[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




 
                    SENIOR EXECUTIVE SERVICE BONUSES
                AND OTHER ADMINISTRATIVE MATTERS AT THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS

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

                                HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 23, 2009

                               __________

                           Serial No. 111-43

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                  HARRY E. MITCHELL, Arizona, Chairman

ZACHARY T. SPACE, Ohio               DAVID P. ROE, Tennessee, Ranking
TIMOTHY J. WALZ, Minnesota           CLIFF STEARNS, Florida
JOHN H. ADLER, New Jersey            BRIAN P. BILBRAY, California
JOHN J. HALL, New York

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                           September 23, 2009

                                                                   Page
Senior Executive Service Bonuses and Other Administrative Matters 
  at the U.S. Department of Veterans Affairs.....................     1

                           OPENING STATEMENTS

Chairman Harry E. Mitchell.......................................     1
    Prepared statement of Chairman Mitchell......................    25
Hon. David P. Roe, Ranking Republican Member.....................     2
    Prepared statement of Congressman Roe........................    26
Hon. John J. Hall................................................     4
Hon. Timothy J. Walz.............................................     4
Hon. Harry Teague, prepared statement of.........................    26

                               WITNESSES

U.S. Department of Veterans Affairs:
    James J. O'Neill, Assistant Inspector General for 
      Investigations, Office of Inspector General................     6
        Prepared statement of Mr. O'Neill........................    27
    Hon. W. Scott Gould, Deputy Secretary........................    15
        Prepared statement of Mr. Gould..........................    32

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:

Hon. Harry E. Mitchell, Chairman, Subcommittee on Oversight and 
  Investigations, Committee on Veterans' Affairs, to Hon. George 
  J. Opfer, Inspector General, U.S. Department of Veterans 
  Affairs, letter dated September 25, 2009, and response letter 
  dated November 2, 2009 [An identical letter was sent to Hon. 
  David P. Roe, Ranking Republican Member, Subcommittee on 
  Oversight and Investigations, Committee on Veterans' Affairs.].    37
Hon. Harry E. Mitchell, Chairman, Subcommittee on Oversight and 
  Investigations, Committee on Veterans' Affairs, to Hon. Eric K. 
  Shinseki, Secretary, U.S. Department of Veterans Affairs, 
  letter dated September 25, 2009, and VA responses..............    38


                  SENIOR EXECUTIVE SERVICE BONUSES AND
                  OTHER ADMINISTRATIVE MATTERS AT THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS

                              ----------                              


                     WEDNESDAY, SEPTEMBER 23, 2009

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:07 a.m., in 
Room 334, Cannon House Office Building, Hon. Harry E. Mitchell 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Mitchell, Walz, Adler, Hall, and 
Roe.
    Also Present: Representative Teague.

             OPENING STATEMENT OF CHAIRMAN MITCHELL

    Mr. Mitchell. Good morning and welcome to the Subcommittee 
on Oversight and Investigations. This is a hearing on Senior 
Executive Service (SES) Bonuses and other Administrative 
Matters at the U.S. Department of Veterans Affairs (VA). This 
hearing is being held on September 23, 2009. This hearing will 
come to order.
    I ask unanimous consent that Mr. Teague be invited to sit 
at the dais for the Subcommittee hearing today. Hearing no 
objection, so ordered.
    Mr. Teague, thank you for being here.
    Mr. Teague. Thank you.
    Mr. Mitchell. I ask unanimous consent that all members have 
5 legislative days to revise and extend their remarks, and that 
statements may be entered into the record. Hearing no 
objection, so ordered.
    I would like to thank everyone for attending today's 
Oversight and Investigations Subcommittee hearing entitled 
Senior Executive Service Bonuses and Other Administrative 
Matters at the U.S. Department of Veterans Affairs. Thank you 
especially to our witnesses for testifying today.
    We all know that the Department of Veterans Affairs has 
some of the hardest working and dedicated employees; however, 
there are concerns about the VA bonus process and how the VA 
matches pay to individual and organizational performance. For 
example, in fiscal year 2008, the VA performance award pool was 
almost $4.3 million including $774,108 for just 21 Presidential 
Rank Awards, with some awards as large as $60,270.
    The VA does outstanding work in many areas, but there are 
some areas where improvement is needed. Just this year, this 
Subcommittee has been here on more than one occasion 
questioning the Department's quality of care, safety standards, 
and lack of necessary protocol and procedures. Members of 
Congress on both sides have expressed frustrations over this 
issue, especially in the wake of recent reports suggesting that 
bonuses were not properly applied. The bonus system must 
allocate responsibility where it lies. It must also be used to 
adequately retain the best personnel available and to encourage 
excellence in performance.
    The reason we are here today is to help ensure that the 
bonus system is being utilized in the appropriate manner, so 
that we can tell veterans with full confidence that these 
Senior Executive Service personnel are making the VA a better 
place, and that the VA is serving our veterans and being good 
stewards of American taxpayer dollars.
    This Subcommittee is also here to examine hiring practices 
and minority hiring trends within the Department. On August 18, 
2009, the VA Office of Inspector General (OIG) released two 
reports citing abuse of authority, nepotism, improper hiring, 
and improperly administered awards. The Subcommittee has 
concerns over these report findings, and we must ensure that 
these reports don't point to a potentially bigger problem 
within the department. However, these reports accurately show 
what can happen when the proper procedures go unchecked.
    I am grateful that the VA Office of Inspector General has 
agreed to come here today to talk about their reports and give 
specific and limited testimony into the correct hiring 
procedures and protocols the VA should utilize.
    Additionally, we would like to look into minority hiring 
practices to guarantee that the VA is utilizing a fair and 
equitable hiring system. Deputy Secretary Gould, along with 
Assistant Secretary Sepulveda, has agreed to come here today to 
assure the veterans that they have safeguards in place to 
provide effective oversight.
    In closing, I would like to make it clear that this 
Subcommittee is not here to denigrate the dedicated work of the 
VA employees. We have no intention of targeting specific 
employees. We have no intention of questioning whether or not 
the VA should award bonuses. We are all here to do what is 
right for our veterans and instill the trust and integrity that 
they should expect from their government. Our goal should also 
be to ensure that they are being served with a system 
reflective of their service and honor.
    [The prepared statement of Chairman Mitchell appears on p. 
25.]
    Before I recognize the Ranking Republican Member for his 
remarks, I would like to swear in our witnesses.
    I would ask all witnesses to stand and raise their right 
hand for both panels.
    [Witnesses sworn.]
    Mr. Mitchell. I now recognize Dr. Roe for opening remarks.

             OPENING STATEMENT OF HON. DAVID P. ROE

    Mr. Roe. Thank you, Mr. Chairman.
    Last Congress, this Subcommittee held a hearing on the 
Senior Executive Service's bonuses, during which then-Ranking 
Member Ginny Brown-Waite expressed frustration of several 
Members on our side of the aisle regarding the VA allocation of 
bonuses to employees possibly involved in quality-of-care 
issues at various VA medical facilities, as well as those 
involved in providing benefits and processing claims at the 
Veterans Benefits Administration (VBA).
    While she cautioned Members to tread carefully through this 
path, we are here again reviewing these bonuses and their 
appropriateness, given the new reports of alleged malfeasance 
at the Department's Office of Information and Technology 
(OI&T).
    Our Nation's veterans have fought faithfully for our 
freedom and deserve to be treated with the utmost respect. They 
have the right to expect their claims to be processed in a 
timely and appropriate manner. They have a right to expect 
their treatment at VA facilities to be among the best our 
country has to offer. And they should expect that, in all their 
dealings with the Department of Veterans Affairs, they will be 
treated with the utmost respect and dignity.
    Those in the Senior Executive Service, commonly referred to 
as SES, are typically among the cream of the crop of our 
Nation's Federal employees. These are the leaders of today and 
tomorrow. To be elevated to these positions of responsibility, 
they have to complete training programs and have dedicated 
themselves to the service of our country.
    There is no doubt in my mind that the bonuses many of these 
individuals received reflect the value of the services they 
provided. However, a few of these bonuses appear to be 
extremely hefty in nature.
    We are in a time of economic hardship. Many of our 
citizens, including our veterans, are on the unemployment 
lines, struggling to make ends meet. Many folks are tightening 
their belts to put food on the table and clothes on their 
children's backs, and yet, several of the bonuses issued by the 
Department have been in the range of $30,000.
    This is more money than many in our country see in a single 
year. And, from what I can tell, this amount is the norm for 
these individuals and considered part of their expected income, 
as opposed to extra incentive for doing exceptional work. We 
need to ensure that the VA is allocating these resources 
wisely.
    While many Americans are unemployed or are taking cuts in 
salaries, or cuts in bonuses, we need to ascertain if it is 
fiscally possible for the VA to issue such high bonus payments. 
Are the bonuses being issued by the VA truly deserved, or is it 
just considered a matter of course that these bonuses continue 
to be awarded? We must make certain that the criteria and 
performance metrics the VA is using to determine the amount of 
bonuses issued to an individual in the Senior Executive Service 
continues to be a fair and equitable process.
    Mr. Chairman, these are the questions I would like to 
ferret out during these hearings. I appreciate your bringing 
the witnesses in today to testify, and look forward to hearing 
them speak. Again, thank you, and I yield back the balance of 
my time.
    [The prepared statement of Congressman Roe appears on p. 
26.]
    Mr. Mitchell. Mr. Hall.

             OPENING STATEMENT OF HON. JOHN J. HALL

    Mr. Hall. Thank you, Mr. Chairman and Ranking Member Roe, 
for holding this hearing and for the opportunity to address 
this Subcommittee today.
    Thank you to the witnesses who have taken their time to 
come before us. With a new administration, it is important that 
we evaluate procedures and policies which might need to be 
changed.
    Since 2007, I have been, and this Committee has been, 
deeply concerned about the issue of bonus awards at the 
Department of Veterans Affairs. I hope that this hearing will 
demonstrate the steps that the VA has taken to make bonuses 
about rewarding excellence, not about helping friends or 
family.
    Recent news articles and reports from the VA's Inspector 
General have shed light on rampant nepotism and abuse by those 
in positions of power. The Associated Press detailed an 
embarrassing detail in which a VA employee, having an affair 
with their superior, was reimbursed for 22 flights between 
Florida and Washington. One office at the VA received $24 
million in bonuses over a 2-year period. Twenty-four million 
dollars is a lot of money in this economic climate, with many 
veterans living on an ever-tightening budget; and it is 
irresponsible for us to allow this to continue without taking a 
careful look at who is earning the bonuses and who is not.
    As many of you know, I introduced a bill in the last 
Congress that required no bonuses to be paid out to senior VA 
officials until the claims backlog was under 100,000 claims.
    I think we can all agree that our first priority is to the 
veterans who serve their country, our country, and who paid the 
price. In this Congress, I am considering other ways to make 
sure that bonuses are awarded fairly and within reason. And, to 
me, an increasing backlog is an indication that there are some 
at VA who should not be receiving bonuses.
    I am not saying there are not many or even most at the 
department who have done a stellar job and deserve recognition; 
however, I am saying that we need to make sure the system 
rewards only those who have earned it.
    Thank you again, Mr. Chairman. And to our panelists, I look 
forward to hearing the discussion and answers to our questions 
and testimony; and I will submit more of my statement for the 
record. [No statement was submitted.]
    Mr. Mitchell. Thank you.
    Mr. Walz.

           OPENING STATEMENT OF HON. TIMOTHY J. WALZ

    Mr. Walz. Well, thank you, Mr. Chairman and Ranking Member.
    Again, I am very appreciative of your holding these 
hearings, of our doing our responsibility of oversight. I want 
to thank all of our panelists who are here today and those 
folks in the VA and in the OIG who are, I know, committed to 
trying to deliver the best possible care to our veterans.
    I have often said that I am the strongest supporter of the 
VA and, because of that, I will be the strongest critic. And I 
think my colleagues here today have summed it up right. We 
absolutely understand, we have stellar personnel. Members of 
the SES are folks that could go work in the private sector for 
far more money. We understand that. And trying to keep and 
retain that high-quality personnel is absolutely critical.
    I think the question here is making sure that bonuses are 
paid based on performance, not on standard or set procedure, on 
autopilot; making sure that we have the criteria in place, and 
then making sure that in a climate such as we are in--and as 
Mr. Hall clearly pointed out--that the focus here has to be on 
the veterans, has to be on reducing a claims backlog that all 
of us agree was an embarrassment and is wrong for our veterans.
    And I think by holding this hearing, by getting the 
answers, by collaborating together, all of us want to see the 
best care for our veterans, all of us want to see the best 
possible people retained, and all of us want to see a system 
that rewards for quality and excellence and output, that we 
can, as the Chairman said, be proud to go back and talk about 
why we have the best people delivering the best quality care to 
the Americans who put themselves on the line.
    So I want to thank you all for being here.
    We also know that many of you in the VA are veterans 
yourselves, and you understand this on both sides of the issue. 
So I appreciate your being here helping us understand this, 
helping make sure the American public feels like we are doing--
as Mr. Hall said, again--absolutely right by our veterans.
    So I yield back.
    Mr. Mitchell. Thank you.
    Mr. Teague.
    Mr. Teague. Mr. Chairman, Ranking Member, and other 
Members, I do have an opening statement, but to better use the 
time of not only this Subcommittee but of the witnesses that we 
have here today, I will submit my statement for the record.
    [The prepared statement of Congressman Teague appears on p. 
26.]
    Mr. Mitchell. At this time, I would like to ask Panel One 
to come to the witness table.
    Joining us on our first panel is James O'Neill, Assistant 
Inspector General for Investigations, Office of Inspector 
General, U.S. Department of Veterans Affairs.
    Mr. O'Neill is accompanied by Joseph Sullivan, Jr., Deputy 
Inspector General for Investigations, Office of Inspector 
General, U.S. Department of Veterans Affairs, and Michael 
Bennett, Attorney Advisor, Office of Inspector General.
    I ask all witnesses to please stay within 5 minutes for 
their opening remarks. Your complete statements will be made 
part of the hearing record. Thank you.
    Mr. O'Neill.

