[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
     EXAMINING CONTRACTOR PERFORMANCE AND GOVERNMENT MANAGEMENT OF 
         RETROACTIVE PAY FOR RETIRED VETERANS WITH DISABILITIES

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 16, 2008

                               __________

                           Serial No. 110-168

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
JACKIE SPEIER, California

                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DIANE E. WATSON, California          DAN BURTON, Indiana
CHRISTOPHER S. MURPHY, Connecticut   CHRISTOPHER SHAYS, Connecticut
DANNY K. DAVIS, Illinois             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
BRIAN HIGGINS, New York              CHRIS CANNON, Utah
BRUCE L. BRALEY, Iowa                BRIAN P. BILBRAY, California
JACKIE SPEIER, California
                    Jaron R. Bourke, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 16, 2008....................................     1
Statement of:
    Gaddy, Zack E., Director, Defense Finance and Accounting 
      Service; Joseph Cipriano, president, Lockheed Martin 
      Business Process Solutions; Gordon Heddell, Acting 
      Inspector General, U.S. Department of Defense Office of 
      Inspector General, accompanied by Henry Kleinknecht, 
      Program Director, Acquisition and Contract Management 
      Directorate; and Pierre Sprey, independent statistics 
      expert.....................................................    20
        Cipriano, Joseph.........................................    28
        Gaddy, Zack E............................................    20
        Heddell, Gordon..........................................    35
        Sprey, Pierre............................................    48
Letters, statements, etc., submitted for the record by:
    Cipriano, Joseph, president, Lockheed Martin Business Process 
      Solutions, prepared statement of...........................    30
    Gaddy, Zack E., Director, Defense Finance and Accounting 
      Service:
        Followup question and response...........................    60
        Prepared statement of....................................    23
    Heddell, Gordon, Acting Inspector General, U.S. Department of 
      Defense Office of Inspector General, prepared statement of.    37
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................    12
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Information concerning staffing profiles.................   224
        Letter dated June 1, 2008................................    72
        Prepared statement of....................................     4
        Staff report.............................................    84
    Sprey, Pierre, independent statistics expert, prepared 
      statement of...............................................    50
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................    16


     EXAMINING CONTRACTOR PERFORMANCE AND GOVERNMENT MANAGEMENT OF 
         RETROACTIVE PAY FOR RETIRED VETERANS WITH DISABILITIES

                              ----------                              


                        WEDNESDAY, JULY 16, 2008

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 12:03 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Issa, Tierney and 
Watson.
    Staff present: Jaron R. Bourke, staff director; Jean Gosa, 
clerk; Charisma Williams, staff assistant; Vic Edgerton, 
legislative director; Leneal Scott, information systems 
manager; Larry Brady, minority senior investigator and policy 
advisor; Alex Cooper, minority professional staff member; Grace 
Washbourne, minority senior professional staff member; and 
Molly Boyl, minority professional staff member.
    Mr. Kucinich. As the witnesses are getting ready to be 
seated, I just want to let you know that we have had votes 
called. We expect votes to be called shortly. So I am going to 
try to get through at least the opening statements of myself 
and Mr. Issa, and we will be back right after votes.
    The committee will come to order. This is the Domestic 
Policy Subcommittee of the Oversight and Government Reform 
Committee of the U.S. Congress. I am Dennis Kucinich of Ohio. I 
am chairman, and joining us is Mr. Issa of California who is 
the ranking member.
    The title of today's hearing is ``Examining Contractor 
Performance and Government Management of Retroactive Pay for 
Retired Veterans with Disabilities.'' Today's hearing is going 
to examine the reasons for the significant delay in delivering 
the retroactive pay award to disabled retired veterans and 
assess the Government's management of the program.
    Without objection, the Chair and the ranking minority 
member will have 5 minutes to make opening statements followed 
by opening statements not to exceed 3 minutes by any other 
Member who seeks recognition and, without objection, Members 
and witnesses will have 5 legislative days to submit a written 
statement or extraneous materials for the record.
    To my colleagues and to those who are here today, veterans 
are told every year that their political leaders, their 
military leaders and their Nation are grateful to them. The 
President, just last month, awarded the Presidential Medal of 
Freedom in part on his assessment that the recipient 
demonstrated the love and care that should be shown to our 
veterans.
    But do the leaders believe it? Has caring for our veterans 
become an empty gesture? Is it a hollow sentiment?
    This subcommittee began an investigation into the cause of 
delay in delivering of benefits to severely disabled veterans 
whose injuries and diseases are related to their combat and 
military service experience.
    Congress mandated in 2003 and 2004 that such veterans were 
eligible to receive their full military retired and VA 
disability pay where previously their retired pay had been 
deducted by the value of their disability pay. The new benefit 
was going to make a real difference in the lives of those 
veterans with awards ranging from thousands of dollars to tens 
of thousands of dollars, but the payments barely got out the 
door.
    My staff sifted through a total of over 16,000 pages of 
documents produced separately by the Defense Finance and 
Accounting Service, DFAS, and Lockheed Martin. They interviewed 
veterans whose eligibility for VA retroactive pay was denied or 
delayed. The findings are shocking:
    The Department of Defense waited 2 years after enactment of 
the law to hold its first formal meeting on implementing the 
new benefit--two years.
    It took a total of 5\1/2\ years to review the claims of 
just 133,057 veterans who became eligible when Congress changed 
the law.
    Up to 8,763 disabled veterans died before their cases were 
reviewed for VA retroactive eligibility.
    DFAS gave a no-bid, cost-plus contract to Lockheed Martin. 
Lockheed's performance proved to be deficient, but DFAS was 
unable to assess penalties because the contract did not permit 
it.
    Unable to do more than exhort Lockheed to do better, DFAS 
cut back on its own quality control. Essentially, the 
Government let Lockheed monitor itself. DFAS suspended its own 
rigorous independent verification of calculation made by 
Lockheed and instead outsourced quality assurance to Lockheed. 
In doing this, DFAS effectively bypassed GAO regulations on 
statistical sampling in Federal quality control procedures.
    Lockheed applied a weaker standard to quality assurance 
than the standard mandated by GAO.
    DFAS also used Federal workers to supplement Lockheed's 
work force. This is highly unusual since there is a prohibition 
on assigning Federal workers to tasks that the Government has 
contracted out to a private company.
    While these measures had the effect of clearing the backlog 
of cases waiting for review, it did so at the expense of 
accuracy:
    Up to 60,061 payments to veterans were issued after a 
suspension of quality control measures went into effect on 
March 1, 2008.
    At least 28,283 veterans were denied retroactive pay based 
on determinations made wholly without quality assurance review. 
These denials were made by Lockheed technicians who received 
all of 6 weeks training.
    This subcommittee doesn't know how many denials and 
payments were made in error, but we do know that DFAS hasn't a 
clue either because DFAS failed to do due diligence. In 
suspending its own quality control measures, DFAS shifted the 
burden of error detection onto disabled veterans. DFAS and 
Lockheed have told disabled veterans they are on their own to 
figure it out themselves and fight with the bureaucracy if they 
disagree with what Lockheed and the Government told them.
    These findings are why this hearing is really about 
something bigger than the execution of a specific policy called 
VA Retro.
    Do we care enough about our veterans to get it right the 
first time?
    Do we care enough about our veterans to verify the accuracy 
of the payments we send to them?
    Do we care enough about our veterans to check the work of a 
Lockheed technician who, with 6 weeks training, has made a 
decision that a disabled war veteran is not eligible for 
retroactive pay?
    Our investigation has, unfortunately, found that Lockheed 
and DFAS did not care enough in this case to do that. Their 
policies and practices in VA Retro are an intolerable insult to 
veterans. The management of the VA Retro project and the 
performance of Lockheed have been disgraceful.
    I want to say on behalf of all of those families who waited 
and waited and waited and waited, hoping for some financial 
help which they needed so sorely because they were already at a 
disadvantage because of the disabilities that they had that 
were service-connected. I want to say on behalf of them that 
this Congress is going to relentlessly pursue this matter.
    We are going to do everything we can not only to see that 
these payments are brought up to speed, but we are going to do 
everything we can to hold to an accounting those who saw this 
system fall apart while people who served this country, put 
their lives on the line, waited and waited and waited and 
didn't get the financial help that they needed and that they 
were entitled to under laws that this Congress passed.
    There is a lot of routine business that is done before this 
committee. This is not routine business. This deals with 
people's lives in ways that are quite compelling.
    I want you to think of what it would be like if you were 
one of those 8,700 veterans who were waiting by the mailbox as 
their lives ebbed away for a check that never came. A response 
from a Government that they were willing to put their lives on 
the line to protect was never forthcoming.
    The Chair recognizes Mr. Issa.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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    Mr. Issa. Thank you, Mr. Chairman. Thank you for holding 
this not routine hearing on this important subject.
    I would like to ask unanimous consent that a record of the 
IT-related hearings in the previous Congress be placed in the 
record at this time.
    Mr. Kucinich. Without objection.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Chairman, as you said, this is not routine, but we have 
been there before. First, let us be blunt. We are fighting two 
wars, and our service men and women from all the services 
including the Guard and Reserves deserve the very best support 
from us, the Congress, and throughout the Government, but they 
are not getting it.
    When Tom Davis was chairman of this committee, regular and 
in-depth oversight was conducted on some non-routine problems 
service men and women were facing. This included the persistent 
problems at Walter Reed, the persistent problems in military 
pay which continue until today, the inability of DOD to get its 
business processes and financial management systems properly 
updated.
    The oversight on these issues continued when the 
Subcommittee on Government Management, headed by Todd Platts, 
examined the modernization failures of financial management 
systems Government-wide.
    Over the years, we have asked the GAO for help in assessing 
the causes of these repeated failures. They have once, twice, 
thrice and many more times said that the financial management 
practices of the U.S. Government cost us billions of dollars 
and have come nowhere close to best practice in the past, the 
present and show no sign of doing so in the future.
    We know the root cause of these problems is the lack of 
best practices, the lack of adhering to concepts which have 
been long proven in the private sector. To this end, I do 
applaud private sector companies, whether they be flawless or 
not, in at least exposing to the Government system the 
opportunity to use best practices.
    Today, in our hearing, we are going to deal with an example 
of both the best and the worst example of that. We are going to 
see a contractor who is accused of perhaps profiting by the 
very errors that the Government had within its system.
    We are going to hear, and I think accurately, that multiple 
Government data bases were not properly assessed prior to the 
commencement of this contract for what their real costs were 
going to be.
    We are going to see more than 15, if you will, redefining 
moments in the contract. These added cost and, in many cases, 
inevitably cost us time.
    We are going to see some good news in this case, and the 
chairman referred to it in his opening comment, and that was 
that assets, both public and private, were put to bear quickly 
to try to reduce the time for our veterans to receive what 
Congress had entitled them to.
    The shortcuts taken will be criticized here today, and they 
should be. We need to plan better. We need to implement better.
    Certainly we need to insist that contractors obey the law, 
and if they need or want exclusions from existing and well 
thought-out laws such as contractors not using Government 
employees, that in fact the proper exemption be granted in a 
timely fashion.
    Having said all of that, the chairman and I both take a 
keen interest in this subject. Both of us have immediate family 
members who are disabled veterans. Both of us see every day how 
difficult it is for veterans of previous wars to get by.
    And, I think I can speak on behalf of both of us. We can 
only estimate the hundreds of thousands of veterans exposed to 
injuries particularly from IEDs in this war who will, over a 
period of time, develop debilitating injuries not immediately 
apparent. So, if we don't get it right today and we continue to 
not get it right, it is very clear that in the future we will 
be faced with a much larger problem.
    Having said that, I would like to applaud everyone involved 
in taking from multiple data bases, paper documents, some of 
them from microfiche and some of them just poorly scanned, 
finding a way to turn them into at least somewhat meaningful 
data. I don't think that we can sell short the fact that 20 
years ago, what was done in the case of bringing these records 
into a digital age would have been impossible. Notwithstanding 
that, implementation of technology is expected by our 
contractors and expected by the American people.
    So today, as we focus on a series of what will be 
characterized, I am sure, as mistakes, I want us to focus on 
the positive. I also very much appreciate that we will be 
dealing with ways to get to the best practices that clearly we 
don't have today.
    Mr. Chairman, once again, I would like to thank you for 
this subcommittee continuing to work on a bipartisan basis on 
all of our issues and yield back.
    [The prepared statement of Hon. Darrell E. Issa follows:]

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    Mr. Kucinich. I thank Mr. Issa and appreciate his 
willingness and demonstrated capacity to work together on these 
matters.
    Here is how we are going to proceed. We have a vote that is 
on right now. I am going to read, with unanimous consent, a 
statement into the record of Command Sergeant Major Harold 
Lewis who, for medical reasons, was not able to be here. I am 
then going to swear the witnesses, introduce them, swear them 
in, and then we are going to recess until we complete the 
votes.
    Is there any other Member who seeks recognition before I do 
that?
    Ms. Watson. I did have an opening statement. Do we have a 
second to read it?
    Mr. Kucinich. The gentlelady is entitled to read her 
opening statement, and we will proceed with your opening 
statement.
    Ms. Watson. Thank you. I want to thank you, Mr. Chairman, 
for holding today's very, very important hearing to examine the 
reasons for delay in delivering retired veterans their 
disability compensation.
    In 2003 and 2004, Congress passed legislation that would 
allow retired members of the Armed Forces to receive retired 
pay and veterans disability compensation concurrently. The 
enacted legislation was good for our veterans because, 
previously, retired pay was cut by the amount of disability 
compensation a veteran received from the VA.
    According to the Defense Finance and Accounting Services, 
as a result of new entitlements, over 215,000 veterans became 
eligible for retroactive pay due to changes in their disability 
status.
    DFAS created the Veterans Retro program in September 2006 
to disburse retroactive payments to veterans. In order to 
process claims, DFAS contracted Lockheed Martin to review and 
adjudicate cases.
    According to the committee, Lockheed was to create a 
software solution for calculating benefits, but that was never 
done.
    They also missed every deadline for completion of the VA 
Retro program. The official deadline for completing the 
retroactive payments backlog was scheduled for November 2007 
but not completed, according to the DFAS, until the end of June 
2008.
    So, Mr. Chairman, we have to run and vote at the time, but 
I certainly look forward to hearing from today's panel, and I 
hope they can explain in detail as to why it was difficult to 
complete the retroactive payments in timely manner.
    Thank you very much.
    [The prepared statement of Hon. Diane E. Watson follows:]

