. Henke. Yes, ma'am. You are absolutely right. One point
of example, if I may. The study we did last year that we
solicited on the open market and we had a, just a fantastic
group come in, the Logistics Management Institute. They came in
with a complete look at organizing my and Jan's Office of
Acquisition and Logistics. Are we organized right? Are we
structured right? Do we have a strategic plan? We do now. Do we
have score cards and metrics in place? We do now.
That organizational plan went from concept last year,
development, and it was approved by the Secretary on May 16th.
He bottom-lined the implementation of that and the organization
of Jan's team so he can bring to fruition the changes that VA
knows we need to bring forward.
So this one, the one we did last year is being implemented
and we have briefed your staff a number of times on that LMI
study. We got it approved and we are in the execution and
implementation phase and I am very serious about seeing that
through.
Ms. Brown-Waite. Well, apparently the LMI study is for
headquarters, not for VHA; is that correct?
Mr. Henke. That was--yes, ma'am, that was by design in the
intent--it was to look at Jan's organization inside those
lifelines, those 450 people at seven or eight locations around
the country and say, is this team set up right, organized
right, structured right to do good things. The next step is
taking a broader look at the VA acquisition system in totality
and that is the study that you cited with the solicitation on
the street.
Ms. Brown-Waite. I yield back the balance of my time.
Mr. Walz. Thank you to the Ranking Member. Just a couple of
follow-up questions before we adjourn, Mr. Henke. And once
again, I get back to this because I know you bring a lot of
experience to this and especially your DoD experience. Do you
have the ability or do we have the ability to import any of
those best practices from DoD, because it does seem to me and I
am not sure if this is anecdotal or if we can back it up, the
DoD is doing a better job of this. Is there something you can
bring in?
And as you answer that, I am wondering with our Ranking
Member's characterization, is there something in the VA culture
that makes that more difficult to do? And I want to know how
that all fits, if you could.
Mr. Henke. Sir, your first question, can we implement, can
we bring in best practices from other agencies? Absolutely. Do
we do enough of it? My opinion is no, we don't. And that is one
of the reasons we are doing this larger study is to have an
organization go out and find how other agencies are organized,
how they are structured, the processes they have set up and
bring that into VA. So we are reaching out to go get that.
And sir, I am sorry, your second question, I----
Mr. Walz. Well, I am just--the Ranking Member and many of
us are concerned about this and I am a believer that there is
something to be said about the culture of any organization, as
you well know. You have come from others. Is there anything in
the VA, that inertia that stops someone like yourself coming in
with a vast amount of knowledge from other organizations, both
private sector and government, from implementing some of these,
or do you feel that it is just like any other organization?
Mr. Henke. Sir, it is like any other large organization.
VA's culture is unique from DoD, as it is unique from, I am
sure, Treasury and Commerce. The culture in VA fundamentally is
one of service and performance, and a mission to serve the
veteran. And that is the thing that we take most critically, is
performing the clinical visits, the benefits delivery and the
memorial affairs that are our three business lines.
I have not found the culture too difficult. Sure, there are
things we can improve. But at the end of the day, it is the
ability to sit down with professionals like Jan and Fred here
and work toward a common solution. I don't find the culture to
be an inhibitor. I think you have to find ways to build
coalitions of people that want to get the same thing done. At
the end of the day, my goal is the same as Mr. Downs' goal and
Mr. Frye's goal and that is to improve the place so we can
better deliver services to the vets. At the end of the day,
sir, that, as you said, that is the bottom line. So we have the
same goal and we are trying to get aligned to do that.
Mr. Walz. Well, I appreciate that and I think your comment
of talking about how this hearing of oversight is helpful to
you, I applaud you for embracing that. I applaud you for
embracing the IG as team members in this and all of us working
together, because the ultimate goal and as our Ranking Member
so clearly pointed out, and is absolutely correct, that the
effectiveness in actual implementation and an improvement in
delivery to our veterans as well as accountability of our
taxpayer dollars is the ultimate goal here. And that is what we
need to keep striving for.
So knowing the Chairman of this Committee and the Ranking
Member, a long tradition of being a watchdog of our veterans
and our resources and that we are just getting started on this,
I would ask you to see us as a resource, to see the Congress
and Members of this Committee as someone you can come to,
someone you can work through, because our goal, rest assured,
is exactly what yours is. We just need to figure out how best
to get there.
Mr. Henke. Sir, I appreciate that and if there are
legislative ideas that we need to advance and need your help,
we will come forward and bring those to you. I got your point,
sir. Thank you.
Mr. Walz. We appreciate it. Ms. Ranking Member, anything
else?
Ms. Brown-Waite. No.
Mr. Walz. With no further questions, this Subcommittee on
Oversight and Investigations is adjourned.
[Whereupon, at 11:37 a.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Prepared Statement of Hon. Harry E. Mitchell,
Chairman, Subcommittee on Oversight and Investigations
This hearing will come to order.
Thank you all for coming today. I am pleased that so many folks
could attend this oversight hearing on VA Internal Contracting
Oversight Deficiencies. This will not be the last--we all have a lot of
work to do. We are going to begin today by hearing from the Office of
the Inspector General concerning the IG's recently completed audit of
contracting practices in the Boston Healthcare System in Veterans
Integrated Service Network, or VISN, number 1. The IG's report is
extremely disturbing. Senior contracting and fiscal officers at the
Boston Healthcare System executed contract modifications in excess of
$5 million that were illegal. As just one example, in fiscal 2002
Boston executed a contract for $16,000 to repair asphalt roadways. In
March of 2004, this paving contract was modified to add electrical
panel and emergency generator projects totaling $900,000. These
modifications were clearly outside the scope of the original contract
and clearly in violation of laws governing the use of expired
appropriations.
These were not just technical violations. Not only did the contract
modifications violate some of the most basic precepts of government
contracting and appropriations law, they also had the following
pernicious effects. First, the modifications were not competed. We have
no way of knowing whether the taxpayers' interests in obtaining a fair
price and good service were protected. Second, the Boston Healthcare
System decided to put its own needs above all other priorities in VISN-
1. VA does not have unlimited funds and has a process for prioritizing
expenditures that Boston evaded. The Inspector General found that VISN-
1 deferred renovation of a cardiology unit in another VA hospital
because of concern about an insufficient budget. The VISN had no
opportunity to decide whether the cardiology unit at the other hospital
was of higher priority than the parking lot in Boston.
We are not here to assess individual responsibility. There are no
witnesses from VISN-1 present and we will not be asking the IG or VA
about individuals. VA is conducting an Administrative Board of
Investigation and we leave the assessment of individual responsibility
to that process.
What we are here for is to inquire into VA's internal controls over
acquisition, controls that Boston certainly suggests are seriously
lacking. For example, VA has a policy that all contract modifications
in excess of $100,000 must be submitted for legal review. This was not
done in Boston and the Inspector General indicated in his report that
the improper contracting might have been prevented if this policy had
been followed. The obvious question is: why did VA's internal controls
not require verification of legal review prior to disbursement of funds
for contract modifications in excess of $100,000? Policies are
practically worthless if VA has no way of knowing if they are being
followed.