STATEMENT OF JAMES J. O'NEILL, ASSISTANT INSPECTOR GENERAL FOR 
INVESTIGATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
   VETERANS AFFAIRS; ACCOMPANIED BY JOSEPH G. SULLIVAN, JR., 
    DEPUTY INSPECTOR GENERAL FOR INVESTIGATIONS, OFFICE OF 
  INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND 
MICHAEL R. BENNETT, ATTORNEY ADVISOR, OFFICE OF INVESTIGATIONS, 
   OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS 
                            AFFAIRS

    Mr. O'Neill. Good morning, Mr. Chairman and Members of the 
Subcommittee.
    My office conducts criminal and administrative 
investigations related to the programs and operations of VA. I 
have been invited today to discuss the results of two recent 
administrative investigations into allegations of a variety of 
prohibited personnel practices in VA's Office of Information 
and Technology.
    In the first investigation, we received an allegation that 
an OI&T executive improperly hired a friend and did so at an 
unauthorized high rate of pay. In the second case, we received 
allegations of a different OI&T management official, and two of 
her subordinates hiring several of their family members.
    These investigations were focused reviews that initially 
were limited to these specific allegations. During our 
investigation, we discovered numerous additional improprieties 
relating to the individuals involved in the initial 
allegations. Included in the 45 recommendations we made to VA 
in these two reports were to take appropriate administrative 
action against eight individuals, recover funds expended as a 
result of nepotism and improperly paid educational expenses, 
determine appropriate corrective actions regarding 
inappropriate hiring and promotion actions cited in these two 
reports, and to review other appointments made by use of direct 
hire authority and Federal career intern program and to examine 
the appropriateness of each OI&T retention bonus and 
expenditure related to academic degree funding.
    Among our findings of administrative misconduct were the 
following:
    An OI&T executive engaged in prohibited personnel practices 
related to her efforts to have a VA contractor and, later, VA 
hire her friend. Three other OI&T officials were involved in 
prohibited personnel practices when they participated in the 
preselection of four GS-15s in OI&T.
    A former VA management official engaged in nepotism when 
she advocated for the hiring of her relatives. She also hired 
an acquaintance and a friend at a rate above the minimum pay.
    Two other OI&T officials improperly involved themselves in 
the hiring of five of their family members.
    OI&T employees were improperly hired using expired direct 
hiring authority and an inappropriately administered Federal 
career intern program.
    OI&T improperly paid for graduate degrees without having 
employees or programs that complied with requirements for fair 
competition and adequate recordkeeping. VA records were so 
lacking that we had to issue subpoenas to the private 
universities to determine how much VA improperly spent on each 
of the individuals.
    Some OI&T managers approved awards in exorbitant amounts 
with inadequate or no justification and without authority to 
make such awards.
    Because of favoritism and preferential treatment, better 
qualified applicants were not selected for some positions and 
the rights of preference-eligible veterans were sometimes 
ignored. In addition, those who approved improper expenditure 
of funds did not know or determine the proprietary of these 
expenditures.
    Federal ethics regulations provide that public service is a 
public trust. Federal employees cannot use their public office 
and taxpayer funds for private gain or for the gain of their 
families and friends. OI&T officials broke the rules to hire, 
favor, and financially benefit their friends and family. In so 
doing, they wasted VA resources that could have been put to 
better use, and they failed to ensure that the best qualified 
individuals were hired so veterans can receive the best 
possible service that they deserve and have earned.
    This concludes my opening statement, and we would be happy 
to answer any questions you may have.
    [The prepared statement of Mr. O'Neill appears on p. 27.]
    Mr. Mitchell. Thank you, Mr. O'Neill.
    Let me ask a couple questions.
    First of all, why did you just go to OI&T? How did you 
happen to pick that? Have you done other divisions or 
departments, or were you tipped off?
    Mr. O'Neill. It was an allegation that we received, sir, 
specifically about certain individuals in OI&T. That launched 
our investigation.
    Mr. Mitchell. And this is the only section that you have 
looked into, the OI&T?
    Mr. O'Neill. In this matter, yes, sir.
    Mr. Mitchell. But you don't know if nepotism or the bonus 
or anything in other departments--or you would find the same 
type of behavior in other departments?
    Mr. O'Neill. That would be speculation, because I don't 
have any data to support it.
    We periodically have conducted investigations relating to 
allegations of nepotism in the past, but frankly, I can't 
recall the last one we had. It has been a while.
    Mr. Mitchell. I guess what I am saying is that a lot of 
your investigations are based on somebody coming forward and 
making allegations against some misuse or improper procedure?
    Mr. O'Neill. Particularly administrative investigations, 
yes, sir.
    Mr. Mitchell. What are the top three recommendations that 
you have made to the VA to ensure that the procedures that you 
have outlined, and we know are there, are actually enforced?
    Mr. O'Neill. Well, in this particular matter, we 
recommended that they determine and apply the appropriate 
administrative actions against the eight individuals that were 
cited in the report; that they issue bills of collection, where 
appropriate, for improper payments related to the graduate 
degrees in particular; determine what corrective actions would 
be appropriate to deal with the problems that we identified 
during our investigation--someone hired under an expired direct 
hire authority, the VA has to take some corrective action, 
provide training on hiring and the provision of awards 
throughout OI&T and review the use of the hiring authorities 
and the funding for academic degrees and retention allowances 
to ensure compliance with applicable standards.
    Mr. Mitchell. I guess maybe you have kind of answered this, 
but what oversight function of the VA broke down in the human 
resources (HR) process?
    Mr. O'Neill. I would say that the leadership of OI&T did 
not pay adequate attention to the awards that were being 
distributed, the hiring practices that we cite in our report, 
and of course, the payment for academic degrees.
    So I would lay it at the feet of the management of OI&T at 
the time. And whatever oversight H.R. would provide would 
probably also need addressing.
    Mr. Mitchell. It is mainly oversight. The procedures are in 
place, the rules and regulations are all very clear. It was 
just the oversight?
    Mr. O'Neill. Yes, sir. We cite all the applicable 
regulations, and they just failed to adhere to them.
    Mr. Mitchell. Thank you.
    Dr. Roe.
    Mr. Roe. Thank you, Mr. O'Neill, for being here. I have 
just a couple of questions.
    One, as I read your testimony in here, it said, ``Further, 
we identified two GS-5s who received 17 percent of the total 
amount of cash awards given to all GS-5s that year and who 
received awards for the time period that predated their 
employment. Additionally we found a GS-13 employee who, within 
the first 90 days of her employment, received a $4,500 
performance award from the former VA official who said that she 
did not even remember her.''
    How does that happen? I mean, I have run a business and 
helped run a city, and so has the Chairman. That just shouldn't 
happen. How in the world does something that egregious happen?
    Mr. O'Neill. Again, sir, the lack of proper oversight by 
the management of OI&T.
    These individuals you cite were favored individuals by the 
people who could award them financially, and they benefited 
from that. There wasn't oversight over the individual 
responsible for issuing the awards.
    Mr. Roe. Well, that is absolutely, totally intolerable 
right there when you see something like that.
    That personally does a couple things. One, it destroys the 
morale of the organization. I can promise you, having run a 
business for 30-plus years, if you did that in a private 
business, the morale of your organization would be totally 
ruined because people figure that out pretty quick. And nobody 
is supposed to talk about what they make, but they do. And 
people are not supposed to talk about the bonuses, but they do.
    I guess the next question is, what happens to somebody who 
does something like that? I mean, I read through this where 
$139,000 of money--education money was spent. What happens to 
people who do something this egregious, that paragraph I just 
read? What occurs to them? What is the penalty?
    Mr. O'Neill. That penalty depends if the person is still 
employed by the government. But if they are employed by the 
government, the Office of Information and Technology 
collaborates with the Office of General Counsel and with Human 
Resources to determine what administrative penalties can be 
applied and sustained, if challenged.
    So I would imagine a range of penalties can be the normal 
range, anywhere from reprimand to removal. But, again, I am not 
suggesting that----
    Mr. Roe. I understand.
    Mr. O'Neill [continuing]. That I understand what they will 
do.
    Mr. Roe. I understand that. And you are not here to do 
that, nor am I. But I just wondered what penalties were there.
    I mean, you get--$4,500 is a significant bonus for somebody 
who had been there in the first 90--there isn't any way in the 
world that should have been awarded. And these others, where 
two people get most of the--get a fifth of all the bonus money. 
I just wondered.
    And the other question, and of course this is speculative, 
too. I don't believe this could be systemic. I think this is--
you are looking at an organization that has 230,000 employees 
and a lot of really good managers.
    Is this the only place you have looked at so far, just this 
one? And the reason you looked is because of the tip that you 
got on the hotline; is that correct?
    Mr. O'Neill. Yes, sir. We looked at a rather small slice of 
the OI&T world. And we have recommended, though, that the 
department do a thorough review of the remainder of these 
questionable awards and particularly retention bonuses and 
educational benefits throughout OI&T. But I wouldn't be able to 
speculate.
    Mr. Roe. I do understand that. Until you looked into it, 
there would be no way you could offer an opinion on that.
    And I know, in August, your office had said that there were 
45 recommendations, and 11 were listed in Misuse of Position, 
Abuse of Authority, Prohibited Personnel Practices, OI&T, 
Washington, DC, were expected to be addressed and be completed 
by the 19th of September, which is just a couple days ago.
    Has that been done, as far as you know?
    Mr. O'Neill. As far as I know, those recommendations 
pertain to the one report involving the senior executive and 
others. And I believe that there has been an extension 
requested, but I am not certain, sir.
    So I would just as soon not comment.
    Mr. Roe. And I guess the last question is just, should the 
VA H.R. have reviewed these personnel actions and bonus awards? 
Should the Human Resources folks have looked at that?
    Mr. O'Neill. We did not carry this investigation further 
because there were no signs of misconduct relating to H.R. 
officials outside of the OI&T H.R. So, again, it would be 
speculation.
    But there are indications, and I believe they will be 
thoroughly vetted because of this report, but I don't have any 
data for you.
    Mr. Roe. Just one last comment. I know, if I had looked at 
this--I mean, if anybody who had looked at some of the things 
we have seen here would know that this absolutely doesn't--you 
can't hire your family. You know that. And that is very clear 
to anybody who has been around the Federal Government for 2 
seconds. And I don't know how that wasn't picked up.
    Thank you for your comments.
    I yield back, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman. And following up on 
Ranking Member Roe's questions, Mr. O'Neill--and thank you for 
your testimony and for being here--I understand that because of 
personnel issues and policies, that maybe that there are things 
that you can't talk about in public.
    Mr. O'Neill. Yes, sir.
    Mr. Hall. But, nonetheless, among the 40 recommendations 
that you made to the Assistant Secretary for the Office of 
Information and Technology, were some of those recommendations 
for termination or various other kinds of discipline or perhaps 
recovering some of the money that was paid?
    Mr. O'Neill. Some were recommendations to recover money 
that was improperly spent.
    We do not recommend specific administrative action. Our 
recommendations are always to take appropriate administrative 
action, because the department actually has to take that 
administrative action and be able to sustain it. So that is 
their responsibility.
    Mr. Hall. Does the department have guidelines for 
administrative action to cover this type of behavior, for 
instance, hiring multiple members of one's family?
    Mr. O'Neill. Certainly, sir.
    Mr. Hall. Glad to hear it.
    Is there a timeline for the implementation of your 
recommendations by the Office of Human Resources?
    Mr. O'Neill. Well, as I mentioned earlier, I believe that a 
request came in to extend, in order to take the recommended 
action, the individual against whom the action is recommended 
had a period of time for appeal.
    And so I think that the request is to allow that time to 
provide a formal response to us. But I have reason to believe 