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    Mr. Kucinich. I thank the gentlelady for her participation 
and for her statement.
    I want to read into the record a statement of Command 
Sergeant Major Harold E. Lewis.
    Command Sergeant Major Lewis is a disabled Army veteran who 
received his injuries in combat in Vietnam. Originally a 
draftee, he served 28 years in field artillery and eventually 
rose to command levels of authority. He also received a denial 
of VA retroactive eligibility from DFAS, and this is his 
statement.
    ``Most guys who get a letter saying they get zero money 
would never challenge it. They wouldn't know how. I would be 
surprised if they understand what they get in the mail, and a 
lot of guys would just trust their Government.
    I get sad to the point of crying, seeing the guys in worse 
shape than me, but DFAS wants us to die or just give up trying 
to get our benefits.''
    That is a statement from Command Sergeant Major Harold E. 
Lewis to the subcommittee majority staff by telephone on July 
8, 2008.
    Now Mr. Lewis did challenge it. Thanks to his fortitude and 
the help and support given to him by his wife and her 
impeccable recordkeeping, he was able to persist and prevail. 
Last month, he received notification from DFAS that he was, in 
fact, eligible for a $15,000 retroactive pay award.
    For the record, I want this subcommittee to know that Mr. 
Lewis wanted to testify here today, but Mr. Lewis' VA doctors 
advised him that the stress of making the trip and testifying 
before us would endanger his life.
    The Army attributes his multiple disabilities, including 
Diabetes Type II, acute peripheral neuropathy, tinnitus and 
hearing loss, and post-traumatic stress disorder to numerous 
combat experiences and injuries including concussions and 
broken vertebrae from rocket attacks and exposure to Agent 
Orange.
    If there are no additional opening statements, the 
subcommittee is going to receive testimony from the witnesses 
here today. I want to start by introducing our panel.
    Mr. Zack Gaddy is the Director of Defense Finance and 
Accounting Service. In his role, he oversees the day to day 
accounting and finance activities in the Department of Defense, 
leading more than 12,000 civilian employees in a complex 
mission that includes paying over $446 billion annually to 5.9 
million military, civilians, retirees and annuitants. Mr. Gaddy 
has been working for the DFAS since 1991.
    Mr. Joseph Cipriano is the president of Lockheed Martin 
Business Process Solutions. Under his leadership, the Lockheed 
Martin Business Process Solutions serves the Federal Government 
and regulated industries with innovative outsourcing solutions. 
Prior to joining Lockheed Martin, Mr. Cipriano served as the 
Program Executive Officer for Information Technology at the 
U.S. Department of the Navy.
    Mr. Gordon Heddell became the Acting Inspector General of 
the U.S. Department of Defense on July 14th of this year. 
Previously, Mr. Heddell held the title of Inspector General at 
the U.S. Department of Labor since January 2001. His 
multifaceted career includes 29 years in the U.S. Secret 
Service.
    Mr. Pierre Sprey is an independent defense expert, 
aeronautical engineer and statistician. A former Pentagon 
analyst, he has served as Special Assistant to the Assistant 
Secretary of Defense for Systems Analysis during the Johnson 
and Nixon administrations. While working at the Pentagon, Mr. 
Sprey also helped launch the military reform movement in the 
1980's which led to the passage of a number of military reform 
laws.
    I want to thank the witnesses for appearing before the 
committee. We also have Mr. Kleinknecht who is here to be of 
assistance in answering questions to Mr. Heddell, if I am 
correct at that. He will be sworn, but he will not testify.
    So I would ask all the witnesses who are to be sworn, would 
you please stand? It is the policy of our Committee on 
Oversight and Government Reform to swear in all witnesses 
before they testify. I would ask you to raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. I thank you, gentlemen.
    Let the record reflect that the witnesses answered in the 
affirmative.
    When this committee returns from this brief recess for the 
votes, we will then ask that each witness give a brief summary 
of their testimony. Keep their summary under 5 minutes in 
duration. I will assure you that your complete statement will 
be in the record.
    When we return, we will begin with Mr. Gaddy. I thank you 
for your patience.
    We are in recess until we return after the votes. Thank 
you.
    [Recess.]
    Mr. Kucinich. The committee will resume its sitting.
    Mr. Gaddy, you may proceed.

  STATEMENTS OF ZACK E. GADDY, DIRECTOR, DEFENSE FINANCE AND 
ACCOUNTING SERVICE; JOSEPH CIPRIANO, PRESIDENT, LOCKHEED MARTIN 
 BUSINESS PROCESS SOLUTIONS; GORDON HEDDELL, ACTING INSPECTOR 
    GENERAL, U.S. DEPARTMENT OF DEFENSE OFFICE OF INSPECTOR 
 GENERAL, ACCOMPANIED BY HENRY KLEINKNECHT, PROGRAM DIRECTOR, 
  ACQUISITION AND CONTRACT MANAGEMENT DIRECTORATE; AND PIERRE 
              SPREY, INDEPENDENT STATISTICS EXPERT

                   STATEMENT OF ZACK E. GADDY

    Mr. Gaddy. Chairman Kucinich, Ranking Member Issa and 
distinguished subcommittee members, my name is Zack Gaddy, and 
I am the Director of the Defense Finance and Accounting 
Service, DFAS.
    Thank you for this opportunity to address the retroactive 
distribution of Federal benefits to disabled retired veterans 
under the project known as VA Retro.
    I request that my full statement be included in the 
official committee record.
    I want to assure the members of this subcommittee that 
caring for our military retirees and veterans who have served 
this Nation is one of my top priorities.
    DFAS pays more than 2\1/2\ million military retirees and 
their surviving spouses approximately $4 billion each month and 
pays over 283,000 eligible military retirees more than $298 
million monthly for their combat-related special compensation 
or concurrent retirement and disability payments.
    During the VA Retro project, eligible retirees have 
continued to receive their current monthly entitlement to these 
benefits of VA disability compensation.
    The VA Retro program is a temporary project begun in 2005 
by DFAS and the Department of Veterans Affairs to pay eligible 
retirees and veterans all retroactive entitlements they are due 
as a result of statutory changes. VA Retro refers to the 
retroactive nature of VA disability awards which directly 
impacts disabled retirees' entitlements previously paid by DFAS 
and the VA.
    When DFAS is initially informed of a retiree's new or 
modified VA award, there is typically a need to calculate a 
five to 6-month retroactive entitlement on the retiree's 
previously paid pay.
    Mr. Chairman, I am pleased to report that as of July 1, 
2008, DFAS adjudicated all of the original and new and 
returning claims and as of July 13, 2008, adjudicated over 
229,000 claims and paid out over $149 million in entitlements. 
We have also created a reliable and repeatable process enabling 
us to adjudicate incoming claims within 30 days of receipt.
    DFAS initially underestimated the difficulty of processing 
many of these claims. In November 2007, when we missed our 
deadline for completing all original claims, we reviewed our 
overall approach and revised our plan to complete the remaining 
original claims by April 30, 2008 and the new and returning 
claims by June 30, 2008.
    In February 2008, we realized that we would be hard pressed 
to meet our revised deadlines, and the Under Secretary of 
Defense, Comptroller, committed to triple the contractor work 
force dedicated to this project.
    Pursuant to her commitment, by the end of April 2008, we 
quadrupled the contractor staffing from 51 to more than 200 
personnel. We also deployed a set of automated tools to more 
readily categorize the claims and, in the case of the more 
easily calculated claims, allowed the processing of those 
claims through automated payrolls.
    We added an additional 15 Government employees to oversee 
the program, and we streamlined the quality control process by 
adjusting the Government review process to rely more heavily on 
a post-payment review to remove any potential delays in 
delivery of accurate VA Retro payments to deserving veterans. 
While the processing of these claims is our responsibility, we 
rely heavily on contractor support to process timely and 
accurate payments.
    In early March 2008, when the contractor failed to meet 
planned outcomes and fell behind their established schedule, 
DFAS issued a letter of nonperformance to move the project to 
completion within established milestones.
    During the month of March 2008, the contractor adjudicated 
more than 13,000 original claims. However, despite quadrupling 
the work force, streamlining the quality control process and 
deploying additional automation, by April 2008, we saw the 
contractor was not meeting production goals.
    Our analysis of the situation revealed that the less 
complex claims had been processed, and the remaining claims 
included ones with a combination of entitlements for veterans 
with multiple disability percentages and disability codes, 
consideration of former spouses' community property interests, 
prior year taxes, deaths and other unique characteristics, 
requiring manual process.
    At this point, we were significantly behind our revised 
schedule. On April 23, 2008, as a result of lack of performance 
and our eroding confidence in the contractor's ability to meet 
its milestones, we issued a second letter documenting our 
concerns and requiring the contractor to get the project back 
on schedule.
    Additionally, we initiated a Contract Past Performance 
Assessment Report to document the unsatisfactory performance 
and initiated action to transition the cost plus fixed fee 
contract modification to a performance-based contract 
modification that will be implemented before the end of the 
year for the VA Retro project.
    We also instituted the use of a standard set of approved 
data sources for the calculation of each claim to minimize 
calculation errors, expedite reconciliations and ensure 
consistency in review and validation through quality control.
    The contractor realigned quality control personnel to the 
production floor to produce quality payrolls. They also 
established a production dashboard to foster performance 
accountability at every level in the organization.
    While we were not able to complete the original claims by 
the April 30, 2008 deadline, we were able to adjudicate all of 
the original and the new and returning claims by July 1, 2008. 
We also institutionalized a process that enables us to process 
claims within 30 days of receipt.
    Mr. Chairman, I clearly recognize that this subcommittee is 
concerned about the delays in the distribution of Federal 
benefits to disabled retired veterans who are eligible for a 
one-time VA Retro payment. I want to assure that this issue 
remains one of my top priorities, and DFAS will continue to 
work the VA and our contract partner to do everything possible 
to pay retired service members correctly and in a timely 
manner.
    I will be happy to respond to any questions you may have. 
Thank you.
    [The prepared statement of Mr. Gaddy follows:]

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    Mr. Kucinich. Thank you, Mr. Gaddy.
    Mr. Cipriano, you may proceed.

                  STATEMENT OF JOSEPH CIPRIANO

    Mr. Cipriano. Chairman Kucinich, my name is Joe Cipriano. I 
am President of Lockheed Martin Business Process Solutions. I 
manage the business responsible for our program with the 
Defense Finance and Accounting Service [DFAS], and the VA Retro 
project as part of that program.
    I appreciate the opportunity to speak to the committee, and 
I am pleased to discuss the VA Retro project and the progress 
we have made in completing its mission. I ask that a copy of my 
written testimony be inserted to the record.
    Mr. Kucinich. So ordered.
    Mr. Cipriano. Today, I will describe what the Lockheed 
Martin team has done in conjunction with our customer to 
accomplish the VA Retro project's important goal of paying 
eligible military retirees any retroactive compensation they 
are due.
    Lockheed Martin began working with DFAS in 2003 following 
our acquisition of the Federal Government business of 
Affiliated Computer Services. We are proud to support the 
Department of Defense in its important mission of paying our 
Nation's military retirees.
    Under our DFAS contract, we perform complete payroll and 
customer service functions for 2\1/2\ million customers. This 
program demands accurate, timely, personalized business process 
services for a very special customer base. We have successfully 
executed on this program since we took it over and take pride 
in supporting those who have defended our Nation's freedoms.
    In 2006, we began working with DFAS on the VA Retro project 
as a task order under our larger DFAS contract. When we began 
the project, there was a backlog of over 133,000 cases awaiting 
adjudication. I am pleased to report that all these cases have 
been adjudicated as of June 6, 2008.
    The initial phase of the VA Retro project required Lockheed 
Martin to develop a prototype solution to process many of the 
VA Retro cases. This phase was successfully completed on time.
    A 12-month plan was then put in place dependent on 9 
initiatives to complete the 133,057 original cases by November 
2007. A key assumption in the schedule was that we would only 
need one file from one source for data required from the DVA.
    We set an interim goal of processing 50 percent of the 
cases by the end of March 2007. This was completed 2 weeks 
early.
    By August 2007, we had processed over 102,000 cases.
    In September, we notified DFAS of a 6-month slip in 
schedule if we were not able to use the DVA's SLC06 file as the 
source of rating decision data.
    In December 2007, DFAS determined the data quality would 
not support our plans for automation. Together, with our 
customer we recognized that most cases would have to be 
processed manually, and we began an accelerated hiring 
initiative with a goal of completing the original 133,000 by 
the end of April 2008 and the new and returning backlog of over 
86,000 by July 1st.
    We were successful in completing all original cases on June 
6, 2008 and the new and returning backlog on June 26th.
    The process to determine accurate payments for some of the 
final cases proved more difficult than anyone anticipated. 
Identification on May 1, 2008, of a single authoritative source 
for each data element greatly simplified the process and 
supported increased productivity.
    Case processing is people-intensive. We doubled and 
subsequently tripled the work force originally assigned to the 
task. The Government support our staffing efforts by assuming a 
small portion of the calls coming into our customer call 
center. This change allowed us to reallocate some of our staff 
to meet everyone's top priority, paying retirees.
    Additionally, during this time, we made significant 
improvements in our reconciliation process that contributed to 
decreased processing time and improved quality.
    Throughout this entire project, we have followed the 
quality assurance requirements set forth by DFAS in our 
contract. Lockheed Martin's quality processes are documented in 
specific VA Retro standard operating procedures. These 
procedures specify authoritative sources of data in 
adjudicating cases, sample sizes and methods.
    They are reviewed by DFAS's quality assurance officer 
regularly for appropriateness, ensuring the process supports 
accurate payroll production. Each payroll is certified by 
Lockheed Martin's program manager and both the DFAS assurance 
officer and certifying officer. DFAS continuously reviews 
Lockheed Martin's process as one of their inherently 
governmental responsibilities.
    Thank you again for the opportunity to be here today, and I 
am pleased to answer any questions you may have.
    [The prepared statement of Mr. Cipriano follows:]

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    Mr. Kucinich. Thank you, Mr. Cipriano.
    Mr. Heddell.