In February of this year, the Inspector General told this
Subcommittee that VA does not know what it purchases, who it purchases
from, who made or approved purchases, whether a purchase was by
contract or on the open market, what was paid, and whether the prices
were fair and reasonable. And this is not a new problem. In May 2001
the Inspector General issued a report evaluating VA's purchasing
practices. In July of that year, then-Secretary Principi formed a task
force to correct the many problems identified by the IG. The task force
issued its report in February 2002 with 62 recommendations for change.
We look forward to VA telling us which of those recommendations have
been successfully implemented and what VA is currently doing to monitor
their completion. We have little reason to be optimistic about VA's
response. Since 2002 VA has spent hundreds of millions of dollars on
procurement and deployment of the Core Financial and Logistics System,
or CoreFLS. CoreFLS has been a complete failure. Congress mandated that
VA develop the Patient Financial Services System. From 2003 to 2006 VA
paid a contractor $30 million for this project, received nothing, and
terminated the contract with the $30 million of taxpayers' money
wasted. There is a list of Inspector General reports recounting similar
problems with VA's contracting.
Finally, the Subcommittee cannot help but note that VA's external
auditors have found material weaknesses in VA's internal controls that
are repeat deficiencies from prior years. Those material weaknesses
include VA's integrated financial management system and its operational
oversight. As the Inspector General has said: ``The risk of materially
misstating financial information remains high because of these material
weaknesses.''
We all share the goal of ensuring that the 10 to 12 billion dollars
VA spends on acquisition each year is well spent. That goal can only be
met if VA has reliable internal controls. It is a truism in business--
if you can't measure it, you can't manage it. VA cannot manage its
spending without dramatic improvements in its controls.
I can assure you, we will all be back here in a few months to see
what progress VA has made. Between now and then, the Subcommittee
expects that VA will work closely with the Subcommittee's staff so that
Congress can stay informed about VA's progress.
Prepared Statement of Hon. Ginny Brown-Waite,
Ranking Republican Member,
Subcommittee on Oversight and Investigations
Thank you, Mr. Chairman for yielding. It is important to bring
these concerns about procurement forward for discussion. Our nation's
veterans are a valuable asset, and caring for them should be our first
priority. Procurement is an area in which we can provide services and
care to our veterans, but it is also an area where, if not done
properly and within the letter of the law, can be subject to abuse and
impropriety.
According to VA's own Office of Acquisitions' web page, last
updated October 14, 2006, VA states that its annual expenditures are
more than $5.1 billion for supplies and services, including
construction. VA is one of the largest procurement and supply agencies
in the Federal government. Drugs, medical supplies and equipment, IT
equipment and services, and other critical patient care items must be
procured and distributed to VA's healthcare facilities to what is the
largest healthcare delivery system in this country. Supply support is
also provided to regional offices, national cemeteries, automation
centers, and other various VA activities.
Yet today, VA testifies that the $5.1 billion is now over $10
billion! . . . Almost doubled since last October. VA's procurement
practices are so decentralized with very little oversight, I wonder if
VA really knows how much is being procured and how efficiently
resources are spent?
I also believe that an unknown amount . . . maybe a lot . . . is
listed under that benign category of ``miscellaneous obligations''. I
hope we see some clarity to these issues in today's hearing.
I understand we will hear from the VA's IG about the egregious
procurement improprieties that occurred at the Boston VA Healthcare
System. VA can have policies and procedures stacked to the ceiling, but
if there are no controls in place to ensure compliance or non
compliance, what good are these policies? With reports dated as far
back as April 1997, it appears the Inspector General and VA have
recognized the existence of the systematic procurement problems, yet
little has been done to address them.
Yes, reports have been generated and recommendations have been made
countless times over the years, but when we see the same
recommendations over and over again, one must wonder why no serious
actions have been taken to correct the problems and punish the
perpetrators. I have strong concerns that VA has failed to act on what
they know is a problem. These reports speak of professionalizing the
VA, optimizing and monitoring the procurement process, and making the
contracting process fair and accessible, yet cases like those found in
the Boston VA Healthcare System provide a glaring example of a
perpetual lack of accountability.
We owe it to our veterans to address the mismanagement in VA
procurement once and for all. While we know that there are good VA
employees working within the current procurement system, we need
assurance that VA is working to fix a broken system. As of today, 19 of
the 21 VISNs have taken steps to protect and update their procurement
processes. The other two VISNs must take steps to protect the financial
resources they are responsible for maintaining.
With backlogged patients not getting the resources they need and VA
executives asking for more and more money, we need to make sure the
funds are being used where they need to go, not into the hands of
procurement employees who spend more than allotted and use illegal and
illegitimate procurement methods.
The first step of all recovery programs is to admit there is a
problem, so I hope that the facts brought out in today's hearing,
coupled with the incidences at Boston which are indicative of a long
history of very dysfunctional, decentralized acquisition and
procurement programs with very little oversight, will be a spring board
for change within the VA.
Prepared Statement of Belinda J. Finn,
Assistant Inspector General for Auditing,
Office of the Inspector General, U.S. Department of Veterans Affairs
INTRODUCTION
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to testify on facts surrounding the Office of Inspector
General's (OIG's) report on the Audit of Alleged Mismanagement of
Government Funds at the VA Boston Healthcare System, which was issued
on May 31, 2007. I am accompanied by Maureen Regan, Counselor to the
Inspector General, and Nicholas Dahl, Director of the Bedford Audit
Operations Division, who directed the team responsible for the audit.
We performed the audit in response to an anonymous hotline call
concerning contract irregularities and the misuse of government funds.
The issues we reported are specific to the VA Boston Healthcare System,
which is one of eight facilities in Veterans Integrated Service Network
(VISN) 1; however, I will highlight areas where I believe VHA
management can improve controls to help prevent similar incidents from
occurring elsewhere in VHA.
BACKGROUND
The complainant listed 24 contracts that allegedly had improper
contract modifications associated with them. These 24 contracts were
originally executed between fiscal years 2000 through 2003 and had a
combined value of $1.3 million. During fiscal years 2002 through 2006,
the Boston Healthcare System executed 40 contract modifications against
these contracts with a combined value of $5.5 million. All 40
modifications involved non-recurring maintenance (NRM) work for the VA
Boston Healthcare System.
CONTRACT MODIFICATIONS
A contract can be modified to add additional work only if the work
is within the scope of the original contract documents. If the work is
outside the original scope of work, a new contract must be awarded
using procedures prescribed in Federal Acquisition Regulations,
including competitive procedures. Modifications that are outside scope
are prohibited cardinal changes to the contract. It is the
responsibility of the contracting officer to determine whether a
modification is appropriate and for ensuring that all modifications are
appropriate. Contracting officials also violated Federal Acquisition
Regulations by issuing modifications to contracts that had expired.
APPROPRIATIONS LAW
Appropriations are available to pay for expenses incurred during
the years the appropriations are available. If an agency does not
obligate funds prior to the expiration of the appropriation, the funds
are not available to pay for new obligations. The only exception is if
the expenditure meets the ``bona fide needs'' test set forth in Title
31, U.S.C. Section 1502. Under this test, expired funds can be
obligated to pay expenses incurred properly during the life of the
appropriation or to complete contracts properly made during this time
period.