that this is on track.
    Mr. Hall. I will take that to mean that we shouldn't have 
to worry that the VA is looking at this with the seriousness 
with which the public and this Subcommittee sees it.
    Mr. O'Neill. I am absolutely confident they are looking at 
it with quite serious eyes.
    Mr. Hall. What do you think is the top, number one 
recommendation out of your report that would improve the way 
bonuses are given out? We are all expressing a concern that 
they reflect performance rather than just be an automatic, 
yearly--like a Christmas gift.
    Mr. O'Neill. Well, we made a specific recommendation to 
review retention bonuses within the Office of Information and 
Technology.
    Retention bonuses make up a large portion of the bonus pool 
that is expended in that area and, perhaps, elsewhere in VA. 
But our recommendation, I think, is very specifically directed 
at retention bonuses. We didn't make a formal recommendation to 
look at awards beyond that, but it would be clear to me, after 
reading this report, that the current management would feel 
required to look at it.
    This is pretty appalling when you talk about a $4,500 award 
for a GS-5. I have been administering awards for a long time, 
and we have GS-13s that risk their lives and don't get anything 
close to that. So it is glaring. I think that our report will 
prompt a close review of these processes.
    Mr. Hall. Well, that is good to hear. Have you seen many of 
these same issues among the other employees of the VA? Or are 
some SES employees uniquely able to take advantage of the bonus 
system?
    Mr. O'Neill. Sir, we didn't do any work on the SES bonus 
issue, so I couldn't comment on that at all. We were focused on 
particular allegations. Some allegations were made against SES 
officials, but it didn't have anything to do with any bonuses 
they may or may not have received. So I wouldn't be able to 
help you with that.
    Mr. Hall. Regarding OI&T, we heard testimony before the 
Subcommittee on Disability Assistance and Memorial Affairs and 
the full Committee this summer to the extent that, for the 
first time now--after years of our asking and the veterans 
community asking, for the first time, they are able to make an 
electronic handoff from the U.S. Department of Defense to VA of 
a veteran's medical service record, which is critical to timely 
processing of a claim, not to mention to the veteran's care.
    So I am wondering, have you seen any correlation of the 
bonuses in the Office of OI&T between this achievement and 
those who have managed to do the technological fix to get two 
different, incompatible systems to talk to each other?
    The bonuses, have you identified yet what the reasons for 
those bonuses were?
    Mr. O'Neill. None of the awards that we looked at, that I 
can recall, cited anything to do with that electronic handoff 
of information. Again, we didn't look at a large slice of OI&T, 
so I suspect that the individuals we weren't looking at were 
those who were tasked with that electronic handoff.
    So the fact that I didn't see it doesn't mean much except 
that it wasn't related to our investigation.
    Mr. Hall. They might have been too far down the food chain 
to qualify for a bonus.
    But, at any rate, there are people who deserve bonuses, and 
let's hope that we can move toward getting them rewarded 
properly and making sure the abuses are halted. Thank you for 
your work, sir.
    And thank you, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Mr. Walz.
    Mr. Walz. Thank you again, Mr. Chairman.
    And, Mr. O'Neill, I truly thank you. I want you to know it 
is not a thankless job you do. You are going to get plenty of 
thanks from us. This is an important and critical step in 
ensuring proper use of resources, making sure we reduce fraud, 
waste, and abuse; and, most importantly, precious tax dollars 
and public resources go to the cause that they are supposed to.
    This panel and this Chairman and the Ranking Member have 
championed expansion of your office for quite some time now. We 
will continue to do that.
    I know it is a very difficult job you do, but absolutely 
critical. And I think your being here, this hearing happening, 
your bringing this forward--for the breakdowns in the system, 
the safety valve was still there; and for that I am thankful. I 
think we are making good progress, and I am very appreciative 
of that.
    I think the question is obviously the nepotism issues and 
some of the hiring issues. Those have to be addressed. The 
question that we are being asked, that I am not sure you have 
the ability to answer, is how big a systemic problem this is. 
But I think it is very important for this Committee to clearly 
separate performance bonuses, based on measurable outcomes for, 
whether it be SES--and I say this as a former GS-7, who had the 
ability to qualify for these. And I was in a work environment 
where the standards were clearly laid out, the minimum 
standards--where you were supposed to be, what would constitute 
excellence and awards and put you in a position where you can 
be put in for an award. It was very clear, it was very 
measurable, and those outcomes had a direct impact on the 
mission that we were trying to accomplish.
    My questions are--and the thing I would say on this, and I 
would appreciate the Ranking Member's comments. But this type 
of thing is not the sole institution of government doing this, 
lest I remind bonuses at AIG, Enron, Lehman Brothers, United 
Health Group; that goes on and on and on. We have a problem of, 
how do we get this for performance?
    So my question is, Mr. O'Neill, if you can help me on this, 
are there uniform hiring procedures and uniform bonus 
procedures in place, like the one I described in the 
organization I was in, where it was clearly laid out, and in my 
yearly evaluations and my 6-month evaluations, my supervisor 
was clearly stating where I was, and these were measurable 
goals of achievement, trying to reach a point where you could 
qualify for the bonuses?
    Is that happening inside the VA?
    Mr. O'Neill. Again, it really wasn't part of our specific 
administrative investigations to review bonuses afforded SES 
and whether they are tied to measurable outcomes. That wasn't 
part of this. I wish I could help you, but it wasn't really a 
part of it.
    There are definitely hiring standards that need to be 
complied with, and we cited where they weren't complied with.
    Mr. Walz. Mr. Roe was very clear. We all know, you don't 
have to have vast experience to know you don't hire your 
relative, you don't give bonuses to those. That is very clear.
    And the checks and balances in there, you wouldn't think it 
would have to go very high above the person doing it to have 
the system kick into place and red flag those.
    So I am glad it eventually worked. I am glad you were 
there. That is why I continue to say, you must be there. But I 
am concerned, and I guess we will hear from the next panel more 
where those procedures are in place.
    Maybe, again, this is a question for the next--I'll save 
it.
    Trying to understand that maybe one of the problems we have 
here, especially when it comes to retention bonuses, do we need 
to take an honest and hard look at what we are paying people if 
we are counting on retention bonuses to be the sole measure?
    Maybe we need to make sure that the initial salaries are 
where they need to be to make that happen. Because my problem, 
and I guess the thing I am most concerned about, Mr. Chairman, 
is--as Mr. Hall and Mr. Roe and everyone has pointed out--when 
this type of incident happens, we lump together those that are 
deserving and those that received a bonus on all the right 
criteria, we lump them together with incidents of malfeasance 
that pollute the whole system.
    So, again, thank you for being here. You are in a very 
important position, Mr. O'Neill, and one that I very much 
appreciate. I know how hard it is to do what you do, but you 
are making it better for our veterans.
    So I yield back.
    Mr. Mitchell. Thank you.
    Mr. Teague.
    Mr. Teague. Thank you, Mr. Chairman and Ranking Member and 
other Members, for allowing me, again, to be here today.
    Mr. O'Neill, thank you for coming before us today and thank 
you very much for your testimony. And I want you to know that I 
appreciate the work that you do.
    And I think that most of our managers, all the way through 
the VA, are doing a good job, but unfortunately, we do have 
some people that need to be ferreted out. But, you know, I am 
amazed that this problem can go unchecked for so long. Can you 
explain the process that the VA set up for these bonuses?
    And it is evident that we did not have people acting 
without supervision. There was a process that was set up with 
different layers of oversight, yet this still occurred. So 
evidently we had a breakdown in the system.
    When you found that spot, did you check up and down in the 
system--and laterally, both--to see how far it went?
    Mr. O'Neill. To the degree possible, we did. And we 
certainly followed the administrative misconduct. The most 
egregious examples of awards we have heard about today result 
from misconduct, not mistakes but lack of attention from people 
above those that were responsible for misconduct, this wasn't 
just the way people do business.
    So we looked at that, but a number of the people most 
responsible were gone by the time we issued our report. So we 
wouldn't be citing them for administrative action if they are 
no longer with the government.
    But I do believe that our recommendations for the 
Department to follow up on these as they apply to OI&T--and I 
suspect this will prompt throughout VA, I believe closer 
attention being paid to awards.
    When you read justifications for a $2,500 award for a GS-5 
and the justification is ridiculously brief and off point, then 
someone who approved that wasn't doing their job. Now, on those 
particular cases, the person who approved it was approving it 
as a result of misconduct, we believe, not because they thought 
that the individual actually deserved those awards. So there 
was favoritism. Preferential treatment associated with these 
awards was the big issue.
    But retention bonuses may just be something that requires 
attention and may never have involved misconduct in the 
decision, at least in most of these retention bonuses. But our, 
at least, indications are that this needs further attention.
    Mr. Teague. And you also stated that one former VA official 
had repeatedly violated the nepotism regulations that are very 
clearly laid out. But for this to have gone on for so long, do 
you think that there is an environment or a culture that we are 
fostering to discourage people to report wrongdoings?
    Mr. O'Neill. I really don't have any reason to believe 
that. I believe that our report will encourage responsible VA 
employees to report instances of this.
    And, of course, that is how we learned about it. Someone 
who knew what was going on reported it, was offended by it.
    And so I don't have any data to know if it is widespread or 
not, but certainly the number of referrals are not 
overwhelming, when it comes to nepotism in particular.
    Mr. Teague. When you hire someone at a higher rate of pay, 
how much additional paperwork do you have to do and how many 
people have to see that?
    Mr. O'Neill. Well, I took some notes on that.
    When you want to hire someone at a particular grade level, 
normally if they are new to government, they come in as a Step 
1.
    But if you want to increase their pay, then you have to 
provide adequate justification. And you look at the efforts 
that were taken to recruit people and how they failed, you look 
at the candidate's superior qualifications compared to the 
other candidates. You are looking for prior salary of the 
individual to see if they were earning far more than the Step 1 
would have, and why you were recommending hiring at that step 
as opposed to a recruitment bonus.
    All those steps are required. But in the cases we have 
identified, they weren't followed at all. So the individuals 
controlled the environment, and they allowed it to happen. So 
that is the difficulty where someone above them wasn't paying 
attention to what was going on.
    Mr. Teague. Mr. O'Neill, once again, I want to thank you 
for appearing today and for your testimony, and I appreciate 
the answers that you gave me also.
    And, Mr. Chairman, once again, thank you for allowing me to 
be here.
    Mr. Mitchell. One last question, Mr. O'Neill. We know that 
there were some policies that were not followed and procedures 
not followed and, also, some laws that were broken. Are we 
pursuing legally any of these people who broke this law, or 
were they just dismissed?
    Is there any legal action against any of these people?
    Mr. O'Neill. We looked at the actions that occurred, and in 
open session, I would rather not discuss it. But there is still 
ongoing work to look if any laws were violated.
    If you don't mind, I would just as soon keep it to that.
    Mr. Mitchell. No. Thank you. And thank you for being here 
today. As everyone said, we appreciate the work that you are 
doing. Thank you, sir.
    Mr. O'Neill. Thank you.
    Mr. Mitchell. I would like the welcome Panel Two to the 
witness table.
    For our second panel we will hear from the Honorable W. 
Scott Gould, Deputy Secretary, U.S. Department of Veterans 
Affairs, accompanied by John Gingrich, Chief of Staff, U.S. 
Department of Veterans Affairs; the Honorable John Sepulveda, 
Assistant Secretary for Human Resources and Administration, 
U.S. Department of Veterans Affairs; and Willie Hensley, 
Principal Deputy Assistant Secretary for Human Resources and 
Administration, U.S. Department of Veterans Affairs.
    And like the other panel, Mr. Gould, I would want to ask 
you to keep your comments to 5 minutes, and anything that you 
have in a written statement will be added to the record. Thank 
you for being here.