                  STATEMENT OF GORDON HEDDELL

    Mr. Heddell. Mr. Chairman, thank you for the opportunity to 
appear before you this afternoon.
    My name is Gordon Heddell, and I am currently the Acting 
Inspector General for the Department of Defense.
    The DOD is one of the largest and most complex 
organizations in the Federal Government. Oversight of its 
programs and functions is essential to the success of our 
troops regardless of the mission in which they are engaged.
    The magnitude and complexity of the Department of Defense 
requires nothing less than full time effort. We are in a time 
of war, and our work not only saves taxpayer dollars but also, 
much more importantly, the lives of U.S. service members.
    My testimony today addressees the DOD IG experience with 
OMB Circular 76 competitions and, more specifically, work 
relating to the competition that privatized military retired 
and annuitant pay functions.
    In March 2003, my office completed the audit of the public-
private competition for the DFAS military retired and annuitant 
pay functions. This effort was initiated in a response to a 
request from you, Mr. Chairman.
    Our review found that although the competition process was 
completed and the 10-year contract was awarded:
    A calculation error of $31.8 million was identified for the 
in-house estimate;
    DFAS's overhead costs of $33.7 million used for the in-
house estimate based on the OMB-directed 12 percent cost factor 
were not reduced after the functions were awarded to the 
contractor, and;
    The contract had inadequate standards to measure 
performance. In fact, 7 out of 10 were inadequate.
    In response to the above report, DFAS contracted with the 
Center for Naval Analysis, CNA, to examine the choices 
available. To address the errors identified in our previous 
audit report, CNA estimated that the current contract was $42 
million less expensive than the most efficient organization.
    In response to a second request from you, Mr. Chairman, my 
office completed an additional audit in June 2004. We reviewed 
the $42 million cost savings associated with retaining the 
existing contract and did not agree that the contract was $42 
million less expensive than the MEO.
    We believe the amount of system work to be performed in the 
remaining years was unknown and, as such, the reduction in the 
level of work should have been applied to all portions of the 
in-house cost estimate in order to fairly compare the 
contractor proposal and the MEO offer.
    Thank you, Mr. Chairman, for the opportunity to appear 
before this committee today address our work related to OMB 
Circular A-76.
    As I am not the subject matter expert on the issue, I have 
brought with me, Henry Kleinknecht. Mr. Kleinknecht is a 
Program Director in the Acquisition and Contract Management 
Directorate. Other than the CNA review, Henry also performed 
all of the audits that we discussed in my statement here today 
and is here to answer any specific questions regarding the 
previous work of the Department of Defense IG.
    I ask that my prepared statement be submitted for the 
record, and I thank you again for the opportunity to appear 
before you today, and we would be happy to answer any questions 
that you may have, sir.
    [The prepared statement of Mr. Heddell follows:]

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    Mr. Kucinich. I thank the gentleman.
    Mr. Sprey.

                   STATEMENT OF PIERRE SPREY

    Mr. Sprey. Thank you, Mr. Chairman.
    Your committee staff asked me to review all the available 
statistical evidence justifying the transfer of quality control 
functions for retired disability payments from the Government, 
that is from the CGA, to an outside contractor, Lockheed 
Martin.
    I did review all the available evidence, and the short 
answer to my review is there is not a shred of statistical 
evidence that this transfer was justified. Let me briefly 
summarize why I feel that way.
    First of all, the only evidence, the only statistical 
evidence produced was a small tabulation by DFAS of a set of 
CGA audits that were a very small sample. Eight hundred and 
forty-one payments were reviewed by CGA and determined to be in 
error or not in error.
    My first comment on that is looking at the internal 
correspondence of DFAS over the period of this contract, it is 
obvious that there is far more error data than those 841 
samples, but that is all that has been presented. I believe 
that between the Government and the contractor, a lot of error 
data that would be very useful for determining whether quality 
control was accomplished and properly transferred has been 
suppressed or withheld from the committee.
    Looking at the actual data that was presented to see 
whether it justifies the fact that errors were so small that 
transferring quality control was justifiable, this was a small 
tabulation put together by what was referred to as the Moxley 
Team.
    It was supposed to show that errors were much smaller than 
the 2\1/2\ percent total dollar error mandated by GAO under the 
Improper Payments Information Act. The sample, in fact, totally 
fails to show that.
    First of all, the first simple reason is the payments that 
were sampled, the 841 payments, are the wrong payments. The 
payments that are supposed to be sampled under the GAO 
procedure are supposed to be under $2,500 payments. All 
payments over $2,500 are supposed to be 100 percent sampled. 
The sample that as produced by the Moxley Team is, in fact, an 
over $2,500 sample as far as I can tell.
    Second, the sample is not random. I think as anybody 
understands who has ever looked at political opinion polls, if 
you get to choose what is in the sample, you can get any answer 
you want to. That is exactly the case with this sample.
    It was not randomly drawn and, in fact, it consists of 
relatively the easiest cases to do. So, obviously, errors in 
that sample are understated.
    Third, the tabulation, the Moxley Team tabulation, showed a 
little over 1 percent dollar error as their estimate. That is a 
totally wrong calculation.
    That calculation is not based on dollar errors as assessed 
by CGA. It is based on a guess on what the dollar error might 
be because DFAS never insisted that CGA give them the dollar 
error. All that DFAS basically turned over to them was a 
payment was right or wrong.
    In fact in a way, this sample was a 1.19 percent dollar 
error in the Moxley tabulation. It shows, in fact, that the 
sample fails to meet the GAO standard because these are over 
$2,500 payments and the GAO standard is they have to be 100 
percent reviewed and 100 percent accurate or corrected. So 1 
percent error rate in the dollars means that the sample is 
unacceptable.
    But there is a much larger issue in this whole thing in the 
simple statistical validity of these 841 payments. That larger 
issue is that no one, not DFAS, not Lockheed Martin, has ever 
reviewed, audited or checked the denials of payments to 
veterans. In other words, the zero payment decisions which are 
very much a part of the sample, very much a part of the 
mandated checking process by GAO, have simply been left out.
    By my calculations, that means about 43,000 veterans have 
been given payment decisions that no one knows whether they are 
right or wrong.
    Furthermore, in that 43,000 is exactly where the largest 
financial errors are likely to be. In many of these cases where 
veterans have been told they are owed nothing, they may in fact 
be owed tens of thousands of dollars. So the very largest 
errors may be buried in this sample of zeroed payments that 
nobody has looked at.
    But even larger than the statistical question of whether 
this invalidates the statistical sampling is the fact that this 
is the single area in which the greatest injustice has been 
done to veterans. The veterans who have been denied payment, by 
my estimate, 43,000 of them, have been denied that in the 
absence of anybody knowing whether this was right or wrong.
    That completely invalidates all the rest of the argument 
about the statistics, the audits, are the errors large, small 
and so on. This is really an ethical and a moral issue, not a 
statistical issue at all.
    There is one more major issue beyond the ethical failures 
of not reviewing denials of payment and the terrible small 
sample that was presented to prove that errors were acceptable, 
and that is the simple question of sound financial management.
    Imagine that you are the CEO of a company and you suspect 
your payroll department is either making horrible arithmetic 
errors or maybe embezzling the money. Would you, under those 
circumstances, assign the quality control function to that 
payroll department? Of course not.
    Yet, in effect, that is exactly what the Government has 
done. It has assigned the quality control function to the very 
process that is in question and that we know in 43,000 cases 
has failed to address the most important question, whether a 
veteran is owed money or not.
    [The prepared statement of Mr. Sprey follows:]