VALIDATION OF COMPLAINT
We determined that 37 of the 40 contract modifications were outside
the scope of the original contracts and that payment with expired
appropriations violated Federal appropriations laws. The Chief of the
Purchasing and Contracting Section executed 26 of the 37 contract
modifications and 4 other contracting officers executed the remaining
11 modifications. The total value of the 37 modifications was $5.4
million, all paid from expired funds. We concluded that the VA Boston
Healthcare System's Chiefs of the Purchasing and Contracting Section
and Fiscal Service, along with Engineering Service personnel,
collaborated to circumvent internal controls.
The collaboration began when the Chief of Fiscal Service reportedly
informed the Chief of Engineering Service that funds were available
from prior year appropriations. Engineering Service maintained a list
of NRM work needing completion and provided the names of vendors who
had performed work during the appropriation years of the expired funds
and the relevant purchase order numbers to the Chief of the Purchasing
and Contracting Section. Contracting officers used that information to
execute 37 contract modifications that were outside the scope of the
original contracts.
For example, the VA Boston Healthcare System executed an original
contract in fiscal year 2002 to repair roadways for $16,000 at the West
Roxbury campus of the VA Boston Healthcare System. The first
modification, executed in fiscal year 2003, provided $102,367 to repair
parking lot lights. Another modification, executed in fiscal year 2004,
provided $487,000 to replace emergency electrical panels. A third and
final modification, executed in fiscal year 2004, provided $408,500 to
replace an emergency generator. The three modifications had a total
value of $997,867, all paid with expired funds.
Personnel within all three services did not follow established
procedures and circumvented controls. The Chief of the Purchasing and
Contracting Section, and four other contracting officers, exceeded
their authority by executing contract modifications against expired
contracts and were outside the scope of the original contracts. The
contracting officers also did not obtain the required legal concurrence
from VA Regional Counsel to execute modifications exceeding $100,000.
In addition, the Chief of Fiscal Service allowed the obligations and
did not obtain approval from the VA Expired Funds Manager to use $5.4
million in expired funds. Finally, Engineering Service personnel did
not input non-recurring maintenance project submissions into the VISN
Support Service Center Capital Asset Database, which is used to track
NRM projects. The effect of these omissions was to reduce the chance
that anyone at the VISN or VHA would question and oversee these
projects.
In addition, the VA Boston Healthcare System did not comply with
other Federal Acquisition Regulations in awarding the contracts. For
example, in several cases, they did not develop statements of work
(SOW) that adequately described the work to be performed or the
services to be rendered. The SOW is in itself a control mechanism that
provides an objective measure for the completion of work. By executing
modifications to existing contracts, the VA Boston Healthcare System
also avoided competition requirements and had no assurance that the
prices paid were fair and reasonable.
CONTROL WEAKNESSES
Our review identified policies and procedures were in place to
prohibit the improper use of expired funds. However, no controls were
in place to ensure compliance or detect noncompliance with prescribed
policies and procedures. VA Boston Healthcare System employees' ability
to circumvent these procedures puts the effectiveness of these policies
and procedures into question.
Although the procedures required the approval of the VISN Chief
Financial Officer before obligating expired funds, the Chief of Fiscal
Service was able to use expired funds without receiving the required
approval and without the VISN or VHA knowing about the obligations of
the expired funds. System controls could prevent personnel below the
VISN level from obligating expired funds. A more cost effective control
would be reports designed to flag obligations of prior year funds.
In addition, the VA Boston Healthcare System was able to execute
improper contract modifications without the awareness of VISN or VHA
officials. VA acquisition regulations require contracting officers to
request legal reviews from the VA Regional Counsel prior to executing
modifications greater than $100,000. When submitting a request for
legal review, contracting officers are required to submit a statement
as to whether the modification is within the scope of the original
contract. VA Boston Healthcare System ignored this procedure and
executed 17 modifications over $100,000, valued at $4.4 million,
without requesting the legal reviews. No controls are in place to
identify contracts or modifications that have not had the required
legal or technical reviews.
Contracting officers are responsible for safeguarding the interest
of the government in contractual agreements. Contract modifications
should not be executed to expedite the contracting process or in
response to pressure from requesting services. It was ultimately the
responsibility of the Chief of the Purchasing and Contracting Section
to make the correct determination that modifications were outside the
scope of the original contracts and that Fiscal Service could not
obligate additional funding to pay for these modifications. We saw no
procedures in place at the time that would have alerted the VISN or VHA
to the improper modifications. The results of our review suggest that
oversight over contracting officials' activities should be increased to
improve the accountability of their actions.
We reported the issues identified at the VA Boston Healthcare
System to the auditors who are responsible for the annual consolidated
financial statement audit. Standards require that auditors design a
financial statement audit to provide reasonable assurance of detecting
material misstatements, whether caused by error, fraud, or illegal
acts. Although the violations of law cited in the Boston report did not
result in material misstatements, the auditors must consider the risk
of similar acts occurring elsewhere that could be a material weakness.
Our auditors have considered the Boston report in designing their audit
procedures for this year. The audit is still underway, with the report
due in November.
RECOMMENDATIONS
We made seven recommendations to the VISN-1 Director. Four of the
recommendations concerned the improvement of controls over the
execution of contract modifications, the use of expired funds, the NRM
reporting and approval process, and compliance with the Federal
Acquisition Regulations. We also recommended that the VISN-1 Director
take administrative actions against the Chiefs of the Purchasing and
Contracting Section and Fiscal Service; initiate an administrative
investigation; and take actions, if warranted, against other VA Boston
Healthcare System employees involved with the issues identified during
our audit. Finally, we recommended the necessary accounting adjustments
to correctly record the funding of the improper contract modifications.
In addition, we recommended the Deputy Assistant Secretary for
Acquisition and Materiel Management determine whether the warrant
authority for the Chief of the Purchasing and Contracting Section
should be revoked. The Deputy Assistant Secretary subsequently revoked
the Chief of the Purchasing and Contracting Section's warrant
authority.
VISN ACTION PLAN
In response to our recommendations, the VISN developed and issued
standard operating procedures and policy guidance to help improve
management controls over the execution of contract modifications, use
of expired funds, and the approval of NRM projects. With guidance from
VHA accounting officials, VA Boston Healthcare System accounting staff
made the necessary accounting adjustments to correctly record the
funding of the improper contract modifications.
The VISN-1 Director appointed an Administrative Board of
Investigation to conduct an assessment of the facts surrounding the
improper contract modifications and use of expired funds. The VISN-1
Director instructed the Board to inquire into all aspects related to
the issues, and to obtain testimony under oath or affirmation without a
pledge of confidentiality. A final report is due by July 15, 2007.
CLOSING
The OIG will continue to work with VA to improve the oversight of
contracting and fiscal activities to prevent similar occurrences in the
future.
Mr. Chairman, thank you again for the opportunity to testify. I
would be pleased to answer any questions that you or other Members of
the Subcommittee may have.
Prepared Statement of Hon. Robert J. Henke,
Assistant Secretary for Management, U.S. Department of Veterans Affairs
Mr. Chairman and members of the Subcommittee, I am pleased to have
the opportunity to testify on the Department of Veterans Affairs'
acquisition system. VA spends over $10 billion per year through widely
dispersed acquisition activities for pharmaceuticals, medical/surgical
supplies and equipment, prosthetic devices, information technology,
construction, and other acquisition services.