   STATEMENT OF HON. W. SCOTT GOULD, DEPUTY SECRETARY, U.S. 
    DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY JOHN R. 
GINGRICH, CHIEF OF STAFF, U.S. DEPARTMENT OF VETERANS AFFAIRS; 
HON. JOHN U. SEPULVEDA, ASSISTANT SECRETARY FOR HUMAN RESOURCES 
 AND ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND 
  WILLIE L. HENSLEY, PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR 
HUMAN RESOURCES AND ADMINISTRATION, U.S. DEPARTMENT OF VETERANS 
                            AFFAIRS

    Mr. Gould. Thank you, Mr. Chairman. And with your 
permission, I can begin my oral statement? Thank you.
    Mr. Chairman, Mr. Ranking Member, and Members of the 
Subcommittee, I appreciate very much the opportunity to discuss 
VA's progress in determining our senior executive performance 
awards. VA has made many improvements since the previous 
hearing in June of 2007, and we look forward to sharing them 
with the Subcommittee today.
    I am joined by Mr. John Gingrich, Chief of Staff of the VA 
to my right; the Honorable John Sepulveda, Assistant Secretary 
for Human Resources and Administration immediately to my right; 
and to my left, Willie Hensley, who is our Principal Deputy 
Assistant Secretary for Human Resources and Administration. I 
ask that my full written statement be entered into the record.
    Let me begin with a simple statement: People are VA's most 
important asset. They make it possible to fulfill our mission 
to our Nation's veterans; and day in and day out, VA's 292,000 
employees provide world-class health care, pay critical 
benefits, and render final honors to millions of veterans.
    Only 313 of these employees are Members of the Senior 
Executive Service. This small group of men and women who 
comprise our SES corps play a critical role in providing the 
leadership, shaping the culture, and promoting excellence in 
VA. Whether it is here in Washington, DC, or out in the field, 
our senior executives are responsible for the operations of 
hundreds of facilities and for meeting the highest standards of 
performance and integrity.
    Importantly, they are responsible for ensuring that our 
VA's daily operations meet our veterans' expectations for 
quality care and services. Consequently, we seek to reward 
those executives who excel in service to our veterans.
    The authorization for the current SES performance award 
program is set in law. The law puts forward a simple premise: 
Encourage excellence by senior executives and do so fairly.
    The law required evaluation and compensation of SES 
personnel based strictly on their performance. It eliminated 
the six existing pay levels in favor of an open pay range, and 
it eliminated locality pay and across-the-board pay increases 
to which the SES had become accustomed.
    Now, VA strives to implement the letter of the law and its 
spirit and intent. To that end, we have followed closely the 
advice of the Office of Personnel Management (OPM), the U.S. 
Government Accountability Office (GAO), and this Committee by 
implementing recommendations to make sure that awards are made 
properly.
    For example, the VA ensures that all performance plans 
focus on achieving measurable results. We revised the awards 
determination process to ensure awards are granted based on 
individual and organizational performance and results achieved.
    We train new and serving Performance Review Board, or PRB 
members on the policies and guidance of the SES PRB process and 
their role on the PRB. And we enhance our PRBs by appointing 
members from outside VA. VA has heard your recommendations and 
acted on them.
    Finally, VA has taken further steps to ensure excellence 
and institute reforms by increasing the criteria for 
performance awards to ensure that only those SES who are rated 
as excellent or outstanding can receive them, placing caps on 
performance awards and reducing the maximum pay adjustment 
percentages allowable in a given year.
    We believe that the steps we have taken to implement the 
law, Committee recommendations, and our own initiatives will 
have a strong impact on SES performance.
    But every system can be improved, and in keeping with 
Secretary Shinseki's vision for a 21st century VA, we are in 
the process of implementing additional initiatives to improve 
SES management and development, including leadership training, 
career development, greater emphasis on mobility, and more 
rigorous SES application and selection processes.
    The men and women of the VA Senior Executive Service are 
held to the highest standards of service. They routinely face 
enormous challenges in delivering the best possible care and 
benefits services to our veterans. We strive to reward those 
whose success sets the standards for others to follow, and we 
will hold those accountable whose character or quality of 
service is not up to the standards of the SES.
    Mr. Chairman, I want to thank you, the Ranking Member, and 
all the Members of this Subcommittee for setting the tone of 
the hearing today, which is a balanced perspective between the 
vast majority of stellar performers and personnel who work at 
VA and the unfortunate exceptions. I look forward to answering 
your questions, but more so in working with you to encourage 
excellence in performance by our senior executives for the 
benefit of all veterans and the VA employees whom they lead.
    Thank you, sir.
    [The prepared statement of Mr. Gould appears on p. 32.]
    Mr. Mitchell. Thank you very much. Just a couple follow-up 
questions.
    I know that you are fairly new to this position. We had a 
hearing in the last Congress over the bonus issue. And I just 
want to say hopefully, you are doing things different than was 
done in the past as a result of the last hearing.
    Can you give us an example of what you are doing that is 
different and how you are overlooking these bonuses?
    Mr. Gould. Yes, sir, I can. There are a number of things we 
have done as a team that reflects the career continuity that is 
here at the table and also the new political team that is here, 
focusing real leadership on this.
    Some quick examples: We have included non-VA executives on 
our Performance Review Board, so we are reaching out for that 
external perspective from VA to bring it into the discussion 
about performance.
    We have strengthened the performance plans themselves, 
linking performance to the organization's strategic goals and 
objectives and operating plans.
    We require organizational heads to certify in writing that 
the executives under their leadership are not pending any 
disciplinary actions.
    So this is one of the key points of self-discovery. It is a 
very long process. It takes several months. Things can be 
revealed along the way. We want to make sure that the OIG, that 
medical investigations and so on, has a chance to put their 
input into this process even as those packages are moving 
through the system.
    Two more quick ones: We have instituted mandatory training 
for PRB members. As with any people-oriented process, it is the 
training and the education of those individuals that really 
determines your success, in my view.
    And we work closely with OPM to create a performance 
management training guide for our senior executives that we 
think will be especially helpful.
    So those are some of the examples of the improvements that 
we have made since the 2007 Subcommittee hearing.
    Mr. Mitchell. So, in a sense, you have really standardized 
throughout the VA so that all these bonuses will go through the 
same rigor?
    Mr. Gould. Yes, sir.
    It is a human process, and there are judgments being 
applied there. But to the extent possible, we have multiple 
levels of review now that start with the individual rater who 
sits down and develops a performance plan for the year, meets 
with their employee at the 6-month mark, evaluates them at the 
end, writes a 2-page evaluation.
    That evaluation then goes to a PRB and, ultimately, from 
there, to a department-wide PRB.
    And then it is pretty much across this table. The Chief of 
Staff is going to read it, review it, and evaluate it. We are 
going to get that external input from the OIG that I mentioned. 
I personally will review those. And then the Secretary does so.
    For these 313 senior executives, we have a lot of review, a 
minimum of four levels of review, to make sure that this is 
happening.
    Mr. Mitchell. Very good.
    One last question: Can you discuss the apparent 
disproportion between minorities at the lower-level GS 
positions, compared to the middle and upper management, to 
include the SES positions? And do you have any plans to 
implement or fix this challenge?
    Mr. Gould. Yes, sir. I think probably the best way to 
describe this with respect to diversity in our SES ranks is 
that we have a long way to go. And we are committed as a 
leadership team to make sure that those improvements in 
diversity among our senior execs are made.
    I can tell you a few things that we are doing, and I would 
like to turn to Mr. Sepulveda and get a little bit of a better 
sense, a fuller sense, for you and this Committee about what we 
are doing.
    But at all levels, we are trying to first make sure that 
our current SESs have included in their performance evaluations 
a focus on diversity.
    Number two, at the middle level we are trying to develop, 
and we have created, SES development programs that reach down 
to 14s and 15s and give them an opportunity to participate in 
that, get the special schooling, the developmental assignments 
that will help them get into the SES.
    And then, finally, reaching deep down into how we recruit, 
targeted outreach to various communities, colleges, and 
universities and so on, all with a long-term goal of making 
communities aware of the opportunity for service at the VA and 
then development.
    And perhaps Mr. Sepulveda could give us some additional 
perspective here.
    Mr. Sepulveda. Thank you, Mr. Chairman.
    Diversity is a high priority for this administration, and 
certainly that is something that we have been working on 
internally in terms of not only developing VA's first strategic 
plan focused on diversity, but as the Deputy Secretary 
mentioned making sure that diversity is something against which 
SESers are managed and evaluated on.
    The reality is that if we don't have our senior executives 
focused on diversity in terms of the development of their 
staff--doing the kind of outreach that is necessary, the kind 
of training--then we won't develop the pipeline that ultimately 
feeds into increasing the numbers of SES at the VA level. As 
the Deputy Secretary said, we have a ways to go.
    The good thing to mention is that VA's record in terms of 
diversity, I think, is a good one. In terms of African American 
representation, the VA is about close to 24 percent and 
Hispanic, 6.5 percent; Asian American, Pacific Islander, about 
7 percent. But the reality is that that doesn't translate into 
better levels of representation at the SES level, and we 
recognize that.
    That is why the candidate development program that the 
Deputy Secretary mentioned is a great opportunity to get those 
folks that are in the pipeline into the kind of training, 
because once they have completed that program--that is a 12 to 
24-month program, very vigorous--once they've completed that 
program and they're qualified by OPM, they can be appointed 
noncompetitively into an SES position.
    So we're looking forward to working on that. And I can 
assure you, sir, I have been a longstanding advocate and 
champion for diversity, and that is something I am going to be 
focusing on during my tenure as Assistant Secretary.
    Mr. Mitchell. Dr. Roe.
    Mr. Roe. Are you having difficulty, Mr. Secretary, on 
retaining good people? And basically are these bonuses 
retention bonuses, or is it just to reward, you know, obviously 
excellent service. Which would it be, or is it both?
    Mr. Gould. It is for the purpose of encouraging excellence 
among our senior executives. We do not use it as a tool for 
retention nor as a tool to establish pay equity with the 
private sector. So it is exclusively focused on encouraging 
excellence.
    Mr. Roe. Here is a question. I come at it from this, not 
from the public sector, but the private. It says in your 
testimony, the VA prudently used our financial resources in 
2008 by reducing the maximum pay adjustment percentage for 
senior executives who were rated fully successful from 5 to 3.
    That looks to me like a COLA that you're giving, a 3-
percent increase, and actually from 7 to 6. And this--I guess 
we talked about this beforehand. Did all of the employees get a 
3 percent, or did all employees at the VA get a ``go,'' if they 
were excellent, from a 7 percent to a 6 percent? And this was 
in 2008 when we were shedding jobs like a dog shedding hair. It 
was difficult. I know in the city where I was Mayor, nobody got 
a raise this year, and a lot of people's pay went down. They 
were really glad just to hang onto their job. I know these are 
313 very, very good people, but did this filter through the 
other 290,000 VA employees?
    Mr. Gould. Well, sir, a couple of points, first being this 
is not a COLA. And as you know, when the law changed in 2004, 
we created a situation for our senior execs where there was no 
automatic pay increase at all. So the base pay adjustments that 
are made through the PRB process are the sole way in which we 
address inflation.
    So unlike our General Schedule employees who do get a COLA 
that is established by government, it kind of works across the 
board, the SES do not.
    And to your second point, sir, about the context of this. I 
loved that expression. That really makes a lot of sense. I 
think all of us have to be sensitive to and aware of the hurt 
that the general community is facing, the economic downturn, 
and they see folks earning money in government or getting 
performance awards, maybe a question gets raised in their mind.
    In our view I believe that this is a time when we need to 
be sensitive about that, and when our Secretary issues his 
guidance to the PRB this year, I am sure that will be a factor 
in his determination of what those limits will be. But it is 
also a time when we need to be encouraging our VA employees 
to--now that these services are needed more than ever--to be 
setting a standard for high quality and excellence, and that is 
what those performance awards are.
    Mr. Roe. I've got counties where the unemployment rate is 
17 percent, and they look at someone getting a $30,000 bonus in 
a 3-year, or a 7-percent increase, a 6-percent increase in 
their salary, it is pretty hard to explain to them.
    Did the folks get bonuses? We have held hearings--the 
Chairman's held--we have been on two hearings on the 
colonoscopies where those particular institutions had 
institutional problems. Were they bonuses? And I know where 
we've been to Detroit where records were shredded. And those 
areas, did those folks get bonuses?
    Mr. Gould. If we have a substantiated OIG investigation or 
a problem there, I would think it unlikely that a person would 
qualify for a bonus, or at least it would diminish, 
dramatically diminish, their opportunity before a PRB.
    Mr. Roe. I'm not asking you today, but I would like to know 
after this whether those folks got bonuses or not.
    Mr. Gould. Dr. Roe, to the best of my understanding, that 
would be a process yet to occur, so that is going to be in the 
future. And I'm just indicating that that would be a factor in 
the PRB process.
    Mr. Roe. The other question I have is in the private 
sector, at least in the city where I was Mayor, what happens to 
the money if you don't spend it? If you feel like that the 
organization is having a tough year--I know that is what we did 
in the city--or our business was having the hard year, what 
happens to the money then? Does it go back? Does it stay there? 
What happens to it?
    Mr. Gould. Sir, that is a great question. It is part of our 
resource for funds under wage and salary. The pool each year is 
created under law. So for the SESs it is a certain percentage 
of the total payroll. And if it is not used, it would be 
returned for use in the VA to purchase time for additional 
people, or if at the end of the year it was not absorbed, then 
it would roll into what is called a carryover and would be 
unexpended funds at the end of the year and would be available 
for use in the following year.
    Mr. Roe. So you could keep it. Leaving it in the city, it 
would go to a fund balance, or in your business you would use 
it as capital in investments. So you could actually hire other 
personnel if you didn't use that money; is that correct?
    Mr. Gould. That is correct.
    Mr. Mitchell. Thank you.
    Mr. Hall.
    Mr. Hall. Deputy Secretary Gould, thank you for your 
testimony and work on behalf of your veterans.
    Do you see a problem, sir, with Members of the SES at the 
VBA receiving bonuses at a time when the claims backlog 
continues to rise?
    Mr. Gould. Sure. SES performance awards are now tied to 
organizational performance. It is specifically a part of our 
PRB review process. So for those individuals who were tied 
exclusively to that problem, that would be a factor in 
determining whether or not they should receive a performance 
award for the year.
    But, sir, I do want to point out, it is easy to kind of 
lump everybody together, and, you know, there are probably five 
big business units there. So if you put somebody who runs our 
loan guarantee or our insurance operation at the SES level, 
which has spectacular customer service, customer satisfaction 
rates, and you lump them in there with that, then you can see 
in that PRB process you wouldn't want to do that because they 
don't actually influence that backlog.
    So the PRB's job is to integrate organizational performance 
and make sure that it really is focused on that particular 
individual. They have control over the outcome.
    Mr. Hall. Right. I understand it. That makes sense. I agree 
with that. At the same time, VBA, last we heard, was 
considering a claim to be backlogged when it was over 125 days 
and still not resolved. I personally think that is a long time 
before you start considering a backlog, given the returning 
veterans that we have from the conflicts in Afghanistan and 
Iraq and the homelessness, the suicide rate, the divorce and 
the bankruptcy rates that we're seeing among the veterans 
community.
    So I just was wondering if you could quantify that or be 
more specific with us about what constitutes performance that 
justifies a bonus in those instances, not for people who are 
dealing with loans or educational benefits, but specifically 
with the claims process.
    Mr. Gould. Thank you for that question.
    And Secretary Shinseki and I and this leadership team are 
focused on directing that backlog issue. It is serious. We need 
to address it. And as you know, we have a major initiative 
under way to use new business processes and technology to go 
after that.
    As I'm sure that you're also aware there are a certain 
minimum days required where the VA literally has to hold and 
wait for our veteran to give them adequate time. That element 
of due process adds to what I would regard as an overly long 
process that we absolutely must reduce, and we're focused on 
making that happen.
    You asked for some examples of what might actually 
constitute a positive result for a performance award. I've got 
a couple that may be helpful. For example, this came out of 
last year's batch. We had a senior exec to improve the regional 
office claims processing productivity by 77 percent and met up 
to 95 percent of the office's goals.
    So if you look at the distribution of performance among the 
regional offices where these claims are being processed, you 
will actually see some that are much, much more successful than 
others at this. Now, the average is too slow and too long, but 
there are some exemplars there, like this person, who received 
a performance award, and I would feel good about signing off on 
that and recommending that to the Secretary.
    Mr. Hall. Thank you. I feel good about your saying that, 
and I would be happy to stand there and shake the person's hand 
for that big of an improvement in a year in any regional office 
or any department.
    Are there PRB boards that help determine bonuses for those 
who are not in SES?
    Mr. Gould. Sir, will you repeat the question, please?
    Mr. Hall. Are there PRB boards or similar boards that 
determine who qualifies for a bonus for those not in the SES, 
or is that simply done by you and the other top executives at 
VA?
    Mr. Gould. Let me ask Mr. Hensley to respond to that 
question for you. I don't have the information personally.
    Mr. Hensley. Congressman, just to comment on the fact that 
by law the Performance Review Board process is established by 
law and is responsible for looking at bonus recommendations 
relative to the Senior Executive Corps. Bonus processes or 
performance awards, as we would refer to them as, or for 
General Schedule employees are handled through policy. We have 
policy that guides how that should take place, the level of 
reviews that should be in place before those are awarded, 
before they are processed. So there is no board. It is a 
supervisor's recommendation. There are, again, three levels of 
review after the supervisor signs off in an effort to make sure 
that they are valid and that they move through the process.
    Mr. Hall. Thank you very much for your enlightening us, 
and, Deputy Secretary Gould, thank you. This is the first time, 
I believe, in the time that I've been here that we've heard 
somebody explain specific instances that justify a bonus, and 
that is what we have all been looking for. And I think you're 
moving in the right direction, and I can compliment you on that 
and wish you all of the best in succeeding in that mission.
    I yield back. Thank you, Mr. Chairman.
    Mr. Mitchell. Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman, and Deputy Secretary and 
your staff here today. I very much appreciate it.
    As I said earlier, we're all here for the care of our 
veterans. Many of you sitting at that table are veterans 
yourselves and should understand this issue very well, and I'm 
very appreciative of that; also understanding that each of you 
have--I wish people would look at this--our SES folks.
    Mr. Hensley, for example, I wish they would look at your 
resume and see the type of quality of people we're getting and 
understand where--this retaining you folks is critically 
important.
    And, Mr. Gould, yourself coming from IBM and choosing to 
serve our veterans, I think it is very important.
    So the issue, we're all in it together to use those 
precious resources, which I think many of us up here now feel 
are finally reaching adequate levels. My fear, as always, 
though, if we fully fund and misuse that money, it is going to 
set us back a long, long ways. And that is why we have to be 
very, very focused on this.
    I think you answered many of the questions I was looking 
at, and I would agree with Mr. Hall on this, his question. Mr. 
Hensley was very good about that procedure. I said myself in my 
experience I think it worked very fairly in that sector as in 
my private-sector jobs where there were clear-cut criteria, 
there was midyear evaluations, there were metrics to be 
measured to see if I got there, and it was put out accordingly. 
I think that is a great tool.
    We would like to think that everybody is going to do their 
very best regardless of that, but we know that market of 
incentives can boost folks up. So I am very curious about that.
    My biggest concerns, and the ones that I am going to focus 
on, I think, here, are on the nepotism and the minority hiring 
that we're trying to get here, a couple of things.
    The first thing I would like--and I know this can all 
happen. You listened to the OIG, Deputy Secretary. You think 
there is a systemic problem here with nepotism and some of the 
oversight, or do you think this is an isolated incident that 
probably isn't happening widespread, just in your evaluation?
    Mr. Gould. First of all, we're all incredibly disappointed 
in the performance here, professionally disturbed, disgusted by 
the behavior here. It is inexcusable.
    We're also, though, arbiters of a process, a due process, a 
fair process. We're going through systematically that process 
now, and I believe that there will be a point in time when 
we're able to report back to you a status on what has happened 
and what the consequences of that are.
    I believe that the OIG did a very thorough job in OI&T. We 
self-initiated an H.R.-led review of other systems inside the 
VA asking the very same question you're posing. We did not get 
any negatives from that, but I think every single leader in the 
organization on down from the Secretary is somehow disturbed by 
this and now is more vigilant as a result. And so you see in 
our process we're about to go through a greater leadership 
commitment and focus to make sure that cannot happen on our 
watch.
    Mr. Walz. Very good.
    Mr. Hensley, I noticed in your past you worked for the 
Center for Minority Veterans, very important position. Could 
you give your evaluation of how we're doing on this in terms 
of--and I know I listened to--the Deputy Secretary, I think, 
gave a good example and talked about what we needed to do to 
increase participation on that. There is a gap, if I'm not 
mistaken, between the entry-level GS position midgrades and the 
SES. Are we moving in the right direction there?
    Mr. Hensley. Yes, sir, we are. As Assistant Secretary 
Sepulveda pointed out, our candidate development program is a 
very solid program, 18-months to 24-month developmental 
program. I'm a graduate of that program. I started in VA--left 
the military on a Friday, started on a Monday morning in the 
Center. Very delighted about what I do for the department, a 
great passion for serving veterans.
    I absolutely believe we're moving in the right direction. 
We're seeing great numbers in terms of the 15 to 14 levels in 
terms of outreach, targeted--outreach in those particular 
areas. I have an opportunity as well to talk to, mentor, coach 
minorities as well in the department.
    So I'm committed to that, as is Assistant Secretary 
Sepulveda. We do have a ways to go. I believe we're on the 
right track.
    Mr. Walz. Thank you very much. I appreciate your 
involvement in this. Again, we're trying to get this right for 
our veterans. We know we share that absolute concern, and I'm 
very appreciative of all of your service.
    And, Mr. Gingrich, as a former artillery man, I hope we 
were speaking loudly enough for you.
    I yield back.
    Mr. Mitchell. Thank you very much. Thank you for the 
service you're doing. I know you've been in about 6 months. But 
I think from what I've heard and what I've read that you're 
headed in the right direction.
    There are an awful lot of people depending on the VA's 
services. Just even in your own testimony, I was looking at the 
statistics about the number of veterans versus the number in 
the medical service. And you had almost 25 million veterans; 
there are only about 8 million that are actually registered. 
And, of course, we're trying to find out why and increase that. 
But those 8 million people, just by my observation, I think 
everybody here, they need this, they need it desperately. And 
those trying to get into it need it.
    So we appreciate all that you are doing to try to make that 
happen, and to get rid of that backlog, and to serve the 
veterans, which so richly deserve it.
    Thank you so much, again, for your testimony, and this 
hearing is adjourned.
    [Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              