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    Mr. Kucinich. I thank the gentleman. Your time is expired. 
We are going to get back into some of these issues in 
questioning. I can guarantee you that.
    I would just like to know. Everybody on this panel has 
heard Mr. Sprey's testimony.
    Mr. Heddell, do you have any comment on what you just 
heard? Is this consistent with what you have found in your 
work?
    Mr. Heddell. Mr. Chairman, I could comment on that, but 
with your permission I would like to defer to Mr. Kleinknecht 
because he actually performed the audit.
    Mr. Kucinich. OK. I would like Mr. Kleinknecht to comment 
on the previous testimony because it kind of gets to the heart 
of the question of this issue of veterans really being denied 
benefits without any essential review.
    Mr. Kleinknecht. On the VA Retro pay, we have not done any 
work in that area.
    Mr. Kucinich. OK.
    Mr. Kleinknecht. This was all kind of after the fact where 
we did all the initial, looked at all the initial decision to 
competitively source it. At your request back in 2001, we 
looked at all these issues, and we wrote our reports and 
addressed all that, but this is all. We haven't been in since 
that work.
    Mr. Kucinich. Thank you.
    Mr. Gaddy, it is evident from the correspondence staff has 
reviewed in our investigation that you monitored the progress 
on the VA Retro program and frequently complained to Lockheed 
about low productivity and high number of errors that the DFAS 
quality control auditors were detecting.
    You said, for instance, ``These results for Thursday are 
extremely disappointing. By now, you should have a handle on 
why cases are not passing QA''--that is quality assurance--
``and get the quality level to a point where adjudicated cases 
pass muster.''
    Then it went on that LMCO missed the goal. ``Lockheed 
Martin missed the goal for the original cases by 707 for the 
week, nowhere near the level required to meet productivity 
goals to achieve the revised plan briefed to me today.''
    ``Also, why were 388 cases rejected back to ops? By now, I 
think Lockheed Martin should be able to produce consistently 
reliable results to avoid the high level of rework that has 
occurred since the inception of this project.''
    Would you tell the subcommittee, Mr. Gaddy, how did you 
know that Lockheed was making errors? Didn't your CGA auditors 
tell you that?
    Mr. Gaddy. Chairman Kucinich, I am not quite sure the 
timeframe of that specific e-mail reference, but I was getting 
some.
    Mr. Kucinich. I can refresh your memory. One was an e-mail 
from you to Rocky Thurston, Karl Bernhardt, Robert Cook, Martha 
Smith on April 4, 2008.
    Mr. Gaddy. OK.
    Mr. Kucinich. And the second one was an e-mail. The next 
one was an e-mail from you to Howard Ruddell, Douglas Smith, 
Karl Bernhardt on May 5, 2008.
    You are familiar with those, the contents of those e-mails, 
right?
    Mr. Gaddy. Yes. Yes, I am.
    Mr. Kucinich. So you knew because your auditors were 
telling you that Lockheed Martin was making errors, isn't that 
correct?
    Mr. Gaddy. Mr. Chairman, actually, what I was referring to 
in those e-mails was a daily report that I started getting in 
February which disclosed on it the number of cases that were 
dispositioned, number of cases that were adjudicated, number of 
cases that were rejected back from QA to operations, and the QA 
in this case was actually Lockheed Martin's QA or Team Blue as 
they called it.
    So it wasn't a government. It was the Lockheed Martin QA 
process that was rejecting the work back to their operational 
floor.
    Mr. Kucinich. Back at the start of the contract with 
Lockheed on August 10, 2006, you wrote in an e-mail: ``We need 
to start making payments in September 2006. Politically, we 
can't wait.''
    This was an election year. So what did you mean when you 
said it was politically impossible for payments to start any 
later? Were you referring to the election?
    Mr. Gaddy. No. No. We were talking about the fact that it 
had taken until September 2006 to get into place a process to 
start paying the retroactive portion of payments.
    Mr. Kucinich. You wanted to start making.
    Mr. Gaddy. It was taking a long time to get going.
    Mr. Kucinich. You wanted to start making payments in 
September. Do you know when the first payment was made?
    Mr. Gaddy. In September.
    Mr. Kucinich. It was October 13th, a month after you wanted 
payments to start.
    Did Lockheed miss the deadline for even the first payment 
to VA Retro veterans?
    Mr. Gaddy. Well, if we wanted it in September, then if it 
wasn't until October, they missed it, yes.
    Mr. Kucinich. Mr. Gaddy, there is no question you tried to 
exhort your people to clear the backlog faster.
    On December 2, 2007, for instance, you wrote an e-mail to 
your senior manager and saying, ``I can tell you right now that 
six more months is unacceptable. I want these cases processed 
within three months. We have already taken far too long, and I 
will not accept the glide path you included. Tell me how many 
people you need and how much OT is required to make three 
months?''
    But did you notice the same coincidence that I did, that 
the unacceptable 6-month glide path turned out to be the real 
glide path in clearing the backlog?
    In retrospect, with this evidence, do you feel that your 
exhortations made Lockheed move any faster?
    Mr. Gaddy. Well, obviously, sir, they did not.
    We were briefed in December. I was briefed in December an 
April schedule by Lockheed that I questioned why it would take 
that long. They did not hire people as fast as I thought they 
would.
    Of course, one of the things that was unknown to me until I 
visited Cleveland a little bit later was hiring people is one 
thing. Training them and getting them up to speed to actually 
do the work was something else. So it took several weeks to 
hire, several weeks to train and then certainly to get the 
experience to be a highly qualified person doing the work took 
many more months after that.
    So the realism of April, in hindsight, was it was 
unachievable.
    Mr. Kucinich. Right. Since you suspended CGA's 100 percent 
verification on all payments that is a Continuing Government 
Activity, 100 percent verification on all payments above 
$2,500, have you, by any other means, detected errors in such 
payments calculated and approved by Lockheed?
    Mr. Gaddy. The QA process that we implemented with 
Lockheed, and by the way Lockheed had a QA process that we had 
evaluated over many months to be what we thought reliable. In 
the CGA, the Continuing Government Activity, what we were doing 
was duplicative from a QA perspective of what Lockheed was 
already doing.
    What we intended for the CGA to do, which they have done, 
is what we call a certifying officer review of payments, and 
they do that and have been doing that.
    Mr. Kucinich. But you know it has come to the 
subcommittee's attention that DFAS is now aware of a certain 
number of VA Retro payments that were made in error. Is DFAS 
aware of any VA Retro payments that have been made since March 
1, 2008 and have been subsequently determined to be in error?
    Mr. Gaddy. We have reviewed almost 200 payrolls since 
February, and those payrolls include over 43,000 payments on 
what we call a post-pay review, and the error rate that we are 
seeing right now is less than 1 percent of all those payments 
that are reviewed.
    Mr. Kucinich. Are they overpayments or underpayments?
    Mr. Gaddy. It is a combination of both. I believe the 
number of underpayments is seven, and the number of 
overpayments is 42. Forty-nine in total, I believe, is the 
number.
    Mr. Kucinich. I am going to go to Mr. Issa.
    I took about 7 minutes for the first round here, so you may 
do the same. Thank you, Mr. Issa.
    Mr. Issa. Great. Thank you.
    Mr. Gaddy, on the scale of, if you will, all of the 
problems in finance and distribution within your area of 
control, is this 1 percent of the problem, 2 percent of the 
problem?
    Let me just clarify it. When we look at the amount of data 
that is still paper or microfiche, when we look at the amount 
of mistakes being made in other areas of finance, how do you 
compare the problem that you had--and most of it is in the past 
tense--with in fact some of the other major areas?
    I will just give you a couple of quick ones. For example, 
the Army Logistics Modernization Program, the LMP, that is a 
billion dollar program that has been delayed for, I guess, 
indefinitely.
    The Navy Enterprise Resources Planning, the ERP, problems 
in data conversion, interface, that is $1 billion in four pilot 
programs, and the estimate to complete it now is $800 million 
of all cost overrun.
    Or the Vets Net, I believe the Vets Net system which 
obviously is a very important potential program, $250 million 
and it is currently in sort of a hiatus.
    So I give you those as just some of the tip of the iceberg. 
Can you put this in perspective because I think this is an 
important hearing because we want to fix problems? One to 10 or 
percentage-wise, where are we here today?
    Mr. Gaddy. Being familiar with two of the three examples 
you gave me, anytime you implement a new system, it is hugely 
complicated, extremely expensive and tends to be way behind 
schedule.
    This project, in comparison to those, is simpler because we 
are not trying to build a very complex system. We are trying to 
use information from a variety of data sources, from VA, from 
DOD and try to create, if we could, automated solutions, and we 
came up with a variety of automated tools to help assist but 
could not fully automate the process.
    I have asked my chief information officer to work with the 
VA to look at how we might do so, so we can eliminate the touch 
labor or the manual effort associated with this.
    So on a scale of one to ten, if I were to rate those huge 
efforts you cited, the billion dollar efforts as, say a ten, 
this effort is more like three.
    On the other hand, because of the population that is 
impacted by it and the length of time it took to get it 
completed, I would say that, in and of itself, made it to me 
very, very significant and visible because we wanted the work 
done. We wanted to make sure the retroactive portion of the 
payments was paid to deserving veterans as quickly as possible. 
And so, from that perspective, very disappointed that it took 
the length of time it took.
    But I do believe that today we now have a repeatable 
process. So we can, in fact, turn claims around in 30 days or 
less. As a matter of fact, as of this morning, we currently 
have 65 unprocessed claims where we are lacking some 
information from VA that we are going back to get.
    We think, going forward, we can sustain that although we do 
know that there are other legislative proposals that have taken 
effect that will cause some more work to come our way. But 
between three and five thousand of these claims a month are 
coming in, and we know we can keep up with that workload on an 
ongoing basis.
    The committee has pointed out an issue with the no pay due 
calculations. I would comment that in one sense the process to 
calculate whether pay was due or not was reviewed by the CGA, 
the Continuing Government Activity.
    We understand what the process is. There were adjustments 
made to it over time to try to automate some of the 
calculations. Some of that automation worked well. Some of that 
automation didn't work as well as we intended for it to.
    The specific example of Command Sergeant Major Lewis, where 
his initial claim was denied and then eventually was determined 
that he was owed money, actually came out of one of the very 
first attempts to use an automated solution to calculate his 
case, and it was wrong.
    When we found out it was wrong, we went back. We made 
changes to the process to get it right. It came out and showed 
he was owed money, and we are now looking at all of those no 
pay due claims to ensure that proper steps were taken.
    Mr. Issa. Mr. Gaddy, I am particularly interested in part 
of the lessons learned here. The laws governing this 
requirement, this retroactive pay, were passed in 2002, 2004, 
but Lockheed, the subsidiary that Lockheed acquired got the 
contract in 2006.
    So, when I am sitting here in 2008 and you are giving me a 
mission accomplished, maybe a little more expensive than it 
would have been if it had been better planned or we had known 
in the beginning what we know at the end, how do we get past 
the 2-years and 2 years in the future because it appears as 
though the runway that we didn't have available, that would 
have allowed this to be maybe done more efficiently, was behind 
Lockheed at the time that they got the contract? At that time, 
it had been used up.
    How do we account for that time and how do we prevent it 
from being lost in the future?
    Mr. Gaddy. You are correct, sir, that the laws were passed 
as I said in my opening statement. As soon as an eligible 
veteran qualifies for either combat-related special 
compensation or concurrent retirement and disability payments, 
they, in fact, are drawing those payments the minute they are 
eligible.
    That retroactive portion which is what we are talking about 
today, while the laws were in passed in the timeframe you 
suggest, what happened was from a policy perspective between VA 
and DOD, which actually was before my time as Director of DFAS, 
no one recognized, I believe, that there was a requirement to 
look at how payments had been made and whether there was a 
retroactiveness required. That didn't actually start until late 
2004, early 2005 timeframe.
    Then it took from February 2005, when the initial formal 
meetings started between DOD and VA, it took from then to 
determine how do you even do it, what the data sources would 
be.
    And then it took some time to create a contract 
modification with Lockheed Martin to actually start doing the 
work and set up a process around how that would work.
    So we were late determining or identifying the requirement, 
and then it took some time to get going with it. Then, of 
course, we wanted to finish much more rapidly than we actually 
took.
    Mr. Issa. I appreciate that, and the veterans appreciate 
that.
    Let me ask you a question on, I never can pronounce this 
acronym very well, DIMHRS. Now that is 10 years in development, 
and we don't have it. Is that something that we should be 
looking at because obviously it is delayed, obviously it is not 
delivering the benefits?
    It is not on the scope today, but something tells me it 
will be soon and it is a much more expensive project. Can you 
comment on that?
    Mr. Gaddy. Sir, I am sorry. I am not familiar with that 
particular application.
    Mr. Issa. Let me just ask one more question very quickly. 
If you had it to do over again and you were back to 2004ish 
when you began to realize that there was a retroactive 
question, would it have been better to have issued a small, 
perhaps no-bid, contract to a contractor who could scope the 
project, who could in fact put the assets to bear in a much 
shorter period of time to figure out what data bases, where and 
when, particularly a contractor who may have already been in 
those data bases and then, using that, gone out with a better 
design contractor, knowing what you know now?
    I am not saying that you could have done it with what you 
knew then, but now isn't that potentially a best of practice 
that could be looked at rather than a year plus of Federal 
looking and then ultimately not having all the facts you needed 
at the beginning of the contract?
    Mr. Gaddy. Well, actually, you identify what I believe is a 