VA procurement practices have been identified by VA's Inspector
General as one of the five major management challenges facing the
Department. I assure you that VA understands our challenges and is
dedicated to improvement. Our leadership is engaged, committed, and is
clearly articulating the expectation that VA will work to improve the
quality and efficiency of acquisition services. We have many
improvement initiatives underway, new people on board, and additional
policy and guidance to improve performance.
As VA's Chief Acquisition Officer (CAO), I am responsible for
monitoring the performance of acquisition activities and acquisition
programs across the agency, as well as advising on appropriate business
strategies to achieve VA's mission. My duties also entail managing the
direction of acquisition policy and ensuring that VA's acquisition work
force is trained and capable of providing the highest level of support
to our mission-focused programs.
I would like to cover five of my top responsibilities and
initiatives as CAO:
1. Advising on proper business strategies to achieve agency mission
and monitor the performance of acquisition activities
VA's acquisition system is very large, complex, and decentralized.
To determine whether VA acquisition is organized correctly and has the
right quantity and types of acquisition professionals, I have directed
that a comprehensive study be conducted by an independent third party
contractor with extensive knowledge of the acquisition work force and
challenges. The contractor will benchmark our procurement system
against other government agencies and provide courses of action for
improving VA's acquisition infrastructure and accountability.
We have made very important policy changes within VA to improve our
acquisition processes. Contract requirements must be clear, well
written and understandable to reduce our risks. To that end we have
implemented a collaborative approach to contract requirements
definition. For some major acquisitions over $5 million, we now use
cross-functional Integrated Product Teams (IPTs) to develop our
requirements. Key program, contracting, legal and finance officials
work collaboratively to write acquisition plans, performance work
statements and other critical acquisition documents. This approach
significantly decreases the risks of developing a poorly defined
requirement.
To help ensure that contracting officers develop effective
contracts, we have implemented the use of Contract Review Boards
(CRBs). CRBs are composed of the most knowledgeable and senior
acquisition professionals. As with IPTs, CRBs use a collaborative and
structured approach to ensure that good contracts are awarded. Although
contracting officers have traditionally had their work reviewed by
their peers and legal counsel, they are now required to have their
major acquisitions reviewed at three critical junctures by the CRB:
prior to issuance of the solicitation, prior to negotiations and prior
to award. This simple, common-sense approach to acquisition management
is vastly improving our contract award process.
Contract administration is critical to ensuring that the government
gets what it pays for. We are currently developing a comprehensive plan
that will improve contract administration at VA. Our goal is to create
a culture where contracting and program officials work collaboratively
to manage contracts throughout their life cycle.
In February 2004, VA consolidated oversight and review of VA's
acquisition activities under one office, the Office of Business
Oversight (OBO), which reports to me as the VA Chief Financial Officer
and CAO. OBO is VA's primary internal quality assurance organization
for financial management activities and operations, including
acquisition activities. OBO's main focus is to review acquisition
activities at decentralized locations for compliance with Federal,
Department, and Administration policies and procedures and to provide
local management with recommendations to improve their acquisition
activities. The consolidation of acquisition oversight within OBO has
resulted in a standardization of acquisition review processes and
oversight reporting, and has created opportunities to highlight best
practices in the field.
The OBO acquisition review team is staffed with a combination of
procurement specialists and professional auditors trained in conducting
acquisition compliance reviews. The team conducts contract inspections
at a number of Veterans Integrated Service Networks each year,
reviewing up to 450 contract files at as many as 25 locations. The team
also conducts special-topic acquisition audits as needed. OBO began
acquisition reviews in the second half of FY 2005 and since that time
has issued 11 acquisition reports containing 76 recommendations to
improve field station compliance with policies and procedures and to
enhance the effectiveness of acquisition operations. This consolidated
acquisition oversight team has improved my ability to monitor the
performance of acquisition activities across the Department.
We conduct pre- and post-award audits of VA Federal Supply Schedule
contracts for medical products and services. We assure that these
vendors are charging Federal customers the most favorable customer
prices and in FY 2006 identified over $20 million that could be
recovered. The 25 auditors dedicated to perform these services work in
the Office of Inspector General and are under a reimbursable agreement
paid for by VA's Supply Fund.
Additionally, we have implemented a robust strategic sourcing
program. I chair VA's Strategic Sourcing Council, supported by
Assistant Secretaries, senior executives, and stakeholders from VA's
three administrations. In fiscal year 2006, VA continued to build on
its strategic successes. We benchmarked other government agencies,
private firms, and current VA suppliers to continually improve our
program. We are actively involved in Federal Strategic Sourcing
Initiatives for common commodities, including express/ground delivery
services, office supplies, wireless communication services, and
copiers. Ever mindful of our commitments to small business,
particularly those owned by veterans and service-disabled veterans, one
of our goals this fiscal year is to identify strategic sourcing
opportunities for these socioeconomic groups.
2. Increasing appropriate use of performance-based contracting and
performance specifications
The Office of Federal Procurement Policy has mandated that this
year agencies will award 40% of eligible service dollars as
Performance-Based Service Acquisitions (PBSA). To that end we targeted
two of VA's largest mission-critical services as PBSA: ``Project HERO''
(Health Effectiveness through Resource Optimization) for the Veterans
Health Administration (VHA), and Vocational Rehabilitation and
Employment Services (VR&E) for the Veterans Benefits Administration.
Project HERO is a pilot program that will improve delivery of
healthcare services under VA's fee-basis program, the intent of which
is to consolidate like services under fewer contract providers. In
support of the VR&E program, we are implementing a national contract
strategy that will further consolidate VR&E services under fewer
providers. Both actions are currently in progress. We will also be
providing PBSA training to acquisition and program officials during
their certification process.
3. Making acquisition decisions consistent with applicable laws and
establish clear lines of authority, accountability, and
responsibility for acquisition decision making.
I have designated the Deputy Assistant Secretary (DAS) for
Acquisition and Logistics as VA's Senior Procurement Executive. In that
capacity the DAS will serve as my principal advisor in all acquisition
matters.
VA currently has 33 Heads of Contracting Activities (HCA) with 413
contracting officers warranted at the $100,000 and above threshold.
These contracting officers are located in VA medical centers, national
cemetery offices, and several VA support locations throughout the
nation. Each HCA and the 413 contracting officers are delegated
contracting authority from the DAS for Acquisition and Logistics who
reports directly to me. VA has an established warranting program to
ensure contracting officers have the requisite education and experience
needed to meet the VA mission.
VHA consolidated its contracting organizations into ``Network
Contracting Centers.'' To date, 19 of the 21 networks have been
consolidated. Each network has hired Chief Logistics Officers and
Contract Managers to provide guidance on and oversight of the
acquisition activities.
4. Managing the direction of acquisition policy for VA including
implementation of the unique acquisition policies, regulations
and standards for VA
I am pleased to inform you that VA published a proposed rule in the
Federal Register that is its first rewrite of the VA Acquisition
Regulation (VAAR) since 1984. The new VAAR will be easier to understand
and consolidates changes and modifications that have occurred in the
last 23 years. The new VAAR parallels the Federal Acquisition
Regulation and eliminates redundant and outdated information.