        Prepared Statement of Hon. Harry E. Mitchell, Chairman,
              Subcommittee on Oversight and Investigations

    I would like to thank everyone for attending today's Oversight and 
Investigations Subcommittee hearing entitled, Senior Executive Service 
Bonuses and Other Administrative Matters at the U.S. Department of 
Veterans Affairs. Thank you especially to our witnesses for testifying 
today.
    We all know that the Department of Veterans Affairs has some of the 
hardest working, and dedicated employees. However, there are concerns 
about the VA Bonus process and how the VA matches pay to individual and 
organizational performance. For example, in Fiscal Year 2008, the VA's 
performance award pool was almost $4.3 million, including $774,108 for 
just 21 Presidential Rank Awards--with some awards as large as $60,270 
dollars!
    The VA does outstanding work in many areas, but there are some 
areas where improvement is needed. Just this year, this Subcommittee 
has been here, on more than one occasion, questioning the department's 
quality of care, safety standards, and lack of necessary protocols and 
procedures. We are here today to ensure that the VA is making sure that 
its bonuses and awards closely match levels of performance, not just 
individually, but organizationally.
    Members of Congress on both sides have expressed frustration over 
this issue, especially in the wake of recent reports suggesting that 
bonuses were not appropriately applied. The bonus system must allocate 
responsibility where it lies. It must also be used to adequately retain 
the best personnel available and to encourage excellence in 
performance.
    The reason we are here today, is to help ensure that the bonus 
system is being utilized in the appropriate manner, so that we can tell 
veterans with full confidence that these Senior Executive Service 
personnel are making the VA a better place. And that the VA is serving 
our veterans and being good stewards of American taxpayer dollars.
    The Subcommittee is also here to examine hiring practices and 
minority hiring trends within the department. On August 18, 2009 the VA 
Office of Inspector General released two reports, citing abuse of 
authority, nepotism, improper hiring and improperly administered 
awards. The Subcommittee has concerns over these reports findings, and 
we must ensure that these reports don't point to a potentially bigger 
problem within the department. However, these reports accurately show 
what can happen when the proper procedures go unchecked. I am grateful 
that the VA Office of Inspector General has agreed to come here today 
to talk about their reports and give specific and limited testimony 
into the correct hiring procedures and protocols the VA should utilize. 
Additionally, we would like to look into minority hiring practices, to 
guarantee that the VA is utilizing a fair and equitable hiring system.
    Deputy Secretary Gould, along with Assistant Secretary Sepulveda 
have agreed to come here today to assure the veterans that they have 
safeguards in place to provide effective oversight.
    In closing, I would like to make it clear, that this Committee is 
not here to denigrate the dedicated work of the VA's employees. We have 
no intention of targeting specific employees, and we have no intention 
of questioning whether or not the VA should award bonuses. We are all 
here to do what's right for our veterans, and instill the trust and 
integrity that they should expect from their government. Our goals 
should always be to ensure that they are being served with a system 
reflective of their service and honor.

                                 
      Prepared Statement of Hon. David P. Roe, Ranking Republican
          Member, Subcommittee on Oversight and Investigations

    Thank you Mr. Chairman.
    Last Congress, this Subcommittee held a hearing on the Senior 
Executive Service bonuses, during which then Ranking Member Ginny 
Brown-Waite expressed the frustration of several members on our side of 
the aisle regarding the VA allocation of bonuses to employees possibly 
involved in quality of care issues at various VA medical facilities, as 
well as those involved in providing benefits and processing claims at 
the Veterans Benefits Administration. While she cautioned members to 
tread carefully through this path, we are again here reviewing these 
bonuses and their appropriateness given new reports of alleged 
malfeasance at the department in the Office of Technology and 
Information.
    Our Nation's veterans have fought faithfully for our freedom, and 
deserve to be treated with the utmost respect. They have a right to 
expect their claims to be processed in a timely and appropriate manner; 
they have a right to expect their treatment at VA medical facilities to 
be among the best our country has to offer, and they should expect that 
in all their dealings with the Department of Veterans Affairs, they 
will be treated with the utmost respect and dignity.
    Those in the Senior Executive Service, commonly referred to as SES, 
are typically among the cream of the crop in our Nation's Federal 
employees. These are the leaders of today and tomorrow. To be elevated 
to these positions of responsibility they have completed training 
programs and have dedicated themselves to the service of our country. 
There is no doubt in my mind that the bonuses many of these individuals 
received reflect the value of the service they have provided.
    However, a few of these bonuses appear to be extremely hefty in 
nature. We are in a time of economic hardship. Many of our citizens, 
including veterans, are on the unemployment line, struggling to make 
ends meet. Many folks are tightening their belts to put food on the 
table and clothes on their children's backs. And yet, several of the 
bonuses issued by the department have been in the $30,000 range. This 
is more money than many in our country see in a single year, and from 
what I can tell, this amount is the norm for these individuals and 
considered part of their expected income as opposed to an extra 
incentive for doing exceptional work.
    We need to ensure that VA is allocating these resources wisely. 
While many Americans are unemployed or are taking cuts in salary, and 
cuts in bonuses, we need to ascertain if it is fiscally responsible for 
the VA to issue such high bonus payments? Are the bonuses that are 
being issued by the VA truly deserved, or is it just considered a 
matter of course that these bonuses continue to be awarded? We must 
make certain that the criteria and performance 0.metrics VA is using to 
determine the amount of a bonus issued to an individual in the Senior 
Executive Service continues to be a fair and equitable process.
    Mr. Chairman, these are the questions I would like to ferret out of 
these hearings. I appreciate you bringing the witnesses in today to 
testify, and look forward to hearing them speak. Thank you again and I 
yield back my time.

                                 
                Prepared Statement of Hon. Harry Teague

    Mr. Chairman and Ranking Member, thank you very much for allowing 
me to participate in this hearing today. When I first heard about the 
findings from the Inspector General's report, I sent a letter asking 
Chairman Bob Filner to conduct hearings on these incidents so that we 
could find out what went wrong and take steps to remedy these problems.
    Our constituents expect us to be responsible stewards of their tax 
dollars. They expect us to treat the Federal treasury as a resource 
that belongs to all Americans. When they feel that we haven't done a 
good job of watching over their tax dollars, they let us hear about it 
and every 2 years they can let us know how much they disapprove by 
sending us home.
    But this isn't the case for everyone in the Federal Government. 
Sometimes our resources are expended in ways that are wrong. When that 
happens, it is up to us to exercise out constitutional authority and 
exercise our oversight powers to make sure that officials in the 
Federal bureaucracy are responsible and accountable. When they're not, 
we need to send them home, but more importantly, we need to make sure 
it doesn't happen again.
    That's what I hope we can do here today. It's always easy to let 
someone have it when they've been caught doing something wrong. It's 
easy and quick and we get to score some political points in the short 
run, but it really doesn't help anything in the long run. We need to 
make sure that when we are presented with a problem such as this that 
we are using it as a moment where we can learn from our mistakes and 
take steps to ensure that it isn't repeated.
    We can use this as a way to make sure that our system is run better 
and that we are delivering quality care and benefits to our veterans 
who are the real victims here.
    I hope that's what we can accomplish today. I hope that we can work 
together across party lines to build this system up and not tear it 
down.

                                 
      Prepared Statement of James J. O'Neill, Assistant Inspector
                 General for Investigations, Office of
                 Inspector General, U.S. Department of
                            Veterans Affairs

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to discuss several issues that were the subject of two 
recent Office of Inspector General (OIG) reports, Administrative 
Investigation--Misuse of Position, Abuse of Authority, and Prohibited 
Personnel Practices Office of Information & Technology, Washington, DC, 
and Administrative Investigation--Nepotism, Abuse of Authority, Misuse 
of Position, Improper Hiring, and Improperly Administered Awards, OI&T, 
Washington, DC. I am accompanied by Mr. Joseph G. Sullivan, Jr., Deputy 
Assistant Inspector General for Investigations, and Mr. Michael R. 
Bennett, Attorney Advisor.
    While the reports deal with different VA officials, many of the 
same issues are contained in both reports. In keeping with the 
Subcommittee's instructions, we will discuss the issues related to the 
hiring process and other administrative actions, which include: 
nepotism, misuse of position, prohibited personnel practices, misuse of 
hiring authorities, improper funding of academic degrees, and improper 
administration of awards.

NEPOTISM

    Federal law states that a public official may not appoint, employ, 
promote, advance, or advocate for the appointment, employment, 
promotion, or advancement, in or to a civilian position any person who 
is a relative of the public official. An individual may not be 
appointed, employed, promoted, or advanced in or to a civilian position 
in an agency if such appointment, employment, promotion, or advancement 
has been advocated by a public official, serving in or exercising 
jurisdiction or control over the agency, who is a relative. It further 
states that money shall not be paid from the Treasury as pay to an 
individual appointed, employed, promoted, or advanced in violation of 
this section.
    The Standards of Ethical Conduct for employees of the Executive 
Branch prohibit an employee from using his or her public office for the 
private gain of relatives and prohibits the use of his or her 
Government position or title or any authority associated with his or 
her public office in a manner that is intended to coerce or induce 
another person, including a subordinate, to provide any benefit, 
financial or otherwise to himself, to friends, or to relatives.
    VA policy mandates that the restrictions on the employment of 
relatives apply to all VA employees; that public officials may not 
recommend or refer a relative for consideration by a public official 
standing lower in the chain of command; and that ``extreme care must be 
taken to avoid any possibility of likelihood that the nepotism law may 
be violated in an employment action.'' The policy further requires that 
management officials ``take appropriate actions to avoid situations 
which have the potential for, or appearance of, being a violation of 
nepotism requirements'' and at a minimum, document cases where 
relatives are employed or being considered for employment in the same 
organizational element or chain of command.
    One of the reports details the actions of a former VA official who 
was involved in the hiring of two family members through the Federal 
Career Intern Program (FCIP). In fact, the former VA official advocated 
for the hiring of one family member on two separate occasions for two 
different positions. However, her improper actions were not limited to 
the hiring of the family members but also included hiring friends, 
involving herself in a change of work schedule for her relative, 
checking on the status of a cash award for the family member, and 
authorizing expenditures for graduate courses for family member. This 
former VA official also helped put a family member's application 
package together, and she told a subordinate that the family member was 
qualified for a GS-5 position and submitted arguments and documents in 
an effort to advocate for her assertion that the family member was, in 
fact, qualified. Further, she asked the selecting official to interview 
her family member, and instructed a subordinate, to ``push'' the family 
member's application as an FCIP candidate.
    We found it problematic that the former VA official's relative, 
after being hired as a part-time intern trainee, was able to convert to 
a full-time position working a part-time schedule from a remote 
location over 500 miles away from the relative's managers and duty 
station. We found no plausible rationale supporting any aspect of this 
peculiar arrangement.

Misuse of Position

    The Standards of Ethical Conduct for Employees of the Executive 
Branch state that public service is a public trust; that each employee 
has a responsibility to place loyalty to the Constitution, laws, and 
ethical principles above private gain; and that employees shall 
endeavor to avoid any actions creating the appearance that they are 
violating the law or ethical standards. The Standards also state that 
an employee shall not use his public office for his own private gain or 
for the private gain of friends or persons with whom the employee is 
affiliated in a nongovernmental capacity, and they prohibit an employee 
engaged in a financial transaction from using nonpublic information or 
allowing the improper use of nonpublic information to further his own 
private interest or that of another, whether through advice, 
recommendation, or by unauthorized disclosure. Also, Federal 
Acquisition Regulations state that Government business must be 
conducted in a manner above reproach and with complete impartiality and 
with preferential treatment for none.
    We found that a VA official misused her official position for the 
personal gain of a friend when she told a potential VA contractor that 
they should consider hiring a long time friend of the VA official and 
provided that friend's resume to the contractor. While the contractor 
was never told to hire the friend, the contractor did ask the friend to 
help them put together their proposal and offered her full-time 
employment should VA award them the contract. While there may not have 
been an expressed quid pro quo, the VA official clearly and improperly 
pressured the contractor to hire the friend while the VA official was 
involved in setting up a VA contract.
    We found that the same VA official violated Federal acquisition 
regulations when she shared nonpublic VA procurement information with 
her friend by telling her that VA planned to issue a request for 
proposal, that a certain contractor was a potential vendor, and 
suggested that her friend contact the contractor for employment, 
resulting in a personal gain for her friend. We found it problematic 
that the VA official also shared nonpublic VA information with another 
friend who was not employed by VA or the contractor, and allowed him to 
act as an emissary for a VA procurement. This gave the friend an 
opportunity to exploit the situation for his own personal gain and 
possible employment with the contractor, and it also gave the 
contractor a significant advantage in obtaining a VA contract.
    We found that a former VA official abused her authority and engaged 
in prohibited personnel practices in the hiring of friends when as the 
appointing official she gave preference to her two friends when she 
selected them for positions within the Office of Information & 
Technology (OI&T). In addition, her selection of three other 
individuals constituted pre-selection based on a previous relationship.
    This same former VA official also improperly appointed her two 
friends at rates above the minimum salary. Personnel records contain no 
justification for their appointments at a higher pay rate, and the 
justification memorandum for one friend's higher salary did not comply 
with all the requirements outlined in VA policy. It appeared that these 
appointments at a higher than minimum pay rate were predicated merely 
on the prior existing relationships between the former VA official and 
these individuals, since the documentation justifying the benefit is 
either nonexistent or insufficient.
    We found that an OI&T manager misused his position for the private 
gain of a family member when he helped her obtain employment within 
OI&T by recommending her to the hiring official. This manager was well 
aware that the hiring official was desperate for administrative help, 
and he exploited her need, perceived or otherwise, to the benefit of 
his family member. In addition, he knew that when he recommended his 
relative for the position, separate from the competitive review 
process, he was orchestrating a means for the relative to bypass the 
competitive process for the position. We also concluded that his 
relative's appointment did not comply with merit system principles, was 
made improperly, and his actions led to his relative's appointment to a 
position for which she was not qualified.
    In addition, the same manager misused his public office for the 
private gain of another family member when he advocated to the Austin 
Human Resource staff for her appointment and a higher than minimum 
salary. Furthermore, a former VA official improperly appointed this 
family member non-competitively under the FCIP at a pay rate above the 
minimum salary. We found no documentation to justify the appointment at 
a rate above the minimum.