best practice, and that is to bring in experts who can assess 
the situation, identify a game plan to deal with it. For 
example, had we known automation was not really going to be 
what we thought it would be, we could have hired and trained 
people sooner and done it with people as opposed to automation.
    Conversely, had we known like VA was in the middle of 
converting to Vets Net from a variety of other systems. Had we 
known that was going to occur in the middle of the operation, 
we may have done things a bit different in terms of timing of 
when certain things would be completed.
    So, a small pilot to look at what, how to do it, the 
duration of time, then quite possibly we could have written a 
totally different task order of how to do the work because we 
would have had more empirical information to support what would 
be required, what durations would be required and had a better 
feel for how many claims would actually be processed.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    We are going to go into a second round of questioning here.
    Mr. Gaddy, what is a Red Team?
    I am not talking about Cincinnati. I am talking about DFAS. 
What is a Red Team? Would you tell this committee?
    Mr. Gaddy. Mr. Chairman, a Red Team normally is what we 
would send in to review something that someone has done, for 
example.
    Mr. Kucinich. So it is a normal practice you have a Red 
Team?
    Mr. Gaddy. If we are going to, say, put a contract out. If 
we are going to, like when we did an A-76 study in an operation 
I managed in Denver, we had a Red Team come in and review what 
we had done.
    They are independent from the operation. They come in and 
review what we are doing to ensure that we are thinking of all 
the things we are supposed to think of, covering all the bases, 
those sorts of things.
    Mr. Kucinich. What kind of circumstances would you send in 
a Red Team?
    Mr. Gaddy. We normally send in Red Teams where we want to 
know information about something from an independent set of 
eyes.
    Mr. Kucinich. Like what?
    Mr. Gaddy. Oh, it could be any operation. It could be we 
sent a Red Time, like I said, the A-76 study. If we have an 
operation that we think is struggling, has some problems, we 
will send a Red Team in to look at that to see what is going 
on.
    Mr. Kucinich. Has Red Team been assigned with respect to 
the VA Retro program?
    Mr. Gaddy. Yes, it has.
    Mr. Kucinich. When was it assigned?
    Mr. Gaddy. Let's see. Steve Turner came in as the director. 
I would say in the last maybe 2 weeks or week. I think it has 
been up in Cleveland.
    Mr. Kucinich. The last week or two. Now I just want my 
colleague here to join me in reflecting on this moment. You 
have brought in a Red Team in the last couple of weeks. You 
have also testified to this committee that you only have a 1 
percent error rate.
    Mr. Gaddy. Right, post-pay reviews, yes, sir.
    Mr. Kucinich. Pardon?
    Mr. Gaddy. On post-pay reviews that we have looked at for 
payroll.
    Mr. Kucinich. Why did you assign a Red Team? Help us with 
the significance of that.
    What were they assigned to do? What did they find?
    Mr. Gaddy. I don't have the results of the Red Team review. 
I think they are still looking at a variety of operational 
areas. VA Retro is one of those, but they are looking at, I 
believe, all of retired annuity pay operations.
    Mr. Kucinich. But let's talk about VA Retro.
    Mr. Gaddy. OK.
    Mr. Kucinich. Now I have been looking at the scope of your 
stewardship. I have seen there are times that you had real 
awareness that something was going on, and you kicked it up. 
Get it done in 3 months instead of six.
    Why did you assign the Red Team to VA Retro? What was going 
on in your mind about what is your concern?
    Mr. Gaddy. My concerns are pretty much around what this 
hearing is all about.
    Mr. Kucinich. No, no. Tell me. Help us out. What?
    Mr. Gaddy. My concern was when the director of operations 
said he wanted to send a Red Team in to look at operations in 
Cleveland, generic Cleveland. That means everything we do in 
Cleveland. We also said, well, then let's ensure that we 
include VA Retro and retired annuity pay operations as a part 
of the Red Team review.
    Mr. Kucinich. Could you have sent a Red Team in because you 
found certain problems with the VA Retro program and you needed 
another opinion about what happened and maybe what you should 
do?
    Mr. Gaddy. Right.
    Mr. Kucinich. Is that possible?
    Mr. Gaddy. Yes, sir.
    Mr. Kucinich. Payroll 303 was issued after you suspended 
100 percent verification of payments over $2,500, isn't that 
right?
    Mr. Gaddy. Yes. Yes, sir.
    Mr. Kucinich. Payroll 303 contained errors which DFAS 
detected after checks had been sent from DFAS, isn't that 
right?
    Mr. Gaddy. Yes, sir.
    Mr. Kucinich. Can you tell the subcommittee what those 
errors were?
    Mr. Gaddy. I don't have the facts around all of the errors. 
I do believe that I was told, there was a 10 percent error rate 
in Payroll 303.
    Mr. Kucinich. Maybe I can help.
    Mr. Gaddy. I think there were a total of 226 or 230 
payments, I believe, were in that payroll.
    Mr. Kucinich. OK, because I want to make sure that when you 
testify that we are as precise as we can be. So I am going to 
ask some questions to help.
    Mr. Gaddy. OK.
    Mr. Kucinich. Were there overpayments?
    Mr. Gaddy. Yes, there were overpayments.
    Mr. Kucinich. Is it possible that the overpayments had a 
total value of $117,000 in overpayments made to six 
individuals?
    Mr. Gaddy. I don't know for sure, but that is possible.
    Mr. Kucinich. Were those individuals entitled to receive 
retroactive pay on the overpayments?
    Mr. Gaddy. I believe they were entitled to retroactive pay. 
I don't know that they were paid the correct amount.
    Mr. Kucinich. I think the appropriate answer, based on the 
subcommittee staff, is no.
    Mr. Gaddy. OK.
    Mr. Kucinich. Were those veterans even entitled to receive 
monthly CRDP pay?
    Mr. Gaddy. I do not know.
    Mr. Kucinich. OK. Would you be able to inform this 
committee in writing of the answer to that question?
    Mr. Gaddy. Yes, I will.
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    Mr. Kucinich. That will be fine.
    If those veterans were possibly not even eligible to 
receive the onthly CRDP, let alone retroactive pay, doesn't 
that suggest to you that there may be a wider problem in your 
retired and annuitant division?
    Mr. Gaddy. As I said, Payroll 303 was included in the total 
scope of the 200 payrolls that they have looked at for post-pay 
review. So, in the total scheme of 200 payrolls, 1 payroll had 
a high error rate. The others did not. So, in the aggregate.
    Mr. Kucinich. We are dealing with VA Retro here now, 
remember.
    Mr. Gaddy. Right, in the aggregate, that is what I am 
talking about, 200 payrolls, almost 200 payrolls for VA Retro. 
Payroll 303 was one of those. So we had 1 payroll out of the 
almost 200 that exceeded the 3 percent threshold for errors.
    So, when we aggregate all of that, what my staff has told 
me is the errors are less than 1 percent including that 
particular payroll.
    Mr. Kucinich. Has a sit rep been done about payments made 
in error since March 1, 2008?
    Mr. Gaddy. Not to my knowledge.
    Mr. Kucinich. Are you sure about that? Is it possible it 
could be done without your knowledge?
    Mr. Gaddy. There could have been one that went. I have not 
seen a sit rep.
    Mr. Kucinich. Would you find out for this committee and let 
us know?
    Mr. Gaddy. Yes, we will find out.
    Mr. Kucinich. OK. I would like to read to you another e-
mail written by the VA Retro contracting officer: ``Even if the 
contractor can meet his goal, the CGA is not able to process 
this level of work flow due to the reviews mandated to comply 
with Certifying Officer Legislation and the potential liability 
therein.''
    This and other e-mails from within DFAS lead us to the 
conclusion that there was a belief in DFAS that CGA audits were 
causing or could cause further delay in clearing the backlog. 
Is this a fair assessment of the thinking within DFAS 
management?
    Mr. Gaddy. I think so, that at the time that e-mail was 
sent, we had not increased the staff of the CGA by the 15 that 
we subsequently added. When we saw Lockheed Martin, we 
anticipated they would increase the number and volume of 
payroll sent to CGA for review. We needed to add more people to 
the CGA to do the payroll reviews.
    At the time--I think that was January 2008--we had not 
added those individuals yet.
    Mr. Kucinich. Couldn't you have directed your own CGA 
auditors to adopt the lower standards that Lockheed used?
    Mr. Gaddy. For COL, no, we did not.
    Mr. Kucinich. Can you tell me why?
    Mr. Gaddy. Because we are trying to comply with Certifying 
Officer Legislation from the payroll certification perspective. 
So we asked them to apply the standards that were applicable to 
all payroll operations.
    Mr. Kucinich. Well, let's talk about the GAO rules then. 
Did you go around the GAO rules in order to do this?
    Mr. Gaddy. The GAO rules that require a review of payments 
under $2,500 on a sampling basis and over $2,500 on a 100 
percent review, we comply with those on a post-pay review 
basis, and then we sample on a pre-pay review basis. I do not 
believe we fully comply.
    Mr. Kucinich. Does Lockheed abide by those rules?
    Mr. Gaddy. No. Their QA is different from COL.
    Mr. Kucinich. Right, but DFAS asked GAO in another context 
for the ability to do fewer than 100 percent verification of 
payments, isn't that right?
    Mr. Gaddy. Yes, we did.
    Mr. Kucinich. GAO wouldn't permit it, isn't that right?
    Mr. Gaddy. Right.
    Mr. Kucinich. Was the GAO guidance from 2003 still in 
effect during the VA Retro payment project?
    Mr. Gaddy. GAO guidance is in effect across the board for 
all payments.
    Mr. Kucinich. Your CGA auditors couldn't adopt the lower 
quality control standards you felt were necessary for clearing 
the backlog, so you did the next best thing. You outsourced it.
    Now there is a legal question here, I think. Could DFAS 
accomplish by outsourcing what it could not do itself, namely, 
subject the VA Retro payments to a lower standard of quality 
control than GAO allows? What is your opinion on this question?
    Mr. Gaddy. Lockheed Martin's QA process is embedded in 
Lockheed Martin and is required by contract, and we understand 
what their QA process is. We actually review it. We have 
actually observed it as it is underway.
    QA, from a Government perspective, Certifying Officer 
Legislation is not the same thing as Lockheed Martin QA. It is 
actually two separate things.
    Mr. Kucinich. OK. As an administrator, you are governed by 
certain legal authorities. What legal authority did you have to 
proceed in the way that you proceeded? Could you cite that for 
this subcommittee?
    Mr. Gaddy. I cannot cite legal reference. I can say that 
when we contract for payroll operations like Lockheed does, a 
part of the contract specifies what the quality assurance steps 
will be and that they will abide by those.
    The Government role of Certifying Officer Legislation is 
distinct from the QA process that Lockheed Martin was required 
to perform.
    Mr. Kucinich. Mr. Kleinknecht, you just heard testimony by 
Mr. Gaddy on this matter with respect to the approach that he 
used, and you are certainly familiar with the rules, 
regulations and laws governing administrative conduct with 
respect to this matter. Does anything in his testimony raise 
questions as to the possibility that GAO rules were somehow 
avoided?
    Mr. Kleinknecht. Mr. Chairman, I think clearly it would be 
something we would need to look at again and get a legal 
opinion. It does sound like they are circumventing the rules. 
Whether it is legal, again, we would have to look at that.
    Mr. Kucinich. Right.
    Mr. Kleinknecht. You know I wanted to comment just one more 
thing.
    Mr. Kucinich. You may.
    Mr. Kleinknecht. Earlier on a comment about the best 
practices of maybe going outside this contract and using 
another contractor to do some of this function, this part of 
the original contract that we looked at when it was awarded, 
when this function was outsourced included to address 
legislative changes that affected the military retired and 
Retro pay function.
    Built into the contract, there was this time and materials 
work which is the task where I believe it was issued to cover 
these kinds of changes. And the contract included, I think it 
was six, seven million dollars of this time and materials work 
to cover just this VA Retro pay issue. There were provisions 
for surge requirements. So this is all part of the original 
competitively sourced retired and annuity pay function.
    Mr. Kucinich. To Mr. Gaddy, I have a memorandum here that 
was given to the subcommittee staff by the Congressional 
Research Service. I asked them their opinion on this question. 
I want to read to you their response from this.
    They said, and they are talking about Lockheed: ``If 
Lockheed uses statistical sampling of claims above the allowed 
maximum, there is no per se violation, but the disbursing or 
certifying official may not receive the protection of the 
statute.''
    Do you agree with that statement?
    Mr. Gaddy. I do.
    Mr. Kucinich. Does your certifying officer for the VA Retro 
payments possibly face personal liability for improper payments 
occurring pursuant to your decision to leave quality assurance 
to Lockheed?
    Mr. Gaddy. The certifying official faces pecuniary 
liability for any improperly certified payrolls.
    I keep drawing a distinction. QA is endemic to the payroll 
operation. Certification of payments that a certifying official 
approves for payments is a separate event that the certifying 
official is responsible for.
    Mr. Kucinich. Knowing your efforts here, one of the things 
that bothers me is I wonder if what you did would have been 
tolerated in the private sector. What you did was let Lockheed 
audit its own work and report to you the results. Don't you see 
somewhat of a problem here in letting a contractor audit his 
own work?
    Mr. Gaddy. Actually, this is no different than when someone 
in payroll, where we don't outsource the work, is responsible 
for computing payments to individuals. The process in place and 
the owner of that process is responsible for the quality of 
what they produce.
    The payroll certification process, separate and distinct 
from that, certifies payrolls for payment. And so, from that 
perspective, no, I don't because, quite honestly, what Lockheed 
is doing is computing something that will ultimately either be 
paid in the case of a payroll.
    Or in the case of a no pay due, the same rules don't apply 
because there is actually no payment to be made. So there is no 
Certifying officer Legislation requirement. There is no payment 
above $2,500 requiring a review.
    So, from that perspective, I would say I don't see a 
conflict of any type here. We expect the contractor in this 
case to follow the procedures that were approved, to use the 
authoritative information that we came up and said, when you 
compute a payroll and adjudicate a case, this is how you do it.
    One of the reasons there was such a high failure rate 
within QA for Lockheed was at the floor level, the operations 
level, people were doing what they thought was correct, how 
they were trained to do their work. It would go into QA, the 
Team Blue that Lockheed had. It would fail because they would 
use a different set of sources of information to do the 
calculation and verify the payment.