On December 22, 2006, President Bush signed Public Law (P.L.) 109-
461, the Veterans Benefits, Healthcare, and Information Technology Act
of 2006. Included in this Act is a unique ``Veterans First'' approach
specific to VA contracting that became effective June 20, 2007. This
approach changes the preferences for contracting within VA, placing
Service-Disabled Veteran-Owned Small Business (SDVOSB) and Veteran-
Owned Small Business (VOSB) first and second, respectively, in
satisfying VA's acquisition requirements designed to meet established
VA contracting goals. Certain conditions must be met, however,
including the need to achieve a fair and reasonable price. We issued
Information Letter (IL) 049-07-08 on June 19, 2007, which provides
guidance until a change to the VAAR is published in the Federal
Register.
The Secretary recently approved a reorganization of the newly named
Office of Acquisitions and Logistics (OAL). The reorganization
positions OAL to better provide the needed leadership to VA's
acquisition and logistics community. It separates the policy and
operation functions from the purview of a single Associate Deputy
Assistant Secretary (ADAS) for Acquisitions into two distinct
functions. As a result, operational contracting components will now be
separated from the policy development component. This will enable us to
provide a greater concentration of effort in both areas, and is
designed to improve our overall performance. Acquisition policy will
come to the forefront, under the direction of a newly approved
Associate Deputy Assistant Secretary for Acquisition and Logistics
Programs and Policy. This same senior executive will be responsible for
career management of the acquisition work force, to include development
of policies and plans for improvement.
Additionally, VA is well represented in the Chief Acquisition
Officer Council (CAOC) and the Civilian Agency Acquisition Council
(CAAC). Our participation ensures that VA's needs are appropriately
considered prior to promulgating government-wide acquisition policy.
5. Acquisition Work force and Career Management
Perhaps the most daunting challenge currently facing VA, as well as
all Federal agencies, is our ability to attract, develop and retain a
competent, professional contracting work force. The dollars obligated
by VA have more than doubled since 2000, yet our contracting work force
has remained relatively the same size during this period. The agency-
wide acquisition study that I mentioned is designed to include data to
assess the size and capability of our services.
Wide-spread problems in our central office contracting
organization, the Office of Acquisition and Logistics, led me to direct
that a study be done to determine if we were organized properly to
perform our mission. That study, which was completed last February,
resulted in a major reorganization of the Office of Acquisition and
Logistics.
Another result of this study includes formation of a new Center for
Acquisition Innovation (CAI), which will be located outside the DC
area. This new organization focuses on quality, innovation and customer
service. The CAI will provide a full complement of cost-efficient
acquisition solutions and enterprise ``best practices'' to support our
VA customers. It will become the catalyst for change within VA,
transforming VA's acquisition process from a tactical and reactive
function to a strategically driven function that ensures maximum value
for every acquisition dollar spent. The CAI will provide a wide range
of specialized acquisition and logistics services to VA customers. The
CAI will be organized into two operating activities, Operations and the
Acquisition Leadership Academy.
The operation activity will focus on three business lines: major
acquisitions with VA-wide implications, strategic sourcing, and
emergency response and recovery acquisitions.
The Acquisition Leadership Academy will implement training and
certification programs authorized by the Office of Federal Procurement
Policy. It will emphasize three areas: contracting certification (FAC-
C); program/project management certification (FAC-P/PM); and
acquisition internship. The contracting and program/project management
certification programs are designed to be first-rate training venues,
and it is our intent to provide the type of training that will put us
in a government-wide leadership position. The acquisition intern
program is our long-term solution to building a professional
contracting workforce. Again, this will be a robust, second-to-none
effort, which will train interns for deployment to VA contracting
organizations across the United States.
Summary
VA has taken meaningful steps to resolve the current challenges
concerning our acquisition programs and practices. VA remains committed
to improving its processes and we are confident that our challenges can
be overcome for the benefit of both the veterans that we serve and the
taxpayers.
This concludes my statement. I would be pleased to answer any
questions members of the Subcommittee may have.
POST HEARING QUESTIONS AND RESPONSES FOR THE RECORD
Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations
Washington, DC
July 16, 2007
Honorable George J. Opfer
Inspector General
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420
Dear Mr. Opfer:
On Wednesday, June 27, 2007, the Subcommittee on Oversight and
Investigations of the House Committee on Veterans' Affairs held a
hearing on VA's Internal Contracting Oversight Deficiencies.
During the hearing, the Subcommittee heard testimony from Ms.
Belinda Finn, the Assistant Inspector General for Auditing. She was
accompanied by Ms. Maureen Regan, the Counselor to the Inspector
General, and Mr. Nick Dahl, the Director of the Bedford Office of
Audit. As a follow-up to that hearing, the Subcommittee is requesting
that the following questions be answered for the record:
1. What internal controls does the OIG suggest be used to ensure
compliance or detect noncompliance with prescribed policies and
procedures concerning contracting other than more procedural checks?
2. Following your investigation, VISN-1 implemented changes to
require approval by the VISN-1 CFO of some of the types of expenditures
at issue in your investigation. In your judgment, is this change
sufficient to ensure that the types of improper activities disclosed in
your investigation do not recur? Do you have any information about
whether this change has, in fact, achieved its stated goal?
3. Following your investigation, VISN-1 instituted a new Standard
Operating Procedure concerning the use of Estimated Miscellaneous
Obligation (VAF 1358). In your judgment, is this Standard Operating
Procedure sufficient to prevent the future misuse of VAF 1358
expenditures like those your investigation uncovered? Do you have
information that would lead you to believe whether VA has controls in
the other VISNs that would prevent similar misuse of VAF 1358
expenditures?
We request you provide responses to the Subcommittee no later than
close of business, Friday, August 10, 2007, to Ms. Caitlin Ostomel.
If you have any questions concerning these questions, please
contact Subcommittee on Oversight and Investigations Staff Director,
Geoffrey Bestor, Esq., at (202) 225-3569 or the Subcommittee Republican
Staff Director, Arthur Wu, at (202) 225-3527.
Sincerely,
Harry E. Mitchell
Chairman
Ginny Brown-Waite
Ranking Republican Member
U.S. Department of Veterans Affairs
Washington, DC.
August 14, 2007
The Honorable Harry E. Mitchell
Chairman
The Honorable Ginny Brown-Waite
Ranking Republican Member
Subcommittee on Oversight and Investigations
Committee on Veterans' Affairs
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Chairman:
Enclosed are responses to follow-up questions from the June 27,
2007, hearing before the Subcommittee that were included in a letter
from you and the Ranking Republican Member. A similar letter is being
sent to the Ranking Republican Member of the Subcommittee.
Thank you for your interest in the Department of Veterans Affairs.
Sincerely,
George J. Opfer
Inspector General
Enclosure
VA Office of Inspector General Responses to
Follow-Up Questions from June 27, 2007, Hearing
Before the Subcommittee on Oversight and Investigations
Committee on Veterans' Affairs, U.S. House of Representatives
Question 1: What internal controls does the OIG suggest be used to
ensure compliance or detect noncompliance with prescribed policies and
procedures concerning contracting other than more procedural checks?
Answer: The inappropriate contracting and fiscal actions in the VA
Boston Healthcare System (VABHS) were the result of collaboration
between the fiscal and contracting activities at high levels at the
medical facility, making existing paper-based checks and balances
ineffective. If the contracting entity complied with existing policy
that required a legal review for modifications over $100,000, the
deficiencies we found may have been identified and prevented. As the
Department moves to a system of electronic procurements, we believe VA
should establish checks and balances within the system that may better
ensure compliance by preventing the completion of an award or
modification that does not comply with statutory, regulatory, and other
policy requirements. Using the VABHS situation as an example, if an
electronic system required documentation of a legal review before
allowing the modifications to proceed, the problems may have been
prevented. Also, if an electronic system required input of information
relating to scope, price, date of last payment, and a review of this
information at a level above the contracting officer, contracting
officers may have been prevented from completing actions that were
outside scope or were to be funded with expired appropriations.