Prohibited Personnel Practices

    Federal law states that recruitment should be from qualified 
individuals from appropriate sources in an endeavor to achieve a 
workforce from all segments of society, and selection and advancement 
should be determined solely on the basis of relative ability, 
knowledge, and skills, after fair and open competition which assures 
that all receive equal opportunity. This is the essence of hiring based 
on merit. The law further provides that any employee, who has authority 
to take, direct others to take, recommend, or approve any personnel 
action, shall not, with respect to such authority, grant any preference 
or advantage not authorized by law, rule, or regulation to any employee 
or applicant for employment for the purpose of improving or injuring 
the prospects of any particular person for employment, as well as 
knowingly take, recommend, or approve any personnel action if the 
taking of such action would violate a veterans' preference requirement. 
The Merit Systems Protection Board defines an ``abuse of authority'' as 
an arbitrary or capricious exercise of power by a Federal official or 
employee that adversely affects the rights of any person or that 
results in personal gain to preferred other persons.
    We found that a VA official abused her authority and engaged in a 
prohibited personnel practice when she expressed to her subordinates, 
who were also the rating and selecting officials, that her preference 
was for them to hire her friend, giving the friend an advantage over 
other applicants, and when she failed to assure that all applicants 
received an equal opportunity, in particular those with veterans' 
preference. The VA official's efforts to hire her friend as her 
Executive Assistant started when the friend was a contractor employee 
and the VA official began integrating her into government day-to-day 
business. The VA official went to the extent of requesting that a 
position be re-announced so that her friend had an opportunity to 
apply; closed out the certificate because her friend could not be hired 
due to a 10-point veteran blocking her; and then planned to hire her as 
a Supervisory Information Technology (IT) Specialist so that she could 
later laterally move her into an Executive Assistant position.
    Additionally, the VA official expressed to the selecting official, 
that she ``really wanted her friend to come on board,'' and they 
developed a plan to hire the friend into a GS-15 Supervisory IT 
Specialist position under the selecting official's area of 
responsibility. The selecting official selected the friend as the best 
qualified for the position based solely on the VA official's 
recommendation and desire to get the friend ``on board'' into Federal 
service; however an independent review of the applicant packages 
disclosed that the friend was not the best qualified. The friend even 
admitted to us that she did not have the technical skills necessary for 
the position and that it made better sense to put her skills to use as 
an Executive Assistant. Moreover, the VA official did not comply with 
VA policy when she requested that the friend be appointed at a rate 
above the minimum based on her qualifications and private sector 
salary. The VA official's limited justification did not comply with VA 
policy requiring her to provide a description of her recruitment 
efforts, a comparison of the friend's qualifications to the other 
applicants, or the reason for the rate instead of a recruitment 
incentive.
    We found that another VA official abused her authority and engaged 
in prohibited personnel practices when she preselected three other 
individuals for GS-15 positions. The selecting official selected the 
individuals from certificates without taking the required steps to 
determine the best qualified candidate and with a total disregard for 
fair and open competition in violation of merit systems principles.
    We further concluded that three other OI&T employees abused their 
authority and engaged in prohibited personnel practices when they 
knowingly failed to properly process applicant packages for four GS-15 
positions. Four individuals were preselected for positions, false 
spreadsheets were created and backdated, and the preferred candidates 
were listed on top.

Misuse of Hiring Authorities

Federal Career Intern Program

    Executive Order 13162, dated July 6, 2000, authorized the 
establishment of the FCIP to assist agencies in recruiting and 
attracting exceptional individuals with a variety of experiences, 
academic disciplines, and competencies necessary for the effective 
analysis and execution of public programs. Federal regulations provide 
that appointments made under FCIP expire after 2 years; however, civil 
service status may be granted to career interns who successfully 
complete their internships and meet all qualification, suitability, and 
performance requirements. Regulations further state that agencies are 
required to provide the career interns with formal training and 
developmental opportunities to acquire the appropriate agency-
identified competencies needed for conversion to permanent Federal 
employment. The U.S. Office of Personnel Management (OPM) Web site 
states that the benefits to using the FCIP program are that there is no 
requirement to publically announce the positions; it can be used with a 
targeted recruitment program; it provides flexibility in training; and 
that after 2 years, the employee can be noncompetitively converted to a 
permanent appointment.
    VA policy requires that any occupation for which a Career Intern 
Program is established must lend itself to a formal training and 
development component. Components of a program should include, but are 
not limited to, individual development plans, performance standards, 
position descriptions, rotational assignments, specific skills to be 
acquired, etc. Policy further states that H.R. personnel, in 
collaboration with the selecting official/subject matter expert, are 
required to identify appropriate targeted recruitment sources of 
candidates with the appropriate background, skills, or education; and 
develop a career intern formal training and development plan, provided 
one does not already exist elsewhere within VA for the specific career. 
Policy also requires H.R. management officers at local facilities to 
ensure a Career Intern Program complies with policy.
    We identified three specific instances of improper appointments to 
Management Analyst, GS-5 positions under FCIP. We found no evidence 
that OI&T established a Career Intern Program for Management Analysts 
or that a formal plan existed for trainees to acquire the appropriate 
agency-identified competencies needed for conversion to permanent 
employment. Given the scope of recruitment activities that took place 
as a result of the 2006 OI&T reorganization efforts and other large 
scale OI&T hiring initiatives, it appears, based on personnel records 
reviewed, that OI&T hiring officials made additional improper 
Management Analyst FCIP appointments and subsequently failed to provide 
the required 2-year formal training program.

Improper Use of Direct-Hire Authority

    Federal law provides agencies with the authority to appoint 
candidates directly to jobs for which OPM determines that there was a 
severe shortage of candidates or a critical hiring need. OPM's Web site 
states that the Direct-Hire Authority (DHA) is an appointment authority 
that enables an agency to hire, after public notice is given, any 
qualified applicant without regard to rules requiring competitive 
rating and ranking, veterans' preference, and ``rule of three'' 
procedures.
    Federal law permits an agency with delegated examining authority to 
use DHA for a permanent or non-permanent position or group of positions 
in the competitive service if OPM determines that there is either a 
severe shortage of candidates or a critical hiring need for such 
positions.
    We identified four people who were appointed for IT Specialist 
positions at the GS-5 level under the DHA. However VA's authority for 
IT Specialists at the GS-5 level expired on June 14, 2004, which was 
prior to their appointments. We notified VA Central Office's Office of 
Human Resources of VA's improper use of the DHA to hire these 
employees. The Director of Central Office Human Resource Service told 
us that she conferred with the Director of Recruitment and Placement 
Policy Service, Office of Human Resources Management, and that she 
verified that VA did not have DHA for any Title 5 positions to include 
IT Specialists at pay grades below GS-9. We referred the improper use 
of DHA to the Acting Assistant Secretary for Human Resource and 
Administration for his immediate review and action.

Improper Funding of Academic Degrees

    The Homeland Security Act of 2002 amended the Government Employee 
Training Act 1958 by expanding an agency's authority to pay or 
reimburse an employee for the costs of academic degree training. VA 
employee development policy promulgates this authority and allows an 
employee to obtain an academic degree at VA expense only when such 
training contributes to: (1) significantly meeting an identified 
agency, administration, or staff office training need that is 
consistent with VA's Strategic Plan; (2) solving an identified agency 
staffing problem; (3) accomplishing goals in VA's Strategic Human 
Capital Management Plan; and (4) a planned, systemic, and coordinated 
program of professional development.
    VA training policy stipulates that VA officials exercising this 
authority must require employees selected to benefit from this 
provision to sign a continued service agreement prior to training. It 
also requires that prior to implementing academic degree training, VA 
officials in implementing offices are to establish a system of records 
and develop written plans and procedures for: (1) accounting of funds 
spent for academic degree training and the number of employees and 
types of programs enrolled in or completed; (2) ensuring competitive 
procedures for selecting employees for academic degree training are 
consistent with the requirements of 5 CFR Sec. 335; (3) ensuring 
educational institutions awarding an academic degree are accredited by 
a nationally recognized body, as recognized by the U.S. Department of 
Education; and (4) certifying how such training will meet VA training 
needs, resolve an identified VA staffing problem, or accomplish a VA 
goal in the VA Strategic Human Capital Management Plan. Finally, VA 
policy provides that employees may take training from non-Government 
sources if the following conditions are met: (1) adequate training is 
not reasonably available by, in, or through a government facility; (2) 
the training is the most practical and least costly to the government; 
and (3) the non-Government facility does not discriminate based on 
race, sex, color, national origin, disability, religion, age, sexual 
orientation, or status as a parent.
    We found six instances where OI&T managers as well as approving 
officials, improperly authorized the expenditure of VA funds to pay for 
academic degrees for OI&T employees. There was no documentation 
whatsoever to connect the academic training to the individuals' VA 
position and justify the training. Furthermore, OI&T managers were 
fiscally irresponsible when they not only authorized $139,330.88 in 
improper degree funding, but also by authorizing graduate degree 
funding at George Washington University (GWU), one of the Nation's most 
expensive private universities. There is no evidence or documentation 
that would justify a GWU program or degree over those at other 
universities in Washington, DC.
    OI&T did not have a program, as required by law, to allow VA to pay 
for academic degrees for its employees. In fact, in order to determine 
how much VA spent on each employee, we had to issue subpoenas to the 
universities in question. We found no existing OI&T system of records 
to account for VA funds spent for academic degree training or for the 
number of employees and types of programs enrolled in or completed. We 
found no documentation indicating that OI&T had a Masters Degree 
Program. We also found no records to reflect that funding was dispersed 
through a competitive process for selecting employees for academic 
degree training, ensuring that the educational institutions awarding an 
academic degree were accredited, or how such training would meet VA 
training needs, resolve an identified VA staffing problem, or 
accomplish a VA goal in the VA Strategic Human Capital Management Plan. 
Further, we found no records to indicate that employees sought their 
training through a government source or from a source that was the 
least costly to the government.

Improper Administration of Awards

    Federal regulations require Federal employees to act impartially 
and to not give preferential treatment to any individual. VA policy 
authorizes awards to recognize individual employees who make 
contributions in support of the mission, organizational goals and 
objectives, and VA's Strategic Plan.
    The September 4, 2007, OI&T Delegation of Authority Memorandum 
delegated award approval authority to the Principal Deputy Assistant 
Secretary (DAS) and various Deputy Assistant Secretaries, Executive 
Directors, VACO Service Line Directors, and Regional Directors, as well 
as first and second line supervisors having the authority to approve 
performance and special contribution awards. Award limits were defined 
by management levels and further defined by individual and group 
amounts. The memorandum did not delegate any authority to approve 
incentive awards to the Director of the Executive Staff. A subsequent 
January 10, 2008, memorandum rescinded the earlier one, and it issued 
new award guidance, including the position, Director of the Executive 
Staff, as an award approving official. Both the 2007 and 2008 memoranda 
identified the Principal Deputy Assistant Secretary and Deputy 
Assistant Secretaries as the only individuals authorized to act as both 
the recommending and approving officials.
    OI&T senior managers recognized that there was an OI&T budgetary 
shortfall, but OI&T managers still spent over $24 million on awards and 
retention bonuses in a 2-year time period while working under a 
deficit. We recognize that OI&T's mass reorganization efforts were the 
major causes of the deficit; however, we found that not all managers 
were fiscally responsible when rewarding employees. One former VA 
official acted as if she was given a blank check book to write 
unlimited monetary awards. We also found that she failed to properly 
administer VA awards policy. Prior to the issuance of the September 
2007 and January 2008 memoranda re-delegating the authority to approve 
awards, the former VA official was not authorized to approve awards; 
however, she improperly approved numerous awards worth thousands of 
dollars. Additionally, she violated awards policy when she signed as 
both the recommending and approving official. Although our 
investigation focused on these specific allegations, we found similar 
violations of the awards policy by other OI&T managers.
    We found four GS-15s who received about $60,000, $73,000, $58,000, 
and $59,000, respectively, over a 2-year period, with some personnel 
files containing insufficient or questionable justification. We found 
that various managers gave a GS-14 about $15,000 within a 9-month time 
period for the same body of work that was part of his primary job 
duties. Further, we identified two GS-5s who received 17 percent of the 
total amount of cash awards given to all GS-5s that year and who 
received awards for time periods that predated their employment. 
Additionally, we found a GS-13 employee who within the first 90 days of 
her employment received a $4,500 performance award from the former VA 
official who said that she did not even remember her.
    A current and former DAS both told us that they were ``stunned'' by 
the total amount of appropriated funds that OI&T spent on awards/
bonuses. Although we did not find that the dollar amounts given to each 
employee violated VA policy, we found that the money spent on many of 
the annual awards we examined were fiscally irresponsible, and in many 
cases, highly questionable.

Conclusion

    In the two reports, we made over 40 recommendations to the 
Assistant Secretary for Information and Technology covering the issues 
discussed in this statement as well as others. He concurred with all of 
our recommendations and said that he would confer with the Office of 
Human Resources and Administration and the Office of General Counsel to 
ensure that appropriate administrative and corrective actions are 
taken. We will follow up in accordance with our policy to ensure that 
the recommendations are fully implemented.
    Mr. Chairman, this concludes my statement and we would be pleased 
to answer any questions that you or other Members of the Subcommittee 
may have on these issues we have presented.