    So we said, OK, there has to be one way to figure this out, 
one way to calculate this. It is an open book test. You 
calculate it the same way. You will review it the same way so 
that we will get the same answer if two people look at the same 
set of data.
    And, that is what we started in the April, May timeframe, 
and I do believe was why we saw the failure rates within 
Lockheed Martin's own QA process start to diminish.
    Mr. Kucinich. I want to just say, as we go to Mr. Issa, 
that based on what has come before this committee today and 
what staff has been able to determine, it appears that you 
accomplished through outsourcing what you wouldn't have been 
permitted to do under GAO rules. For that reason, I feel it is 
appropriate for this subcommittee to ask the IG to look at that 
and see if, in fact, there is any action taken that contravenes 
GAO.
    I want to now go to Mr. Issa for his questioning in the 
second round. We are going to have one more round after this.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Cipriano, how long have you been? I apologize for not 
knowing your whole resume, but how long have you been in the IT 
world, particularly looking at Government documents?
    Mr. Cipriano. About 6 years.
    Mr. Issa. OK. And, prior to that, where were you 25 years 
ago?
    Mr. Cipriano. I spent over 30 years in the Federal 
Government.
    Mr. Issa. As best you can and if you can't, just tell me, 
going back let's say 25 years ago.
    This project appears to me to have taken during the period 
in the rear view mirror here, it seems to have taken about 150 
man years to accomplish. That is sort of my best guess. You 
guys might come up with 160 or 170. Essentially, it is a lot of 
man years.
    Mr. Cipriano. Right.
    Mr. Issa. How many, if you had to do it over again, do you 
think it would, assuming that we will just take 150 man years 
as a number, arbitrary? And, 25 years ago, what would it have 
taken with the paperwork that was the source material?
    I realize many of the documents you look at go back that 
far, and I want to get a perspective because I want to see 
where we have been and I want to know where we can go.
    Mr. Cipriano. I think looking at the degree of automation 
that we have now versus when we started, I think we could do 
this with, if we started today, with what we now have with 30 
to 50 percent less man years total than we expended this time.
    And I think if we look back 25 years ago, it would have 
taken twice as many people as we expended probably to do this 
because we wouldn't have had the benefit of any of the 
automation.
    Mr. Issa. You know one of the reasons I picked 25 years ago 
was 25 years ago they alternately paid me as a captain or a 
lieutenant in the Reserves. They couldn't make up their mind 
which I was because two different data bases had two different 
ranks.
    I served--actually with two different sets of bars on--the 
same commander at the time, and only General Wes Clark could 
laugh about it years later that I had worked for him as a 
captain, then as a lieutenant, then as a captain. That was to 
be expected because you didn't argue with the orders no matter 
how bizarre they were.
    But I do want us to look at it in that sense of where we 
were. Let me ask sort of the other part of the question, and if 
you feel comfortable, great. If not, perhaps other experts or 
perhaps a followup for the record.
    We have countless amounts of non-digital data sitting out 
there at DOD and all kinds of other areas. Would this committee 
be well advised to hold hearings and in fact to potentially 
create a program that says we can save money in the long run if 
we launch a professionalized program to get it all digitized?
    I realize we have had blueprints of this ship but not this 
ship and lots of other piece meals. Is that something that from 
a Government oversight standpoint, piece-mealing by DOD, by 
Veterans, by the Department of Agriculture is costing us more 
than in fact if we do it all at once?
    And, let me give you the alternate. Am I being a little bit 
foolish because even though it is costing us this much, will it 
cost us that much less 10 years from now if we don't need until 
10 years from now?
    That is my conundrum here today. This is a project that 
wasn't, on the scale of things, that expensive, but it was 
expensive and it was piece-mealed.
    Do we continue piece-mealing projects in hopes that as the 
years go on it gets less expensive or should we have a 
Government-wide plan, if you will, the Manhattan Project of 
conversion of analog to digital?
    Mr. Cipriano. That is a very good question. I did spend 30 
years in the Government, and I will answer from that 
perspective.
    I think when I was in the Government, we looked at that 
very same question, and the answer to the question is yes, it 
is worth the investment, but it is very difficult to get the 
capital to do it. So if it is a tradeoff between having to take 
that money out of your operation and maintenance money to do 
it, it never quite makes the cut.
    It would have to be a separate funding initiative, I think, 
but I think there is a business case that can be made for 
making that conversion.
    Mr. Issa. Mr. Gaddy, with what you have now come up 
against, if you agree, how should this committee and this 
chairman and this ranking member best set about holding the 
hearings, making the case that might lead to that funding that 
is not currently available to do this right?
    Mr. Gaddy. Quite frankly, the fact that so much information 
is in so many places in such a state of disrepair, quite 
frankly, most people don't even know what they have nor can you 
share information.
    In this example, VA will use a different disability code 
for the same disability that DOD. And not only do you use a 
different code, you use different wording around it, so you 
can't even read it to see if they are the same thing or not. 
You actually have to be able to interpret the information to 
understand what you are looking at.
    If we lived in a world where people spoke the same language 
and shared the same information, we would save a tremendous 
amount of resources.
    Entitlements come all the time, and one of our challenges 
as an organization is to quickly, effectively implement those 
new entitlements. If we don't have the tools to do it with, 
then you end up with what we have here, which is kind of an ad 
hoc approach where you come at it like a pickup game to try to 
get it done in a reasonable timeframe and a reasonable cost, 
but at the same time recognizing the impact on people is such 
that you want to do it as fast and effectively as possible.
    I do think and I agree with Mr. Cipriano that there is a 
business case for this. Now how do you, who do you direct to do 
the business case to support? What are the benefits?
    There are intangible benefits certainly to individuals who 
will start receiving something, but there are very tangible 
benefits to organizations that manage all this disparate data 
that have to work together.
    You cited earlier on the Walter Reed incident. Data-
sharing, I believe, between VA and DOD could get much better 
than it is right now, and that is just two cabinet agencies. If 
you looked across Government and multiply that times 12 or 13 
times what the effect of those two organizations is, I think 
you would build a tremendously viable business case that says 
the right information, readily accessible, understood by 
decisionmakers to make those decisions about: Well, what if I 
change this, what is the impact of it? If I want to change it, 
what is the cost?
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    Mr. Gaddy, let me ask you about no pay due determinations 
meaning, obviously, that someone isn't due pay. Who determined 
that 28,283 disabled veterans were not due any money in the 
retroactive pay project?
    Mr. Gaddy. The Lockheed Martin individuals, who are 
responsible for computing or adjudicating cases, take 
information, run it through the procedures that were 
established and agreed to by the CGA.
    Mr. Kucinich. So it is Lockheed Martin, right?
    Mr. Gaddy. Lockheed Martin, yes, sir.
    Mr. Kucinich. OK. How much training did the Lockheed 
technicians before deciding if veterans were eligible for 
Federal money?
    Mr. Gaddy. Roughly, 6 weeks.
    Mr. Kucinich. When a Lockheed technician decides a person 
is not eligible, what happens then? Does Lockheed's Team Blue 
quality assurance operation verify the accuracy of that 
decision?
    Mr. Gaddy. No, they do not.
    Mr. Kucinich. Does the Government verify the accuracy of 
every decision by a Lockheed technician that a disabled veteran 
doesn't get any Federal money?
    Mr. Gaddy. No, we do not.
    Mr. Kucinich. So who bothers to check a decision by a 
Lockheed technician with 6 weeks training that a veteran with 
28 years of Army experience does not get a Federal benefit? Who 
verifies that?
    Mr. Gaddy. The post-decision verification, as we just 
established, is not occurring.
    Mr. Kucinich. But you told us no one, right?
    Mr. Gaddy. Right, the post-decision.
    The pre-decision process to go through and come up with a 
decision, there is logic. There are agreed upon procedures that 
were established to make that initial determination. But you 
are right, there was no subsequent post-determination.
    Mr. Kucinich. No, nobody. I mean I just want to establish 
this, that no one verifies this.
    Mr. Gaddy. No one verifies, correct.
    Mr. Kucinich. Let me ask more specifically about Command 
Sergeant Major Harold Lewis. He is a disabled Army veteran. He 
received his injuries in combat in Vietnam. Originally a 
draftee, he served 28 years in field artillery, 28 years, and 
eventually rose to command levels of authority.
    The Army attributes his multiple disabilities including 
Diabetes Type II, acute peripheral neuropathy, tinnitus and 
hearing loss to numerous combat injuries including concussions 
and broken vertebrae from rocket attacks and exposure to Agent 
Orange.
    Mr. Lewis was denied retroactive pay after waiting 
approximately 1 year for adjudication of his case. He contested 
the no pay determination. He had an easy to understand reason 
to believe that he would be due retroactive pay.
    He had conclusive documentation which would have been 
available to Lockheed before they denied Mr. Lewis his 
eligibility. Nevertheless, it took a year-long odyssey, in his 
words, to finally get DFAS to check the accuracy of Lockheed's 
denial.
    You know what DFAS found? Mr. Lewis was, in fact, entitled 
to a total retroactive payment of nearly $15,000 and that, in 
fact, Lockheed erroneously denied Mr. Lewis his benefits.
    By the way, without objection, there is a letter from 
Harold Lewis to DFAS in Cleveland which talks about his 
odyssey. Without objection, we will put that in there.
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    Mr. Kucinich. Mr. Gaddy, did this veteran with 28 years in 
the Army, this veteran who drank poison water from Agent Orange 
that was dumped over him and the Vietnamese, who was denied a 
retroactive pay award by a Lockheed technician with 6 weeks 
training, do you think this veteran deserved to have his denial 
checked for accuracy before a letter from DFAS came to his 
door?
    Don't you think his country owes him that much, at least a 
quality check, Mr. Gaddy?
    Mr. Gaddy. Yes, I do.
    Mr. Kucinich. Now I am going to request you, Mr. Gaddy, 
that DFAS's CGA do 100 percent verification of every no pay due 
determination that has been sent under VA Retro. Will you 
assure this committee that you will do it?
    Mr. Gaddy. Yes, I will.
    Mr. Issa. It is not appropriate to move, but I want to be 
associated with that request. I appreciate your willingness to 
do that review so that if one could fall through the crack, 
another one doesn't.
    Mr. Kucinich. I would like to go to Mr. Issa right now, and 
then I am going to come back for one more round of questions.
    Thank you, Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman, and I am going to be 
very brief.
    Mr. Gaddy, if you had those common terminologies or an 
interpreter that put them into a common data base in a like 
way, if in fact all of the information from the various data 
bases were put together for each individual that you are trying 
to adjudicate proper payment to, would this problem likely not 
have occurred?
    Mr. Gaddy. It is hard to say anything with certainty, but I 
do believe if DOD and VA shared common information that was 
readily accessible in a data base environment, this would be no 
different than normal payroll operations where we actually pay 
millions of people every month with a proportionately much 
smaller work force at a proportionately much smaller cost.
    Mr. Issa. Let me ask one more question, and this may be 
outside your expertise, but I feel I need to ask it.
    Being the brother of a 100 percent disabled veteran, I 
watched the process that he and many of my comrades of years 
past have gone through.
    Isn't it true that, unfortunately, veterans most commonly 
go through a series, not one but a series of requests, 
reevaluations, perhaps additional medical examinations 
throughout their time post-service, so that the typical, very 
often 50-year-old retired or no longer active duty, let's say, 
veteran, whether they retired or simply served and went into 
private life, most often by the time they get to 100 percent, 
they have passed through a number of other thresholds and a 
series of turns and loops? Isn't that essentially the story of 
veterans?
    Mr. Gaddy. I believe so. My father was retired Army, and I 
helped him deal with VA in Texas, and I know what he went 
through right up to the very end including getting combat-
related special compensation.
    I do believe that the process we ask any veteran to go 
through between DOD and VA, in many respects from my 
perspective, is duplicative and could be done much more 
streamlined.
    I do believe that what the departments are trying to do 
under various lines of action as a result of what happened at 
Walter Reed is to do some of those things once, jointly, so 
that you don't have to go through many of the various hoops 
that you go get a disability determination in DOD and then walk 
over to VA and get yet a different one that may be at odds with 
one another.
    So I think that what the departments are already starting 
to do is a positive thing. Could more of that be done? I 
believe so. Just like the sharing of information amongst the 
departments would be very beneficial, and we are working those 
kinds of things with VA right now.
    Mr. Issa. Well, since you are talking in the present sense 
of we are working, we are doing this, I am going to maybe not 
pose it as a question but as a request to the Chair.
    It seems that today's hearing is putting us in a position 
where what we have uncovered is that outer skin of the onion. 
If we don't peel back the current data base, the post-Walter 
Reed era, and see whether or not the next generation coming 
home from Iraq and Afghanistan or even noncombat tours in which 
they may be injured, if we don't make sure today that this is 
being done quickly, I suspect that those who come down the road 
10 years from now will be having a similar conversation about 
how DOD still isn't talking well enough to VA so that 
individuals, perhaps with 6 weeks of training, but individuals 
are going to be trying to reconcile these things rather than it 
being a single combined data base in a seamless way.
    So, Mr. Chairman, I would ask that we sincerely--I don't 
want to step on other committees, VA or DOD.
    But I think when it comes to the IT portion, which this 