However, the success of any system of checks and balances is dependent
on the integrity of the information entered into the system and the
people who enter the information in the system.
Question 2: Following your investigation, VISN-1 implemented
changes to require approval by the VISN-1 CFO of some of the types of
expenditures at issue in your investigation. In your judgment, is this
change sufficient to ensure that the types of improper activities
disclosed in your investigation do not recur? Do you have any
information about whether this change has, in fact, achieved its stated
goal?
Answer: It is not a new requirement for the Veterans Integrated
Service Network (VISN) CFO to approve contract modifications that will
be funded with prior year money. The requirement to obtain VISN CFO
approval prior to using expired funds for non-recurring maintenance
projects was in effect within VHA during the time the improper
activities occurred at the VABHS. However, facility managers chose to
disregard the approval process and there was no system control in place
to alert VISN officials that expired funds were used illegally.
Subsequent to our review, the VISN-1 Financial Quality Assurance
Manager started monitoring general ledger account 4650, which accounts
for the use of expired funds. If this account is adequately monitored,
it will provide greater assurance that expired funds are being spent in
accordance with appropriations law.
Question 3: Following your investigation, VISN-1 instituted a new
Standard Operating Procedure (SOP) concerning the use of Estimated
Miscellaneous Obligation (VAF 1358). In your judgment, is this SOP
sufficient to prevent the future misuse of VAF 1358 expenditures like
those your investigation uncovered? Do you have information that would
lead you to believe whether VA has controls in the other VISNs that
would prevent similar misuse of VAF 1358 expenditures?
Answer: VISN-1 SOP 2006-02, Use of Estimated Miscellaneous
Obligation (VAF 1358), prescribes policy and circumstances governing
the use of the 1358 method of obligating funds, and its issuance helps
standardize practices throughout VISN-1. The SOP describes the proper
use of 1358s, necessary approvals, and potential personal liability.
The SOP only prescribes policy; it does not include corresponding
system controls in the information technology systems in which these
transactions are processed. Therefore, the VISN must rely on people to
follow the policy in order for it to be effective.
Our review focused on specific allegations pertaining to VISN-1. We
are not aware of any VA controls in other VISNs that would have
prevented similar misuse of 1358 expenditures.
Committee on Veterans' Affairs
Washington, DC
July 16, 2007
Honorable R. James Nicholson
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420
Dear Secretary Nicholson:
On Wednesday, June 27, 2007, the Subcommittee on Oversight and
Investigations of the House Committee on Veterans' Affairs held a
hearing on VA's Internal Contracting Oversight Deficiencies.
During the hearing, the Subcommittee heard testimony from the
Honorable Robert J. Henke, the Assistant Secretary for Management. He
was accompanied by Mr. Jan Frye, the Deputy Assistant Secretary for
Acquisition and Material Management, and Mr. Frederick Downs, Jr., the
Chief Prosthetics and Clinical Logistics Officer. As a follow-up to
that hearing, the Subcommittee is requesting that the following
questions be answered for the record:
1. Following your investigation, VISN-1 instituted new Standard
Operating Procedures (``SOP'') to address the problems identified in
the Inspector General's investigation of the Boston Healthcare System.
Is it standard operating procedure for individual VISNs to have their
own SOPs concerning matters such as contracting and expenditure of
government funds? Were VISN-1's new SOPs reviewed by anyone in VA
central office before being implemented?
2. Following your investigation, VISN-1 implemented a new
Standard Operating Procedure concerning the use of Estimated
Miscellaneous Obligation (VAF 1358). What assurance do you have that
the misuse of VAF 1358 expenditures identified in the IG's
investigation is not occurring at other VISNs?
3. Following the IG's investigation, VISN-1 implemented changes
to increase the authority and responsibilities of the VISN-1 Chief
Financial Officer (CFO) in order to prevent future occurrence of the
abuse identified by the IG. Have these changes been implemented? How
many staff does the VISN-1 CFO have? Does the VISN-1 CFO receive
sufficient support to meet his/her new responsibilities? Does the CFO
in place at the time of the hearing believe there is enough support to
meet these responsibilities?
4. As part of the organizational analysis outlined in the GAO
Report dated October 2005, titled ``Status of Seven Key
Recommendations'' relating to the development of a long-term
improvement plan, what were the recommendations made by LMI?
5. Of the 1632 audits mentioned in Mr. Henke's testimony, how
many of the audits found that things were being done correctly, and how
many of the audits found improprieties?
6. In reference to Mr. Henke's testimony, why was it determined
that contract-review board process procedures would apply primarily to
acquisitions above $5 million, and has this been done?
7. What is the status of the Electronic Commerce Management
System (eCMS) meant to improve efficiency and transparency in the
contracting process?
8. As addressed by the VA's goal of improved customer relations,
what are the required ``extraordinary efforts'' that are needed by the
entire acquisition chain of command? Have they been made?
9. As referenced in the Procurement Reform Task Force Report of
May 2002, how many non-Federal Supply Schedules have been contracted?
How many were requested? How many were approved?
10. How many joint pharmacy contracts between the DoD and VA have
been negotiated, and how much has been saved? How much has been
purchased jointly over the past 3 years?
11. How many national medical-surgical prime vendors have been
contracted?
12. What was identified by the 60 new work groups that were formed
to standardize 140 new product lines?
13. Have all civilian departments met certification requirements
with regards to education, training, and experience for acquisition
duties, as stipulated by OFPP Policy Letter No. 05-01?
14. Does the Office of Business Oversight itself act as the
arbitrator for various contracts, or does it solely perform an
oversight function?
15. Concerning the audits conducted before and after contracts
referred to in Mr. Henke's testimony, and the $20 million that could be
recovered, have those funds been recovered and why were those funds
unaccounted for until investigating the contract afterward?
16. In the cases of Project HERO and the Vocational Rehabilitation
and Employment Services program, how is the consolidation of fewer
providers stimulating more competition in prices and service
capabilities?
17. Why has the contracting workforce remained relatively the same
size as the budget has more than doubled?
18. In Mr. Henke's statement, he mentioned that he had issued an
Information Letter (IL) 049-07-08 on June 19, 2007, which provides
guidance on changes to the VAAR stemming from Public Law 109-461 for
Veteran Owned Small Businesses, and Service-Disabled Veteran Owned
Small Businesses. Please provide a copy of this letter for the official
record, so that we can see the changes that are being implemented based
on that law?
19. When do you anticipate the final regulations on the VAAR will
be published in the Federal Register?
20. What role is A&MM playing in the implementation of the veteran
and disabled veteran-owned small business provisions in Title 5 of PL
109-461?
We request you provide responses to the Subcommittee no later than
close of business, Friday, August 10, 2007 to Ms. Caitlin Ostomel.
If you have any questions concerning these questions, please
contact Subcommittee on Oversight and Investigations Staff Director,
Geoffrey Bestor, Esq., at (202) 225-3569 or the Subcommittee Republican
Staff Director, Arthur Wu, at (202) 225-3527.