                                 
   Prepared Statement of Hon. W. Scott Gould, Deputy Secretary, U.S. 
                     Department of Veterans Affairs

    Mr. Chairman, Members of the Subcommittee, I am accompanied today 
by John Gingrich, the Chief of Staff, John Sepulveda, the Assistant 
Secretary for Human Resources and Administration, and Willie Hensley 
the Principal Deputy Assistant Secretary for Human Resources and 
Administration.
    I am very pleased at the opportunity to come before you today to 
provide an overview of the Senior Executive Service (SES) performance 
management system for the Department of Veterans Affairs (VA).
    Let me say that in these 7 months, we have observed that, as a 
group, VA's Senior Executives are extremely professional and dedicated. 
They strive every day to deliver the best possible services and medical 
support to our Nation's Veterans. They are dedicated professionals who 
desire to move VA into the 21st Century organization that the President 
has charged Secretary Shinseki with accomplishing.
    Today, and for the near future, there are 23.4 million Veterans in 
this country who have put themselves on the line for our safety and our 
well-being. Currently, 7.8 million Veterans are enrolled in our medical 
services system. In 1997, VA developed and distributed enterprise-wide 
the most comprehensive electronic health record (EHR) system in the 
country, linking our 153 medical centers to their 768 Community Based 
Outpatient Clinics (CBOCs), 232 Veterans Centers, as well as outreach 
and mobile clinics. This EHR, called VistA, makes VA the largest, 
integrated health care provider in the country.
    VA also operates the largest national cemetery system with 130 
cemeteries and the Nation's eighth largest life insurance enterprise 
with $1.3 trillion in coverage. VA is second only to the Pell grant 
Program in providing education benefits, totaling $8 billion annually, 
and we guarantee nearly 1.3 million individual home loans having an 
unpaid balance of $175 billion.
    The scope of services delivered through these complex systems makes 
VA the second largest Federal Department. As such, we require 
sufficient resources and capabilities to address the needs and 
expectations of our Veterans. Employees are our most important 
resource. Our senior executives are directly responsible for the 
success or failure of these systems and programs and meeting our 
obligations to Veterans and their families. In 2008, we had 
approximately 308 career executives and approximately 260,000 
employees--1 executive for every 844 employees--one of the smallest 
executive-to-employee ratios in Federal Government. On a daily basis, 
our senior executives are responsible for demonstrating the highest 
levels of performance to fulfill the department's mission while also 
effectively managing the performance of a large number of subordinates.
    VA operates its performance award system in strict adherence to 
Federal law and the Office of Personnel Management's (OPM) policies and 
procedures in order to ensure accountability, transparency, and the 
integrity of the system.
    With the passage of the National Defense Authorization Act for 
Fiscal Year 2004 (P.L. 108-136), agencies were required to implement a 
new performance-based pay system which established a clear and direct 
linkage between executive performance and pay. The system was created 
based on the premise that, ``equal pay should be provided for work of 
equal value and appropriate incentives and recognition should be 
provided for excellence in performance.''
    The law eliminated the six senior executive pay levels that had 
been used to set pay for over two decades in favor of an open pay 
range. Prior to the passage of this Act, senior executives were 
accustomed to receiving locality pay with annual adjustments and/or 
annual across-the-board pay increases, which were mandated by Executive 
Order. After the implementation of the new system, senior executives 
were no longer afforded locality pay or these adjustments, and they are 
now required to be evaluated and compensated based strictly on their 
performance.
    While the level of responsibility for our senior executives has not 
changed, the vast majority of positions have increased in complexity, 
demands, and scope. Additionally, the manner in which senior executives 
are compensated for the execution of their duties is more transparent, 
centralized, accountable and regulated.
    Federal regulations (5 CFR 430.301) require agencies to establish 
performance management systems that hold senior executives accountable 
for their individual and organizational performance, and to use the 
results of their performance as a basis for pay, awards, development, 
retention, removal, and other personnel decisions. Agencies must 
establish one or more Performance Review Boards (PRBs) to make 
recommendations to the Secretary on the performance of its senior 
executives. The names of each PRB member must be published in the 
Federal Register before he or she can serve on the Board and make 
recommendations to the Secretary. More than one-half of the PRB members 
must be career senior executives.
    Board members make recommendations to the Secretary on performance 
appraisals, ratings, awards and pay adjustments. In accordance with 
Federal regulations [5 CFR 534.405 (c)], performance awards must be at 
least 5 percent but no more than 20 percent of a career senior 
executive's base salary.
    In 2007, 3 years after the new system was implemented, OPM and the 
Government Accountability Office (GAO) conducted an extensive review of 
VA's performance management system, and VA leaders subsequently 
participated in a hearing before this Subcommittee in June 2007.
    Those reviews and that hearing, yielded four recommendations for 
improvements, and established the need for additional consideration of 
three elements of VA's senior executive performance evaluation process. 
The recommendations were:

          Ensure all performance plans focus at least 60 
        percent on achieving measurable results;
          Revise the VA PRB awards determination process to 
        ensure awards are granted based primarily on individual and 
        organizational performance and results achieved. Discussions 
        within the VA PRB should center on measurable results achieved, 
        and the awards scoring form used by the VA PRB (which leads the 
        discussion and scoring) should more clearly focus on results;
          Train new PRB members on the policies and guidance of 
        the SES PRB process and their role on the PRB. All PRB members 
        should receive refresher training annually; and
          Management guidance issued to PRB members regarding 
        how to consider organizational performance when determining 
        ratings and awards should be made clear to all PRB members. A 
        report summarizing organizational performance should be 
        provided to PRB members with instructions on how to use the 
        information in its deliberations.

    The three elements requiring further consideration were:

          Consider during the PRB process, and review by the 
        Secretary, the existence and results of investigations by the 
        VA Inspector General and/or the Office of Medical 
        Investigations;
          Appoint PRB members who are not VA employees; and
          Assess VA SES bonuses in comparison with bonuses 
        awarded at other Federal agencies.

    We have fully implemented all of the recommendations, confirmed 
that the additional three elements are included in our process and made 
our own internal modifications. As a result of the significant 
improvements to our system, OPM and the Office of Management and Budget 
(OMB) have granted full certification of our performance management 
system through July 21, 2010. The criteria for certification are 
outlined in the Code of Federal Regulations, and VA has met every one 
of them. But there is more to be done.
    We are committed to continuously improving our senior executive 
management and further strengthening the linkage between senior 
executive performance and VA strategic goals and operating plans. As we 
begin the process for recertification of our system in January 2010, we 
will be working closely with OPM and OMB staffs to set the highest 
standards of excellence for our management and performance merit 
processes.
    As mentioned previously, in 2008, we had 308 career executives and 
approximately 260,000 employees--one executive for every 844 employees. 
Let me emphasize again that this represents one of the smallest 
executive-to-employee ratios in Federal Government.
    Federal regulations [5 CFR 534.405 (b) (1) (i)] allow agencies to 
establish a performance awards pool using a maximum of 10 percent of 
the aggregate career executive salaries. As stated earlier, the 
individual award must be no less than 5 percent but no more than 20 
percent of the senior executive's base pay. Historically, VA has used 9 
percent--less than the maximum amount allowed. The award pool for 2008 
was 9 percent, or approximately $4.3 million. Overall, VA salaries were 
approximately $10.6 billion. For every $1 million in salaries, VA 
awarded just over $400 in awards in 2008, and a higher percentage (12.7 
percent) of the award pool funds were unspent as compared to the funds 
in 2007.
    VA executed our performance merit process with transparency and 
strict accountability ensuring compliance with guidance from this 
Committee, OPM, GAO, and Federal statute. There remain areas for 
improvement, however, which I will discuss later. The justifications 
for awards and pay adjustments we provided to the Committee a few weeks 
ago are the product of a more strict and rigorous performance 
management process compared to previous years.

          VA places great value on honesty and integrity. Thus, 
        we held executives to a higher standard by factoring in any 
        pending administrative investigations. When allegations were 
        substantiated, the SES did not receive any awards. This was the 
        case for three senior executives in 2008.
          VA ramped up the criteria for performance awards. The 
        statute allows senior executives who are rated at the fully 
        successful level or higher to be considered for performance 
        awards. VA, among a handful of agencies, only considered those 
        senior executives rated at the excellent or outstanding level 
        to be eligible for performance awards. Therefore, senior 
        executives who were fully successful did not receive 
        performance awards last year; this constitutes approximately 11 
        percent of the total senior executive pool. In most instances, 
        newly appointed senior executives during their period of 
        probation are rated at the fully successful level and therefore 
        do not receive performance awards. This results from the fact 
        that new senior executives generally have not had sufficient 
        time to make significant contributions to their organization.
          VA prudently used our financial resources in 2008 by:

                  reducing the maximum pay adjustment 
                percentage allowed for senior executives who were rated 
                at the fully successful from 5 percent to 3 percent, 
                and excellent from 7 percent to 6 percent. Performance 
                awards are one-time payments, but pay adjustments are 
                long-term and factor into an executive's retirement. As 
                a result, our reduction in percentages makes an even 
                greater impact on VA's financial resources than the 
                immediate reductions in award caps.
                  instituting an internal cap on the total 
                performance-based compensation (awards and adjustments) 
                that senior executives could receive in 2008. The total 
                amount for performance awards and pay adjustments was 
                capped at $35,000, with the maximum performance award 
                amount not to exceed $30,000 for any senior executive. 
                By comparison, the statutory limit for the performance 
                award alone was $34,440. By implementing this cap, for 
                example, a senior executive who received a $30,000 
                performance award could receive up to a $5,000 pay 
                adjustment. All of the awards were reviewed and many 
                were adjusted at the PRB level before reaching the 
                Secretary for review and approval.
                  making meaningful distinctions between senior 
                executive positions and responsibilities. VA places 
                senior executives into one of three pay bands. A senior 
                executive's salary is capped at the maximum limit for 
                his or her respective pay band. The maximum salary for 
                an executive is currently $177,000, and approximately 
                34 percent of our senior executives are in the most 
                complex positions that justify being in band one with 
                the potential of earning this amount.

    For 2008 these limitations restricted senior executives to $35,000 
for performance-based pay, which is below the potential performance-
based pay of $60,000 or more.
    In addition, some of our newly appointed senior executives, with 
broader spans of control and greater responsibilities, earn less than 
high level General Schedule employees (i.e., Grade 15 non-executives) 
with less control and responsibility. This occurs because, unlike 
General Schedule employees, senior executives are not eligible for 
across-the-board pay increases, periodic or accelerated step increases, 
or locality pay as mentioned previously.
    VA is very appreciative of the recommendations from the 
Subcommittee, OPM, and GAO. As we have described, these 
recommendations, as well as our internal performance policy guidance, 
have resulted in more accountability for every SES member; enhanced the 
credibility and integrity of our system; and, promoted excellence in 
support of our Nation's Veterans and their families.
    While we are here today to discuss last year's process, I must 
stress we have and plan to take actions that will produce more 
visibility and accountability for the future.
    We are currently preparing for the FY 2009 process by benchmarking 
other Federal agencies for best practices, and drafting end-of-annual 
performance appraisal instructions as well as award and pay adjustment 
guidelines.
    VA will continue to seek guidance from OPM and OMB on ways to 
continuously improve our system through:

          Training;
          Strengthening adherence to OPM's criteria for 
        certification;
          Ensuring fairness and equity for all executives in 
        the performance management process; and
          Linking FY 2010 performance plans to VA operating 
        plans.

    We are adding additional oversight. All senior executive actions 
will be critically reviewed by the Assistant Secretary for Human 
Resources and Administration, who is also the department's Chief Human 
Capital Officer, before being forwarded to the Chief of Staff and 
eventually through the Deputy Secretary to the Secretary for final 
approval. Every Performance Review Board recommendation regarding 
senior executive performance awards and/or pay adjustment 
recommendations is reexamined. As part of that reexamination, every PRB 
recommendation is weighed against measurable organizational results, 
including reports from the Offices of the Inspector General, General 
Counsel, Medical Investigations, Resolution Management and public 
scrutiny.
    The Assistant Secretary for Human Resources and Administration will 
also serve as the Chair of the Performance Review Board to ensure that 
all performance actions are aligned with Federal law and OPM criteria.
    As one last verification, the Secretary has charged the Chief of 
Staff to personally interview all individuals who are recommended for 
senior executive positions in the department prior to approval. This 
ensures consistency across the department in several areas including: 
understanding VA's strategic direction; their responsibility as senior 
executives to successfully perform at the executive level; and the need 
to demonstrate the character and integrity that the public deserves 
from all civil servants.
    We are standing up a Corporate SES Management Office to better 
manage and oversee all SES recruiting, retention, assignments, 
promotions, incentives, and awards to more effectively develop and 
maintain standards for performance of senior leaders throughout VA. The 
Corporate Office will be responsible for implementing leadership 
training and a new certification program for senior executives. The 
program will require senior executives to receive leadership training 
and development and demonstrate that they have the knowledge, skills, 
and abilities to continue to operate at the executive level. VA's 
senior executives will be certified every 3 years.
    The Corporate Office will also be responsible for managing the 
Senior Executive Candidate Development Program, which is a formally 
structured developmental program designed to establish the bench 
strength in our executive talent pool. High performing General Schedule 
employees are chosen for the program through a rigorous selection 
process. From 2008 to 2009, approximately 337 individuals have applied 
to VA's program and 60 were selected. Upon completion of the program 
and certification by OPM, graduates are eligible for noncompetitive 
appointments to senior executive positions. We are committed to using 
the program as an effective tool to increase diversity in the 
leadership ranks and to mirror the diversity across the department. We 
are making progress in this area as approximately 15 percent of the 
program participants for 2008 and 2009 are African American, 3 percent 
are Hispanic, and 2 percent are Pacific Islanders. Overall, 50 percent 
of the participants are female.
    We are also holding our SES' accountable for personal actions. For 
those who do not perform, we take the proper procedures to either 
improve deficiencies or remove the individual from the SES ranks.
    Secretary Shinseki is committed to transforming VA into a ``People-
centric, Results-driven, and Forward-looking'' department. In this 
regard, he will continue to use performance-based pay as a way to 
recognize those executives who make significant contributions to the 
transformation of VA. We will hold every senior executive accountable 
for achieving measurable results. Senior executives who excel, while 
maintaining the highest degree of public trust, confidence, honesty and 
integrity, will be rewarded within the Federal guidelines established.
    Thank you for your time and interest to better serve our Nation's 
Veterans. I look forward to your questions.
                   MATERIAL SUBMITTED FOR THE RECORD
                                     Committee on Veterans' Affairs
                       Subcommittee on Oversight and Investigations
                                                    Washington, DC.
                                                 September 25, 2009
Honorable George J. Opfer
Inspector General
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

    Dear Inspector General Opfer:

    Thank you for the testimony of the James J. O'Neill, Assistant 
Deputy Inspector General for Inspections, Office of Inspector General, 
Joseph G. Sullivan, Jr., Deputy Assistant Inspector General for the 
Office of Investigations, Office of Inspector General, and Michael R. 
Bennett, Attorney Advisor for the Office of Investigations, Office of 
Inspector General, at the U.S. House of Representatives Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations hearing 
that took place on September 23, 2009 on ``Senior Executive Service 
Bonuses and Other Administrative Matters at the U.S. Department of 
Veterans Affairs.''Please provide answers to the following questions by 
COB on Tuesday, November 3, 2009, to Todd Chambers, Legislative 
Assistant to the Subcommittee on Oversight and Investigations.