committee has a primary jurisdiction over these systems and 
whether they talk to each other, that we take the time to have 
another hearing in which we bring back some of the experts that 
could tell us how they are doing today and, perhaps picking up 
on the questions here today, also look backward at these 
expansive data bases because it seems like both finding out 
what dollars it would take to take care of the sins of the past 
and getting to the real crux of are we world-class today or are 
we just working on it and maybe a long way from it.
    Those two questions can only be asked, I think, if a 
committee looking at it in that way does it.
    So I want to close by thanking you for holding this hearing 
as it has caused us, I think, to look at a bigger picture so 
that the $15 million or so that we were talking about here 
today, we can perhaps save billions if we act bipartisan and 
jointly on it. I thank you and would make that request that you 
schedule it as you see fit.
    Thank you, Mr. Chairman. I yield back.
    Mr. Kucinich. Again, in the spirit in which we proceed on 
this, Mr. Issa, we will certainly followup on your request and 
work with you to structure a hearing that will be responsive to 
what you are saying, just as I appreciate very much your 
associating yourself with my request to Mr. Gaddy that he do 
100 percent verification of every no pay due determination.
    As you point out, we have more veterans coming into the 
system. Because we have more veterans coming into the system, 
we don't want them to be in a position of other veterans who 
there are more than 8,000 veterans who died while they were 
waiting for their check to come.
    And so, first of all, looking at the instant case of 100 
percent verification of every of no pay due determination, once 
we get DFAS's cooperation in doing that, then it will hopefully 
help them look at the systems that are involved here as well as 
the VA, at the systems that are involved here so that our 
veterans coming down into the system in the future are not 
going to have to face this.
    In connection with this, to help us get to the point, 
because I know you are always forward-looking and I appreciate 
that, in order to get to the point of clearing this system up 
and not failing our veterans, I am going to be asking and 
requesting to Mr. Heddell--I will do it verbally, but we will 
put it in writing--that the Department of Defense Inspector 
General do a full-blown audit of every aspect of the VA Retro 
and the R&A programs that we have discussed at the hearing. 
Will you do that?
    Mr. Heddell. Yes, sir, we will.
    Mr. Kucinich. That is a positive response as well. So what 
we can do in working together is address this matter right now, 
and then we go to the next step which is look at the systemic 
issues that relate to the architecture of the data base 
infrastructures.
    I appreciate working with you, Mr. Issa, because you bring 
a perspective to this subcommittee that enables us to pursue 
our effort in a much broader way, and I appreciate it very 
much.
    I want to go to a question here.
    And, I want both of our staffs to work together so that Mr. 
Issa's idea for another hearing can be brought forward 
expeditiously. Staff, please do that.
    Mr. Cipriano, would you share with this subcommittee what 
Lockheed's advertising slogan is? It really, I think, speaks to 
what you believe your corporate mission is.
    Mr. Cipriano. ``We never forget who we are working for.''
    Mr. Kucinich. Could you bring that mic closer?
    Mr. Cipriano. Yes. ``We never forget who we are working 
for.''
    Mr. Kucinich. Right. It was a Lockheed technician who 
decided to deny Mr. Lewis his VA Retro benefit, correct?
    Mr. Cipriano. Yes, I believe it was, but if I may elaborate 
on the process.
    Mr. Kucinich. You will be able to elaborate. I just need to 
ask a couple questions here.
    Mr. Cipriano. OK.
    Mr. Kucinich. Was it Lockheed that put this technician to 
work, determining the eligibility of VA Retro payments of men 
like Command Sergeant Major Lewis, right?
    Mr. Cipriano. Yes.
    Mr. Kucinich. You gave these technicians about 6 weeks 
training to do that job, is that correct?
    Mr. Cipriano. That is correct.
    Mr. Kucinich. It was Lockheed that decided not to verify 
the accuracy of that technician's work, is that correct?
    Mr. Cipriano. No.
    Mr. Kucinich. What was the verification of the accuracy of 
that technician's work?
    Mr. Cipriano. No. Our contract did not ask us to do 
verification.
    Mr. Kucinich. So you were not required to verify the 
accuracy of that technician's work, is that correct?
    Mr. Cipriano. We were not.
    Mr. Kucinich. Who are you working for?
    Mr. Cipriano. Who were we working for?
    Mr. Kucinich. You never forget who you are working for. So 
who are you working for?
    Mr. Cipriano. We are working for DFAS as our contract 
customer and also looking out for the veterans as well as best 
we can.
    Mr. Kucinich. You are working for Command Sergeant Major 
Lewis, right?
    Mr. Cipriano. Yes.
    Mr. Kucinich. You are working for him, but you really 
didn't work for him because he was denied. There wasn't a 
review. Lockheed didn't even double-check its work before you 
told Mr. Lewis and, I might say, 28,282 other disabled veterans 
that they would get nothing from the Government. They were 
denied.
    How does that make you feel? Do you feel that maybe your 
motto here, you need to do something more in order to justify 
what your corporate----
    Mr. Cipriano. No. I fully support the need to do a QA 
check.
    Mr. Kucinich. Could you speak a little bit louder? Would 
you say that again but just be a little bit louder?
    Mr. Cipriano. I fully support the need to do a QA check on 
the no pay due determinations.
    Mr. Kucinich. Why did DFAS fail to demand that Lockheed 
verify denials of payments to veterans? Why do you think?
    Mr. Cipriano. I don't know.
    Mr. Kucinich. Why did DFAS fail to conduct its own quality 
assurance Lockheed denials of Federal benefits?
    Mr. Cipriano. I don't know.
    Mr. Kucinich. Do you regard payments differently from non-
payments? Do you regard payments differently?
    Mr. Cipriano. They are in one key way, which let me try to 
elaborate. Most of the 90 percent of the no pay dues are 
determined by a computer program that looks at the data that 
comes in and makes a decision based on that data that no 
payment is due.
    Mr. Kucinich. A computer program, does the computer program 
make a legal justification for making a distinction between 
payments and non-payments?
    Mr. Cipriano. Well, the computer program has been validated 
that when the data coming into the computer program is 
accurate, it provides an accurate answer, and so there usually 
isn't any need for any further verification after that point.
    Mr. Kucinich. Lockheed has told us that they received 
$18.74 million for the work on the VA Retro program. Now, Mr. 
Cipriano, this sum represents what percentage of Lockheed's 
total billing to the U.S. Government?
    Mr. Cipriano. $18 million?
    Mr. Kucinich. $18.7 million for the work on VA Retro.
    Mr. Cipriano. It is a very small percentage of our total 
billings to the Federal Government.
    Mr. Kucinich. Could it be like less than one-tenth of 1 
percent? You do a lot of work, so it is very small, right?
    Mr. Cipriano. Very small.
    Mr. Kucinich. Could it be one-hundredth of 1 percent, even 
less than that?
    I mean with a relatively small value of the VA Retro 
contract in comparison, let's say, to Lockheed's billion dollar 
contracts with the Government for the F-22 or the Aegis 
Missile, would that affect Lockheed's commitment to performing 
as required?
    Mr. Cipriano. No, sir.
    Mr. Kucinich. So I wonder, Mr. Cipriano, do U.S. taxpayers 
get Lockheed's best, get your best performance there is here in 
this VA Retro program?
    Mr. Cipriano. I think we gave it our--we did the best we 
could given the circumstances in which we had to perform.
    Mr. Kucinich. Now, Mr. Cipriano, certainly, calculating 
benefits for a few thousand disabled veterans can't be as 
difficult as, say making a missile hit a missile?
    Mr. Cipriano. But veterans are important, and we care about 
them.
    I sent down my vice president. I sent down senior people to 
help make this project work. We augmented the team that was 
onsite in Cleveland with data automation experts, with 
production experts, with senior people from across the 
corporation. We send down quality assurance experts from our 
corporate experts to help improve the process, and so we 
treated this just as importantly as we do our larger duty 
programs.
    Mr. Kucinich. Well, you know the thing, Mr. Issa, that I am 
hearing here is Lockheed has a great reputation in a lot of 
areas, part of the defense of our country, and they can make a 
missile hit a missile. But for some reason, they can't connect 
a veteran with the benefits that are due.
    I didn't get to all my questions. I am going to have to go 
to one more round, and I have exceeded my 5 minutes. Mr. Issa, 
it is yours.
    Mr. Issa. Mr. Chairman, I really have pretty well exhausted 
my questions.
    I think there is one small point that I would like to make 
sure I understand: 28,000 plus denials, do we here today know 
that they are erroneous or just that there were 28,000 denials 
and perhaps 28,000 out of 28,500 are in fact accurate or maybe 
28,499 are accurate?
    Mr. Gaddy, you are going to do a full audit, and I 
appreciate your willingness to do that.
    Mr. Kucinich. Would the gentleman yield?
    Mr. Issa. Of course, Mr. Chairman.
    Mr. Kucinich. The thing that I am concerned about is based 
on this testimony here, no one seems to know.
    Mr. Issa. Exactly, and I think that is why it is so 
important for us to join together to ask to have that second 
look.
    But here today, do you have a high confidence that the vast 
majority of those, particularly the computer ones, are accurate 
to the best of the data you are going to review? If you don't, 
then I would appreciate knowing because I would like to have 
sort of a heads-up for what to expect 60 or 90 days from now.
    Mr. Gaddy. Certainly, sir. Actually, our numbers of no pay 
dues is 25,448.
    As Mr. Cipriano just explained, we established a process to 
verify whether payments were owed or not. That process was 
reviewed. The criteria that were required to make that original 
determination were vetted through the CGA and ultimately were 
automated to a large extent.
    In the case of Command Sergeant Major Lewis, he was 
unfortunately one of the first people through the new revised 
automated process which kicked out the wrong answer for him, 
and we found out the problem when he came back and said, I 
don't believe your answer is right.
    We went back and looked at the logic that was used to make 
that decision, found the errors in it, correct it. Lockheed 
Martin corrected those logic errors, reran it, came out 
obviously with a different answer.
    And so, I am going to sit here and tell you a qualified 
answer. My expectation is when we are done with the review, we 
will not see a large number of no pay dues where there were in 
fact pays due. What percent, I couldn't tell you, but I don't 
expect it to be a large number.
    If it is, however, we will certainly make sure the 
individuals are made whole, and we will go back and look at the 
process in place to make that initial determination and ensure 
that is corrected.
    Second, on an ongoing basis, there will be a review of no 
pay dues to make sure that the initial cut that says no pay due 
gets looked at just like when we look at pays that are due to 
ensure that we have a second review of that process to make 
sure it is correct.
    Mr. Issa. Thank you.
    Your answer brings up one more followup question very 
quickly. When you discovered the Command Sergeant Major had 
been run through basically a garbage in, garbage out program 
and it missed something, you changed the program and reran it 
and then he was granted.
    Did all the previous rejections run back through that? In 
other words, without appealing, would the veterans that were 
previously denied reevaluated based on the now known flaw in 
the program.
    Mr. Cipriano. The answer is yes. We made the change in less 
than a week, and so there wasn't very many during that 
interval, and they were checked.
    Mr. Issa. OK. But I just want to understand that the normal 
ISO 9000 kind of quality circle occurred. Because of his 
effort, ultimately it led to a recognition of a problem, and 
then the problem was employed to others without their having to 
say anything.
    Mr. Gaddy. Yes, sir. The QA process that Lockheed uses and 
that we use on our side, every time we see a payment anomaly or 
an error condition, we go back into the process to establish 
was that systematic, was that a one-time error caused by human 
error or training issues or whatever it may be.
    Quite frankly, it is a learning process to ensure that 
subsequently things were correct. If the same condition, we 
would run whole payrolls through a second time just to make 
sure that everything that came out at the end was correct.
    Mr. Issa. Well, thank you very much.
    And, Chairman, once again, thank you for holding this 
important hearing.
    Mr. Kucinich. I am listening to this testimony, Mr. Issa, 
and I keep thinking about Command Sergeant Harold Lewis. People 
who are on disability, particularly soldiers, their entire 
lives end up being organized around whether that money is 
coming.
    Really, if you take it down to an individual level here, it 
wasn't like some kind of a routine procedure was being handled 
here which you followed. The fact of the matter is this man 
struggled for a year. He took it upon himself to struggle for a 
year to get recognized.
    This is what drives my involvement here because what I am 
seeing is that here is someone. If he didn't have the same 
stick-to-it-iveness that he brought to service to the United 
States of America driving him, he would have just been blown 
off. He would not have gotten his money.
    You know we come from the same community in many ways. Our 
families have the same kind of concerns. I think about that 
veteran who served and is just waiting for the check, and we 
don't know if they are due it or not, but they are not getting 
any review. So that is why I appreciate that.
    Mr. Issa. Mr. Chairman, we have to do this. As you know, in 
Cleveland, people choose to live in your district or near your 
district because of how long it takes to get to the Brecksville 
VA. If they can't get by transportation available to them, they 
can't get to the veterans hospital, in fact, they can't live 
where they choose to live.
    So there is a myriad of issues, and you are absolutely 
right. Our disabled veterans are owed every accommodation 
particularly.
    One of the reasons I made a point here today, that I am not 
upset about the money that was because of the speed of the 
contractor because ultimately we were letting down the veteran 
every day past 2004 that we didn't do it. I am upset about any 
inaccuracy and particularly if there is additional flaws and 
people who are presently entitled who are not receiving.
    So, Chairman, again, thank you for making this hearing a 
keynote, I think, on this problem and bringing it to, 
hopefully, a conclusion before the end of this Congress.
    Mr. Kucinich. I thank the gentleman.
    This is a copy of the staff report. I am sure you are 
familiar with it. I am going to ask unanimous consent to place 
the entire staff report in the hearing record.
    [The information referred to follows:]