Sincerely,
Harry E. Mitchell
Chairman
Ginny Brown-Waite
Ranking Republican Member
Question for the Record
Hon. Harry E. Mitchell, Chairman
Hon. Ginny Brown-Waite, Ranking Republican Member
Subcommittee on Oversight and Investigations
House Committee on Veterans' Affairs
June 27, 2007
Hearing on VA's Internal Contracting Oversight Deficiencies
Question 1: Following your investigation, VISN-1 instituted new
Standard Operating Procedures (``SOP'') to address the problems
identified in the Inspector General's investigation of the Boston
Healthcare System.
Question 1(a): Is it standard operating procedure for individual
VISNs to have their own SOPs concerning matters such as contracting and
expenditure of government finds?
Response: Each veterans integrated service network (VISN) is
expected to develop local standard operating procedures based on
national policy, directives and handbooks that are to be followed by
its facilities.
Question 1(b): Were VISN-1's new SOPs reviewed by anyone in VA
central) office before being implemented?
Response: VISN-1's new standard operating procedures were reviewed
after implementation.
Question 2: Following your investigation, VISN-1 implemented a new
Standard Operating Procedure concerning the use of Estimated
Miscellaneous Obligation (VAF 1358). What assurance do you have that
the misuse of VAF 1358 expenditures identified in the IG's
investigation is not occurring at other VISNs?
Response: At the end of every fiscal year beginning with 2006
procurement history, the Department of Veterans Affairs (VA) has
reviewed open Estimated Miscellaneous Obligations (VA form 1358),
notified facilities with open 13585, request information on the status
of the order and justification for it to remain in open status. Monthly
spot checks are being conducted to ensure actions were taken to close
out open 1358s.
Question 3: Following the IG's investigation, VISN-1 implemented
changes to increase the authority and responsibilities of the VISN-1
Chief Financial Officer (CFO) in order to prevent future occurrence of
the abuse identified by the IG.
Question 3(a): Have these changes been implemented?
Response: VISN-1 has implemented changes to increase authority and
responsibilities of the VISN-1's chief financial officer (CFO). The
procedures that will be used for commitment, transfer, and obligation
of funds will directly involve VISN-1's CFO. VISN-1's CFO will forward
to the requiring activity or program office responsible for the
procurement a statement certifying that funds have been committed. This
certification will be forwarded to the assigned contracting officer as
part of the procurement request (PR) package.
The standard operating procedure (SOP) has been implemented. The
SOP requires that all modifications to be executed with prior year
funds (regardless of dollar amount) be approved at one level above the
contracting officer responsible for the action. The contract file shall
contain a written justification that the modification is within the
scope of the original contract and therefore constitutes a bona fide
need of the prior fiscal year. In addition, all modifications to be
executed with prior year funding shall be approved by VISN-1's CFO.
Question 3(b): How many staff does the VISN-1 CFO have?
Response: No staff report directly to the VISN-1 CFO; however, the
VISN-1 CFO works closely with the VISN's financial quality audit
manager (FQAM) and CFOs at the medical centers.
Question 3(c): Does the VISN-1 CFO receive sufficient support to
meet his/her new responsibilities?
Response: The current staffing meets the needs of the CFO
requirements; however, a workload analysis completed by VISN-1's chief
logistics officer (CLO) and network contract manager (NCM) identified
the need for the following changes to include additional staff and co-
location of staff:
The VA Hospital in Brockton, MA will become the primary
location for the consolidated contracting activity (CCA) New England
acquisition staff. The CLO, NCM and entire VA Boston contracting staff
(currently located in Jamaica Plain) will all immediately move to the
Brockton facility. In addition, all positions approved as a result of
this workload analysis will be staffed in Brockton.
By the Fall of 2007, 10 new staff will be hired. The 10
new staff combined with the existing six staff at Boston will be
consolidated to the Brockton campus for a total of 16 staff. The
Brockton group will perform all of VA Boston's work and take on the
overflow from all other facilities. Facility chiefs of procurement and
contracting will continue to assign work locally. All consolidated
contracts will be completed in Brockton. A core team will continue at
the facility, however, as vacancies arise in the network those
vacancies will be filled at the Brockton campus. Each facility will be
left with a limited amount of staff to maintain a presence at that
facility.
The Brockton staff will be organized into three specialty
contracting teams (construction, medical services, and commodities).
There will be a team leader located in Brockton for each of the three
contracting teams, who will be responsible for assigning, reviewing,
monitoring and supervising all work performed within that group. The
team leader will be responsible for managing the entire workload within
the team.
Question 3(d): Does the CFO in place at the time of the hearing
believe there is enough support to meet these responsibilities?
Response: At the time of the hearing, preliminary discussions were
being held on the need for a staffing plan to assist the VISN CFO.
There have been several changes to processes and procedures in addition
to increased workloads that justify the need to obtain more staff.
Plans are now in place to develop a viable staffing plan to assist the
CFO to effectively carry out their financial responsibilities.
Question 4: As part of the organizational analysis outlined in the
GAO Report dated October 2005, titled ``Status of Seven Key
Recommendations'' relating to the development of a long-term
improvement plan, what were the recommendations made by LMI?
Response: The Logistics Management Institute (LMI) recommended the
establishment of a center for acquisition innovation which would have a
headquarters and field components devoted to providing innovative
contracting solutions in support of major VA procurements, strategic
sourcing initiatives, and emergency response and recovery operations.
LMf is assisting the Office of Acquisition and Logistics with the
implementation of its strategic plan and balanced scorecard of
performance measures, which include initiatives to address the key
recommendations in the areas of customer service, communications,
recruitment, and retention of a quality work force and the award and
administration of contracts.
Question 5: Of the 1632 audits mentioned in Mr. Henke's testimony,
how many of the audits found that things were being done correctly, and
how many of the audits found improprieties?
Response: The legal/technical review (audit) process allows for
changes and corrections to be made as the contract action moves
forward. Some corrections are minor and others are more significant,
but the goal of the review is to bring the procurement up to standard
without unnecessarily delaying the acquisition. Some findings are so
significant that the submission is rejected and returned for revision
and resubmission before it is allowed to continue. Of the 1,632
solicitations that were reviewed, approximately 5 percent were rejected
and had to be resubmitted.
Question 6: In reference to Mr. Henke's testimony, why was it
determined that contact review board process procedures would apply
primarily to acquisitions above $5 million, and has this been done?
Response: The contract review board (CRB) process is being
implemented in VA as a replacement for the business clearance review
(BCR) process. The CRB process adopted the same dollar thresholds used
by the BCR process. Both the CRB and BCR processes are thorough and,
therefore, very labor intensive. The $5 million threshold was
established in an effort to balance the importance and dollar level of
the procurement with the level of effort needed for review. Contracts
below $5 million are reviewed using the legal and technical review
process discussed in question 5. The CRB process has been implemented
for about two-thirds of VA's qualifying procurements, with the BCR
process used for the remaining one-third. The BCR process will be
phased out completely over the next year in favor of the CRB process.
Question 7: What is the status of the Electronic Commerce
Management System (eCMS) meant to improve efficiency and transparency
in the contracting process?
Response: The electronic commerce management system (eCMS) has been
deployed VA-wide with the contracting officers (1102 job series) having
been trained through a phased approach starting in fiscal year (FY)
2006. As of August 2007, over 55,000 acquisition actions have been
entered into eCMS covering the full procurement cycle from acquisition
plan through modification. There are currently over 1,000 users of the
system. Plans are underway to train 400 purchasing agents and
prosthetics purchasing staff in FY 2008, In October, an interface to
the General Services Administration e-Buy system will be implemented to
facilitate the use of its electronic solicitation mechanism.
Question 8: As addressed by the VA's goal of improved customer
relations, what are the required ``extraordinary efforts'' that are
needed by the entire acquisition chain of command? Have they been made?
Response: VA is proceeding with a competitive solicitation for an
acquisition study that will provide an analysis of VA's current
acquisition structure, delegated lines of authority, and options for
new/revised acquisition organizational structures for consideration.
The solicitation should be awarded prior to the end of FY 2007. As part
of the reorganization of the Office of Acquisition and Materiel
Management, we are establishing a new associate deputy assistant
secretary (ADAS) for acquisition and logistics programs and policy who
will be responsible for the policy and oversight of VA's acquisition
program. This newly established position will be responsible for
developing operational and program management performance measures for
VA's acquisition program.
Question 9: As referenced in the Procurement Reform Task Force
Report of May 2002, how many non-Federal Supply Schedules have been
contracted? How many were requested? How many were approved?
Response: At the National Acquisition Center, approximately 322
contracts, which include national contracts, national blanket purchase
agreements (BPAs), and national blanket ordering agreements, have been
awarded and are in place. These contract vehicles leverage requirements
from VA and/or Department of Defense (DoD) and other government
agencies to achieve better pricing, terms, and conditions. All requests
that contained complete requirements were accepted and processed.
Question 10: How many joint pharmacy contracts between the DoD and
VA have been negotiated, and how much has been saved? How much has been
purchased jointly over the past 3 years?
Response: We currently have 67 joint contracts and 6 joint BPAs,
i.e., incentive agreements, in place. From FY 2004 to FY 2006 (the last
full 3-year period), VA has saved a total of $1.75 billion and spent a
total of $1.12 billion under VA/DoD joint pharmaceutical contracts. VA
does not have DoD spend and cost savings data.
Question 11: How many national medical-surgical prime vendors have
been contracted?
Response: Seven medical-surgical prime vendor contracts have been
awarded. They are awarded by region. Two are to large businesses, and
five are to small businesses.
Question 12: What was identified by the 60 new work groups that
were formed to standardize 140 new product lines?
Response: After the release of the procurement reform task force
report of May 2002, the Veterans Health Administration (VHA) revamped
the standardization program, and created 60 integrated product teams
(IPT) to identify and award standardization contracts. As of August
2007, 92 national blanket purchase agreements, 88 national contracts,
and 23 basic ordering agreements have been awarded under the
standardization program. In addition, the current 29 of the 60 IPTs are
reviewing and working on awards of an additional 125 products. The
standardization program is an on-going project and products are
identified for standardization as the requirement is identified.
The following documents are attachments to response:
A. Active National Medical Surgical Standardization Contract
Awards
B. Current Medical Surgical Standardization Projects
C. Active Prosthetics Standardization Contract Awards
D. Current Prosthetics Standardization Projects
Question 13: Have all civilian departments met certification
requirements with regards to education, training, and experience for
acquisition duties, as stipulated by OFPP Policy Letter No. 05-01?
Response: VA does not have information on progress of other
departments/agencies in implementing Office of Federal Procurement
Policy (OFPP) policy letter No 05-01. The Office of Management and
Budget (OMB), tracks and maintains this information. VA has begun the
certification process mandated by OMB. As of September 5, 2007, 105
contract specialists (1102s) have been certified in accordance with the
Federal Acquisition in Contracting (FAC-C) certification process. The
VA Center for Acquisition Innovation will include an acquisition
leadership academy that will have schools with curricula devoted to
contracting and program and project management certification.
Question 14: Does the Office of Business Oversight itself act as
the arbitrator for various contracts, or does it solely perform an
oversight function?
Response: The Office of Business Oversight performs oversight of VA
acquisition operations. One of the primary reasons for the creation of
the office was to separate the policy and operations functions from the
oversight of compliance with those policies and operations.
Accordingly, the Office of Business Oversight conducts contract
inspections and contract audits of VA acquisition activities and does
not act as the arbitrator for contracts.
Question 15: Concerning the audits conducted before and after
contracts referred to in Mr. Henke's testimony, and the $20 million
that could be recovered, have those funds been recovered and why were
those funds unaccounted for until investigating the contract afterward?
Response: Under the audit review process for Federal supply
schedules, pre- and post-award audits are performed. Pre-award audits
assist the contracting staff in ensuring that information provided by
the contractor is accurate, complete, and current. Depending on the
findings of the pre-award review, discrepancies found during contract
administration, voluntary disclosures by the contractor, or other
circumstances which arise during the administrative execution of the
contract, a post-award audit may also be needed or desired. Once a
post-award audit is completed, negotiations are held with the company
to substantiate findings and to reach a settlement. In some cases,
these findings are litigated. The whole process can take 6 months to 2
years before settlement or audit recovery can be reached, depending on
the circumstances and recourse taken by the contractor. The $20 million
in post-award audit recoveries were collected during FY 2006.
Question 16: In the cases of Project HERO and the Vocational
Rehabilitation and Employment Services program, how is the
consolidation of fewer providers stimulating more competition in prices
and service capabilities?
Response: The procurement process for these two projects has not
been completed yet, therefore, VA cannot fully respond to the question
at the present time.
Question 17: Why has the contracting workforce remained relatively
the same size as the budget has more than doubled?
Response: Greater efficiencies in our work force have been achieved
in recent years. Some efficiencies have been made possible because of
improvements in the procurement process resulting from the Federal
Acquisition Streamlining Act (FASA) 1995 and the Federal Acquisition
Reform Act (FARA) 1996. Other efficiencies are due to consolidations of
VA medical center contracting activities and improved work process
management. The other reality is that VA and other government agencies
have had difficulty in recruiting qualified 1102 contracting officers.
We recognize that our current contracting work force needs to be
reevaluated to meet future challenges. This reevaluation will be
accomplished within the context of the proposed VAt-wide acquisition
study to be conducted in FY 2008.
Question 18: In Mr. Henke's statement, he mentioned that he had
issued an Information Letter (IL) 049-07-08 on June 19, 2007, which
provides guidance on changes to the VAAR stemming from Public Law 109-
461 for Veteran Owned Small Businesses, and Service-Disabled Veteran
Owned Small Businesses. Please provide a copy of this letter for the
official record, so that we can see the changes that are being
implemented based on that law?
Response: A copy of Information Letter (IL) 049-07-08 is attached.
Question 19: When do you anticipate the final regulations on the
VAAR will be published in the Federal Register?
Response: The target date for publication in the Federal Register
is December 14, 2007.
Question 20: What role is A&MM playing in the implementation of the
veteran and disabled veteran-owned small business provisions in Title 5
of PL 109-461?
Response: Interim guidance to VA contracting officers was provided
in IL 049-07-08 issued on June 19, 2007. A formal change to the VA
Acquisition Regulation to codify VA's implementation of the public law
is being finalized and is expected to be published in the Federal
Register by December 14.