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    Mr. Issa. Thank you. And, as you know, there is a minority 
staff report. I would ask for the same unanimous request 
although ours is somewhat smaller.
    Mr. Kucinich. Of course, as a courtesy, so be it. Thank 
you.
    Mr. Issa. Thank you.
    Mr. Kucinich. I want to go back to Mr. Cipriano here.
    We are talking about 217,000 cases here in the VA Retro 
program, is that correct?
    Mr. Cipriano. 217,000.
    Mr. Kucinich. 217,000?
    Mr. Cipriano. In the ballpark, yes, sir.
    Mr. Kucinich. On the project, while we qualified it is not 
a large amount of money, given Lockheed's contracts overall 
with the Federal Government, you are still getting $18.7 
million from the Government to handle these cases, correct?
    Mr. Cipriano. Correct.
    Mr. Kucinich. That works out to about $90 a case. Your 
projections estimated that your technicians handle about six 
cases a day, is that correct?
    Mr. Cipriano. I think that is pretty close to the current.
    Mr. Kucinich. So, just to do the math, 6 times 90, $540 per 
day per technician that you either plan on or you bill to the 
Government. How much do you pay your technicians per day?
    Mr. Cipriano. The amount----
    Mr. Kucinich. What is the hourly rate for a technician with 
6 weeks training?
    Mr. Cipriano. I don't have the number off the top of my 
head, but it is a wage determination by the Department of Labor 
determines the labor amount for that.
    Mr. Kucinich. Can you get back to me with the exact amount 
of money that you pay your technicians per day? Would you let 
us know?
    Mr. Cipriano. I will provide that, yes, sir.
    Mr. Kucinich. You will?
    Mr. Cipriano. I will provide the number to you.
    Mr. Kucinich. Thank you. Thank you.
    Now, Mr. Gaddy, as you know, when DFAS decided to outsource 
retired and annuitant pay to a private contractor that Lockheed 
acquired, the in-house Government bid was actually less, $31.8 
million less. Even after this was brought to DFAS's attention, 
DFAS decided to retain Lockheed.
    In retrospect, do you think you saved the taxpayers any 
money by sticking with Lockheed?
    Mr. Gaddy. The CNA study projected between $11 million and 
$40 million overall savings, and I know that is based on 
comparing Lockheed Martin's proposal or the ACS proposal to 
status quo costs and to our MEO.
    The reality to me, having been in this business a long time 
and having seen most efficient organizations where the 
Government wins, and in our case there has only been one 
outsourcing of work and that was the R&A work. Without 
exception, when we win the proposal on the Government side, 
much like what we saw in the Lockheed proposal or ACS proposal 
as the predecessor, we would have gotten better and we would 
have more than likely reduced our costs overall from what the 
original bid was.
    So, are we saving the taxpayer money, based on a CNA study, 
yes. Based on my gut reaction, I would say we probably could 
have saved this much if the Government had won.
    Mr. Kucinich. Mr. Kleinknecht, would you comment on that?
    Mr. Kleinknecht. Just on the CNA study, the issue was again 
that a lot of the time and materials work that would be 
associated really with the VA Retro pay wasn't going to 
materialize. The first couple of years, they were underrunning.
    But as we have just been speaking about this whole hearing, 
it all related to work that didn't materialize. But the VA 
Retro pay was a part of the original. It is kind of other stuff 
that was included on the original contract for legislative 
changes.
    So, again, that CNA report that showed the underrun really 
didn't underrun. It looks like probably it is going to be a 
wash, a zero number. Again, we can get the exact numbers if we 
look at it to address that issue.
    Mr. Kucinich. Yes, I would like those exact numbers because 
from the beginning of this A-76 program, I have raised the 
question about whether or not this was actually going to be a 
benefit to the taxpayers. We are finding out that is 
questionable, but certainly it has been to the disadvantage of 
veterans.
    I am interested in your further digging into this, though, 
in terms of looking at the numbers.
    Mr. Kleinknecht. You know one point on the MEO, on the 
Government side, it looked like there was a lot more labor 
built in on the in-house cost estimate where they had 
significantly more resources, and I don't know that.
    A lot of this testimony has been about can we use data 
bases and do all this stuff, but I think a lot of these cases 
are probably labor intensive. Does it require more labor to fix 
the problem?
    Mr. Kucinich. I mean that is the point.
    Mr. Kleinknecht. Right.
    Mr. Kucinich. You could bid. You could bid on a contract.
    Let's go back to square one. You can bid on a contract, and 
you can actually get the contract by underbidding, saying it is 
not going to take that much work for what is arguably a labor-
intensive endeavor.
    Then you get the contract, and suddenly how does the 
backlog get created? Because you don't have enough people to do 
the work. Is that correct?
    Mr. Kleinknecht. Yes, sir. Yes, sir.
    We found that when we outsource things like this, again, I 
spoke to a couple of the large defense contractors. You lose a 
lot of your flexibility.
    Again, on some of this thing with this VA Retro pay, with 
all these issues, flexibility is a key thing, that had we had 
the resources in-house to do the function, additional 
resources, we could have allocated them here, there, where we 
needed.
    Once it is contracted out, you lose that flexibility. It is 
basically what is in the scope of the work, what is the 
contract requirement.
    Mr. Kucinich. Which is why the GAO rules become relevant 
here.
    Here is where we are at: We have work contracted out. It 
said, well, the Government cannot do this or cannot do this as 
well as.
    You can have a situation where an underbid occurs and then 
based on a calculation of it taking so much labor to do this 
work, so many people to handle so many cases, based on so much 
money spent per day. Then they calculate that out and figure 
out we can do this contract, but if they don't build in enough 
workers to do the contract, you not only end up with a backlog, 
but you end up with consequential deficiencies in the system.
    So what we are seeing here, I believe, an object case which 
raises questions about the legitimacy of a privatization, and 
we are seeing specific evidence brought forward about this 
privatized system not working.
    When you bring in Red Teams, when you continue to have to 
double and redouble efforts just to try to catch up, I just 
wonder, Mr. Gaddy. Without a privatized system here involved 
here, I just wonder. If you would had had the resources in-
house to meet this challenge, I just wonder if you could have 
done it without any hitch at all.
    It seems to me, given your core competencies, that you 
would have been able to do the job. Those decisions were made 
above your pay grade, and I certainly understand that.
    This is not a question of your competency. This is really a 
question of how this whole thing has been structured, and no 
one looked down the road, thinking about the Sergeant Lewises 
of the world, about the effect this could have.
    Now I want to go back to Mr. Cipriano. It is clear from our 
research that Lockheed had hoped, as had DFAS, that Lockheed 
would automate the VA Retro calculations, but it didn't work 
out. What was Lockheed's backup plan if the process couldn't be 
automated?
    Where did you plan to find the people to perform the 
calculations for VA Retro on a manual basis?
    Mr. Cipriano. Your question is what is our backup plan of 
the process?
    Mr. Kucinich. What was your backup plan?
    You have a process. It couldn't be automated. It required a 
lot of manual work.
    Maybe somebody made a mistake, maybe there is a discussion 
going on somewhere in Lockheed, saying, what did we get into 
here? Why in the world did we take this up? We are trying to 
make money. We are not trying to lose money.
    Yet it is clear you had the idea you are going to be able 
to automate the calculation. Now the necessity to do it 
manually, where did you find the people? Where did you plan to 
find the people to perform the calculations on a manual basis?
    Mr. Cipriano. Well, our backup plan was to do it manually 
as you suggested, and we found the people in the Cleveland area 
through recruiting firms that had the basic skills necessary 
that we could train them with the specific information needed 
to be able to process these claims.
    Mr. Kucinich. But you have had to hire new people, no 
question about it.
    Mr. Cipriano. We had to hire people, yes, sir.
    Mr. Kucinich. Because they didn't necessarily and they 
couldn't all come from your retired and annuitant work force 
because they were involved in other things, is that correct?
    Mr. Cipriano. That is correct.
    Mr. Kucinich. OK. So did you have sufficient numbers of 
people to perform the VA Retro calculations in September 2006, 
when you began processing cases? Did you have enough?
    Mr. Cipriano. We had a sufficient number of people if the 
automation would have worked as we had planned.
    Mr. Kucinich. But it was manual. So you didn't have.
    Did you have sufficient numbers to perform the calculations 
of VA Retro in September 2006 when you began processing? Did 
you have enough people in September 2006?
    Mr. Cipriano. September 2006, we had enough people to start 
the processing, and we did get 50 percent of them processed by 
March.
    Mr. Kucinich. Do you still hold to that?
    In November 2007, you missed your first deadline. Did you 
have enough people?
    Mr. Cipriano. Between, before then, we identified the fact 
that the SLC06 file was going to be able to support the 
automation, the accuracy of the data in that file, and we, at 
that time, started hiring enough people to be able to.
    Mr. Kucinich. Can we talk about human beings here, not 
machines? Did you have enough people in November 2007, when you 
missed your first completion deadline?
    Mr. Cipriano. Two thousand and seven? I am trying.
    Mr. Kucinich. In November 2008, when you missed another 
completion deadline, did you have enough people?
    Mr. Cipriano. No.
    Mr. Kucinich. In April 2008, when you missed another 
completion deadline, did you have enough people?
    Mr. Cipriano. We had enough people at that time.
    Mr. Kucinich. I have a report I am going to introduce into 
the record that relates to staffing profiles and how phased 
reductions in staff were occurring, were projected whereas your 
experience is demonstrating that the reduction in staffing 
would have not been wise.
    [The information referred to follows:]
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    Mr. Kucinich. What I am wondering, and this goes to one of 
those core questions in this hearing, is why didn't you have 
enough sufficient numbers of people along the way capable of 
adjudicating cases to meet the deadlines that you were setting 
for yourself? How does this happen internally?
    You see where you are at. You see you need more people. You 
don't have enough people. You miss your internal deadlines.
    You set another deadline. You don't have enough people. You 
miss that deadline. How does a company like Lockheed Martin, 
which is one of the great American companies, how does that 
happen?
    Mr. Cipriano. We initially estimated the project was going 
to take 22 months.
    The Government asked us to speed it up, and we came up with 
an approach using automation to do that. OK. We staffed up 
based on that automation being successful.
    In September, we advised the Government that automation 
didn't look like it was going to be able to work because the 
data was not sufficiently accurate to provide the 97 percent 
quality levels. And, at that point, the Government took it 
under advisement and then gave us permission to increase 
staffing which we started doing.
    We increased staffing significantly. However, the 
productivity associated with that staffing took a while to 
develop.
    Mr. Kucinich. But here, according to your R&A contract with 
DFAS, you were cutting your work force at exactly the time you 
needed employees to perform VA Retro. Isn't that the case?
    Mr. Cipriano. The VA Retro project is a separate contract.
    Mr. Kucinich. I know it is a separate contract, but 
Lockheed Martin is one company.
    Mr. Cipriano. Right. Those, any people that were reduced 
under that contract would, if it wasn't because of attrition, 
if they were still there, we certainly would have applied them 
first.
    Mr. Kucinich. Let's say it is a separate contract, but you 
are cutting people on one hand. You are cutting people who work 
for you and, on the other hand, you had to go out and hire 
people at 6 weeks training to do this VA Retro, but it is all 
Lockheed Martin. So what I am saying is this subcommittee has 
evidence that you cut your work force at the time you needed 
employees to perform VA Retro.
    Now the contractor's proposal assumed that you would cut an 
already severely reduced work force from 570, that is when the 
Government did the R&A work in 2000, to 393 in 2005 to 306 in 
2007. This is the report that we are entering into the record.
    If so, tell us, please, why did you reduce the work force 
at the same time you needed people to perform the VA Retro 
calculations?
    I just have trouble understanding. Help us understand it.
    Mr. Cipriano. I don't believe we did, but I will look at 
the staffing profile.
    Mr. Kucinich. Well, you know we have a staffing profile 
that suggests that is exactly what you did, and we have your 
testimony that you started ramping up and hiring people at 6 
weeks training to review these cases. How does that happen in a 
company that is as storied as Lockheed Martin?
    Mr. Cipriano. Are you looking? I don't know what you are 
looking at, but you may be looking at the staffing profile that 
was in the contract that ACS proposed which may not bear much 
resemblance to what it is.
    Mr. Kucinich. Mr. Cipriano, I am going to ask Mr. 
Kleinknecht. I need you to look into this, if you would, 
please. Look into this apparent discrepancy of, on one hand, 
staffing profiles going down and, on the other hand, 
requirements to handle VA Retro going up.
    Would you, please, delve into that see what the 
implications are (A) for the performance of the responsibility 
that Lockheed Martin took for VA Retro and (B) for the 
difference in the profit margins that would occur for Lockheed 
Martin, given the fact that they were hiring these workers with 
6 weeks training for X amount, $540 per day charge to the 
Government?
    We need to have that. Can you look at that level of 
specificity?
    Mr. Kleinknecht. Yes, sir. I think the IG has already 
committed us to do an audit. So, clearly, we can look at all 
that as part of our audit.
    Mr. Kucinich. I would appreciate it.
    Now, Mr. Cipriano, did you in fact reduce your R&A work 
force as projected in the contractor's proposal between 2006, 
2007?
    Mr. Cipriano. I don't have those numbers in front of me.
    Mr. Kucinich. Could you provide that information to us?
    Mr. Cipriano. I will provide that information.
    Mr. Kucinich. If so, if you did, we also need you to 
provide us with the information as to why you reduced the work 
force at the same time you needed people to perform the VA 
Retro calculations.
    We are also going to need to make a determination as to 
whether you cut work force under the R&A contract which is a 
fixed-fee contract and hired workers under the VA contract 
which is a cost-plus contract. I mean that is what we are 
getting into, and that is what we are asking the IG to look at 
as well.
    But I think it would be helpful to get an explanation 
because if VA Retro's cost-plus structure enabled you to mask 
your severe understaffing levels in your fixed-price R&A 
contract, we are looking at a situation here that is not in the 
service of the public interest. Certainly, a non-privatized 
function would never have to be faced with those kinds of 
internal calculations.
    Now, Mr. Gaddy, you directed Federal workers to assume the 
duties of some number of Lockheed workers in the Lockheed-run 
retired and annuitant pay call center, didn't you?
    Mr. Gaddy. Yes, I did.
    Mr. Kucinich. Was that the only example of using Federal 
workers to perform duties which were the contractual 
responsibility of Lockheed?
    Mr. Gaddy. We applied, for about a 2-week period, some 
individuals to do some data base reviews.
    Mr. Kucinich. As you know, Lockheed operates the retired 
and annuitant pay call center under a fixed-fee contract. Your 
intention in assigning Federal workers to the Lockheed call 
center was to release a number of Lockheed workers from their 
contractual obligations for retired and annuitant pay so they 
could work to process VA Retro claims, isn't that right?
    Mr. Gaddy. That is correct.
    Mr. Kucinich. Were those Lockheed workers compensated under 
the VA Retro cost-plus contract or the R&A fixed-fee contract?
    Mr. Gaddy. I will have to confirm, but my expectation is 
they were paid under the Lockheed Martin fixed fee.
    Mr. Kucinich. Excuse me, one moment. OK, we have five more 
minutes. So I want to ask that again.
    Were the Lockheed workers compensated under the VA Retro 
cost-plus contract or the R&A fixed-fee contract?
    Mr. Gaddy. I will have to get an answer for the record.
    Mr. Kucinich. Would you do that?
    Mr. Gaddy. My expectation is they were paid under the fixed 
fee, but I don't know that for sure.
    Mr. Kucinich. It would be important for this subcommittee 
to get that information, so we know under what circumstances 
they were paid and who paid them.
    Mr. Gaddy. Right.
    Mr. Kucinich. Or was there a relationship of a reduction by 
Lockheed Martin in the amount of money they were making from 
the contract. We need to know that.
    Could you tell us what measures DFAS takes to make sure or 
would take to make sure that Lockheed did not receive 
compensation under its fixed-fee contract for work that Federal 
employees were doing in a call center? Would you be able to do 
that?
    Mr. Gaddy. We will be able to provide it for the record 
also.
    Mr. Kucinich. That would be great.
    Those Federal workers were taken off other duties at DFAS, 
were they not?
    Mr. Gaddy. The call center people continued doing their 
call center work and handled the influx of calls for R&A as 
well.
    Mr. Kucinich. Did you have to pay them overtime?
    Mr. Gaddy. I don't believe we did.
    Mr. Kucinich. So they were handling both, but were they 
handling like 6 hours a day they do this and another 2 hours a 
day they do the Retro? How did that work?
    Mr. Gaddy. No. It was just commingled with the calls coming 
into the call center. It could be an R&A call. It could be a 
military call.
    Mr. Kucinich. But they were taken off other work they were 
doing?
    Mr. Gaddy. Yes, they combined.
    Mr. Kucinich. That you needed them to do.
    Mr. Gaddy. Right.
    Mr. Kucinich. That they were hired to do.
    Mr. Gaddy. Right.
    Mr. Kucinich. So the record of correspondence in DFAS 
reveals that there were concerns raised by DFAS project 
managers that their areas would suffer if personnel were moved 
around. Have you assessed any effect on DFAS's other areas of 
responsibility caused by this decision to assign Federal 
workers to the Lockheed call center?
    Mr. Gaddy. For the ones that we picked up the calls for, 
there was no degradation of military pay call service.
    Mr. Kucinich. Now you estimated the cost of using Federal 
workers is about a half a million dollars as of May 2008.
    Mr. Gaddy. Correct.
    Mr. Kucinich. And you are going to get us a better 
estimate?
    Mr. Gaddy. Yes. Yes, I will.
    Mr. Kucinich. Is it DFAS's intention to charge the U.S. 
taxpayer for the cost of those Federal workers or will you have 
a contractual charge to Lockheed?
    Mr. Gaddy. The payments to those individuals were they are 
Government workers. So whether they work on R&A work or mil pay 
work, their salaries didn't change. There was no incremental 
cost of them doing this work.
    Mr. Kucinich. But they are working for a private contractor 
who is under contract for the very work that the contractor's 
employees should be doing.
    Now, Mr. Kleinknecht, you have listened to responses. Do 
you think this is a subtle issue? Are there some unanswered 
questions? Can you look into whether or not the taxpayer has 
been double-billed?
    Mr. Kleinknecht. Clearly, the audit would cover all of 
those issues. I mean we would focus. These are things we would 
focus on.
    Mr. Kucinich. I think it is important that we look at the 
question of whether there have been any double billings. 
Certainly, if there has been, it can worked out between 
Lockheed Martin and the Federal Government. But, given the fact 
that you are scrambling here somewhat, it appears to be an 
appropriate question to ask and corrective action to be taken.
    I would appreciate it if you look into that.
    Gentlemen, you have been here for a few hours. I want to 
thank you for your participation.
    This subcommittee is going to retain jurisdiction over this 
matter. We will have a followup hearing at the request of Mr. 
Issa. We will be in touch with you with further questions.
    I think that overall what this is about is making sure 
these veterans get their money. If this subcommittee can, in 
some way, help to expedite that, then the purpose of this 
hearing is well taken.
    I think that, again, there are decisions of privatization 
that are made above the pay grades of the people at the table. 
I am going to assume that each one of you is doing the best you 
can with the situation that you have.
    But I also am letting you know that as long as there are 
disabled veterans out there who are not getting the money that 
is due them under the laws that Congress passed, that this 
subcommittee is going to be relentless in its work to examine 
this process and to call to the attention of the rest of the 
Congress and to push for remedies.
    So I want to thank you, Mr. Gaddy, for agreeing to look at 
the no pay due profiles and to make sure that those are 
inspected, each and every case. It is very important for people 
to know that.
    I want to thank the IG's Office for its willingness to get 
into this a little bit further.
    This committee isn't in the business of ``gotcha.'' What we 
want to is make something happen here that will work out for 
those veterans.
    I want to thank you, Mr. Gaddy, for your service to our 
country.
    Mr. Cipriano, thank you for seeing if there is a way to 
make this contract work, and for the IG finding a way to help 
facilitate that.
    Mr. Sprey, thank you for your advocacy on behalf of 
veterans who often, on these matters, don't have the kind of 
help that they need. You know after serving their country, they 
need to be served too.
    This committee stands adjourned.
    [Whereupon, at 3:15 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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