        1.  There is a concern that many of the allegations made in the 
        two reports detailed in the VA OIG testimony may also be 
        occurring in other offices within the VA. Has the Inspector 
        General received any other hotline reports or allegations of 
        abuse within the scope of hiring and personnel practices at the 
        Department of Veterans Affairs? Are the instances relayed in 
        the reports from August the most egregious you have seen at the 
        department?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers. If you have any 
questions concerning these questions, please contact Subcommittee on 
Oversight and Investigations Majority Staff Director, Martin Herbert, 
at (202) 225-3569 or the Subcommittee Minority Staff Director, Arthur 
Wu, at (202) 225-3527.

            Sincerely,

Harry E. Mitchell
Chairman
                                                       David P. Roe
                                          Ranking Republican Member

    MH/tc

    [An identical letter was sent to Hon. David P. Roe, Ranking 
Republican Member, Subcommittee on Oversight and Investigations, 
Committee on Veterans' Affairs.]
                               __________
                                U.S. Department of Veterans Affairs
                                        Office of Inspector General
                                                    Washington, DC.
                                                   November 2, 2009
Hon. Harry E. Mitchell
Chairman
Subcommittee on Oversight and Investigations
Committee on Veterans' Affairs
U.S. House of Representatives
Washington, DC 20515

    Dear Mr. Chairman:

    This is in response to your September 25, 2009, letter following 
the September 23, 2009, hearing on Senior Executive Service Bonuses and 
Other Administrative Matters at the U.S. Department of Veterans 
Affairs. Enclosed is our response to the additional hearing question. 
This information has also been provided to Congressman David P. Roe, 
Ranking Republican Member, Subcommittee on Oversight and 
Investigations.
    Thank you for your interest in the Department of Veterans Affairs.

            Sincerely,

                                                    GEORGE J. OPFER
                                                  Inspector General

    Enclosure
                               __________
     Questions for the Honorable George J. Opfer Inspector General,
      U.S. Department of Veterans Affairs Before the Subcommittee
     on Oversight and Investigations Committee on Veterans' Affairs
        United States House of Representatives Hearing on Senior
       Executive Service Bonuses and Other Administrative Matters
               at the U.S. Department of Veterans Affairs
    Question 1: There is a concern that many of the allegations made in 
the two reports detailed in the VA Office of Inspector General (OIG) 
testimony may also be occurring in other offices within the VA. Has the 
Inspector General received any other hotline reports or allegations of 
abuse within the scope of hiring and personnel practices at the 
Department of Veterans Affairs? Are the instances relayed in the 
reports from August the most egregious you have seen at the department?

    Response: In the past 2 years, the OIG opened 34 cases alleging 
abuse in hiring and personnel practices. Of the 34 cases opened, 4 were 
substantiated. Details on these cases are available to the Subcommittee 
upon request. Since we issued the reports on the Office of Information 
and Technology in August, we have opened four cases. The instances in 
the August reports are the most egregious that we have seen at VA.
                                 

                                     Committee on Veterans' Affairs
                       Subcommittee on Oversight and Investigations
                                                    Washington, DC.
                                                 September 25, 2009
Honorable Eric K. Shinseki
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

    Dear Secretary Shinseki:

    Thank you for the testimony of the Honorable W. Scott Gould, Deputy 
Secretary, U.S. Department of Veterans Affairs, John Gingrich, Chief of 
Staff, U.S. Department of Veterans Affairs, the Honorable John U. 
Sepulveda, Assistant Secretary for Human Resources and Administration, 
U.S. Department of Veterans Affairs, and Willie Hensley, Principal 
Deputy Assistant Secretary for Human Resources and Administration, U.S. 
Department of Veterans Affairs at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Oversight and 
Investigations hearing that took place on September 23, 2009 on 
``Senior Executive Service Bonuses and Other Administrative Matters at 
the U.S. Department of Veterans Affairs.''
    Please provide answers to the following questions by COB on 
Tuesday, November 3, 2009, to Todd Chambers, Legislative Assistant to 
the Subcommittee on Oversight and Investigations.

        1.   Have any OI&T employees implicated in the OIG report, 
        Administrative Investigation Nepotism, Abuse of Authority, 
        Misuse of Position, Improper Hiring, and Improperly 
        Administered Awards, OI&T, Washington, DC, Report Number 09-
        01123-196 (8/18/2009), recently been promoted?

                a.   If so, has Assistant Secretary Sepulveda been made 
                aware of this promotion?

        2.   Will you commit to do a top down audit throughout the 
        entire VA system to scrutinize whether other overt acts of 
        nepotism exist?

                a.   If so, when can this Subcommittee expect the audit 
                to commence, and when can we expect to read this 
                result?

        3.   The Subcommittee is troubled by the fact that Assistant 
        Secretary Sepulveda does not have direct line authority to the 
        other heads of Human Resources (HR) from the other 
        Administrations within VA. In your opinion, does this 
        organizational structure pose a problem?

                a.   If so, please explain the challenges that the 
                current HR organizational structure poses.
                b.   If not, please defend your position as to why the 
                current HR structure, Assistant Secretary Sepulveda not 
                having direct line authority to other heads of HR 
                system-wide, is adequate.

        4.   How many FTEs does the office of the Assistant Secretary 
        for Human Resources and Administration currently have 
        available?

                a.   Out of these positions, how many are currently 
                filled?
                b.   Do they currently possess the expertise, 
                resources, and support to conduct an audit system-wide 
                of how pervasive nepotism is in VA?

        5.   Regarding minority hiring trends in VA, please articulate 
        the strategic plan you have in place that you will implement to 
        recruit and include more minorities in middle and upper 
        management, and within the Senior Executive Service.

                a.   When will this plan be executed?
                b.   When do you foresee seeing tangible improvements?

        6.   VA-wide, how many minorities currently are SES certified?

                a.   Please list information by percentages; break down 
                by race/ gender, and departments within VA.

        7.   In VA OIG's recent report, Administrative Investigation 
        Nepotism, Abuse of Authority, Misuse of Position, Improper 
        Hiring, and Improperly Administered Awards, OI&T, Washington, 
        DC, Report Number 09-01123-196 (8/18/2009), the IG criticized 
        the Federal Career Intern Program (FCIP). What assurances can 
        you articulate to give this Subcommittee confidence that these 
        programs, as well as others similarly situated, are not being 
        abused?

                a.   What oversight measures do you have in place to 
                ensure that the FCIP and other programs similarly 
                situated are not being abused?
                b.   What oversight improvements will you initiate, if 
                any?

        8.   In the two reports issued in August, there were a total of 
        45 recommendations by the Office of Inspector General. Eleven 
        of these recommendations were expected to be addressed and 
        completed by September 19, 2009; the other thirty-four 
        recommendations were expected to be completed by October 15, 
        2009. Has VA addressed the first eleven recommendations, and is 
        VA on target to address the remaining recommendations on time?
        9.   Federal Regulation [5 CFR 430.301] establishes the 
        guidelines in which an agency is required to establish a 
        performance management system. How many members are normally 
        chosen to sit on the Performance Review Board (PRB) and how 
        many PRB's are selected to advise the Secretary?
        10.  What criteria are given to the board, in order to 
        establish the 5-20 percent performance award?
        11.  If a senior executive meets fully successful criteria but 
        does not perform beyond their executive duties, why is a 
        performance award given?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers. If you have any 
questions concerning these questions, please contact Subcommittee on 
Oversight and Investigations Majority Staff Director, Martin Herbert, 
at (202) 225-3569 or the Subcommittee Minority Staff Director, Arthur 
Wu, at (202) 225-3527.

            Sincerely,

Harry E. Mitchell
Chairman
                                                       David P. Roe
                                          Ranking Republican Member

    MH/tc
                               __________
         DEPARTMENT OF VETERANS AFFAIRS RESPONSE TO ADDITIONAL
       QUESTIONS FROM SEPTEMBER 23, 2009 HEARING, SUBCOMMITTEE ON
   OVERSIGHT AND INVESTIGATIONS, HOUSE COMMITTEE ON VETERANS' AFFAIRS
    Question 1: Have any OI&T employees implicated in the OIG report, 
Administrative Investigation Nepotism, Abuse of Authority, Misuse of 
Position, Improper Hiring, and Improperly Administered Awards, OI&T, 
Washington, DC, Report Number 09-01123-196 (8/18/2009), recently been 
promoted? If so, has Assistant Secretary Sepulveda been made aware of 
this promotion?

    Response: Since the beginning of the investigation, VA has 
carefully reviewed personnel and payroll data and confirmed that no 
employee implicated in this Office of Inspector General (OIG) report 
has been promoted.

    Question 2: Will you commit to do a top down audit throughout the 
entire VA system to scrutinize whether other overt acts of nepotism 
exist? If so, when can this Subcommittee expect the audit to commence, 
and when can we expect to read this result?

    Response: At this time, the Department does not believe that an 
audit is necessary, as this was an unusual, isolated incident 
precipitated by a senior aide to the previous Assistant Secretary. 
There is no evidence or information that suggests that this is a 
widespread problem; in fact, the Department's Human Resources Office 
was already reviewing the Office of Information and Technology's hiring 
practices, including allegations of possible nepotism and other 
prohibited personnel practices, when it was asked by the OIG to provide 
the results of inquiries for review by OIG investigators. VA takes this 
matter seriously and will continue to address any possible prohibited 
personnel actions. We continue to work with field human resources staff 
to train, educate, and inform them of prohibited personnel practices 
and the importance of monitoring and identifying prohibited actions. 
The Department will look at bolstering its human resources oversight 
and compliance program.

    Question 3: The Subcommittee is troubled by the fact that Assistant 
Secretary Sepulveda does not have direct line authority to the other 
heads of Human Resources (HR) from the other Administrations within VA. 
In your opinion, does this organizational structure pose a problem? If 
so, please explain the challenges that the current HR organizational 
structure poses. If not, please defend your position as to why the 
current HR structure, Assistant Secretary Sepulveda not having direct 
line authority to other heads of HR system-wide, is adequate.

    Response: The Department's Office of Human Resources and 
Administration staff coordinate with human resource leaders in each 
Administration and field office to accomplish the human resources goals 
and objectives of the Department. Before considering changing current 
organizational structure, the Department will implement training for 
human resources professionals to create consistency and standardization 
in the application of personnel programs; strengthen its audit and 
compliance review processes; and enhance the working relationships with 
human resources leaders from each of the Administrations. We will 
monitor and assess the effectiveness of these efforts before 
instituting organizational changes or alignments. In addition, the 
Department's present Human Resources program is heavily manual/paper-
based with outdated personnel systems. Ongoing automation initiatives 
will provide integrated human resources systems. Such systems are 
essential to a consolidated, standardized, cost effective human 
resources program.

    Question 4: How many FTEs does the office of the Assistant 
Secretary for Human Resources and Administration currently have 
available? Out of these positions, how many are currently filled? Do 
they currently possess the expertise, resources, and support to conduct 
an audit system-wide of how pervasive nepotism is in VA?

    Response: The Office of Human Resources and Administration is 
currently budgeted for 534 FTE, and the most recent data reflects 522 
positions filled. The audit team within the Office of the Assistant 
Secretary for Human Resources and Administration possesses the 
expertise and experience to conduct audits and review hiring practices. 
While it has the capability to do audits each year, it cannot conduct a 
system-wide audit with existing resources. However, the Department does 
not believe a system-wide audit into nepotism is necessary, as this was 
an unusual, isolated incident precipitated by a senior aide to the 
previous Assistant Secretary.

    Question 5: Regarding minority hiring trends in VA, please 
articulate the strategic plan you have in place that you will implement 
to recruit and include more minorities in middle and upper management, 
and within the Senior Executive Service. When will this plan be 
executed? When do you foresee seeing tangible improvements?

    Response: The VA issued its first 5-year Department-wide Diversity 
and Inclusion Strategic Plan in February of 2009. It is one of the 
first and few such diversity-focused strategic plans in Federal 
Government. The plan contains specific goals, objectives, strategies, 
and performance targets and metrics aimed at eradicating barriers to 
equal opportunity and promoting diversity and inclusion at all levels 
of the VA workforce, including middle and senior management. A 
framework for monitoring the implementation of this Plan was 
incorporated in the VA's Annual EEO Report, required by EEOC Management 
Directive 715. The Department has already taken proactive steps to 
implement these strategies and hold every senior executive accountable 
through a mandatory performance element in all senior executive 
performance plans expressly linked to the Diversity and Inclusion 
Strategic Plan.
    The Department is making steady progress in eliminating potential 
barriers to women and minorities in its workforce. From Fiscal Year 
1999 to Fiscal Year 2009, the on-board representation of minorities 
grew from 36.3 to 38.6 percent, a difference of almost 35,000 
employees. Our analysis showed no statistically significant disparity 
in promotion rates among women and minority groups. Finally, minority 
representation in the leadership ranks grew from 11.7 to 17.8 percent 
over the same 10-year period. To continually improve on our commitment 
to diversity and inclusion, we are developing executive talent in the 
Department through our Senior Executive Service (SES) Candidate 
Development Program. This is a formally structured 18-to-24 month 
program that prepares high performing non-SES employees at the GS-14 
and GS-15 levels for future positions in the SES corps. We also have 
established leadership development programs for the next level in the 
organization to develop a diverse group of employees and prepare them 
to compete for SES positions. We have implemented targeted outreach 
initiatives, and we participate in several internship programs as a way 
to identity potential talent, bring them into the workforce pipeline at 
the lower level, and groom them for potential opportunity in the SES. 
We anticipate measurable improvement in all these areas within 3 years.

    Question 6: VA-wide, how many minorities currently are SES 
certified? Please list information by percentages; break down by race/ 
gender, and departments within VA.

    Response: All of VA's SES are certified. Currently, 10 percent of 
our Senior Executives are Black, 1 percent American Indian, 3 percent 
Asian/Pacific Islander, 2 percent Hispanic, 2 percent identified with 
Nation origins, and 82 percent are White. Please see additional details 
in the attached chart. [The chart has been retained in the Committee 
files.]

    Question 7: In VA OIG's recent report, Administrative Investigation 
Nepotism, Abuse of Authority, Misuse of Position, Improper Hiring, and 
Improperly Administered Awards, OI&T, Washington, DC, Report Number 09-
01123-196 (8/18/2009), the IG criticized the Federal Career Intern 
Program (FCIP). What assurances can you articulate to give this 
Subcommittee confidence that these programs, as well as others 
similarly situated, are not being abused? What oversight measures do 
you have in place to ensure that the FCIP and other programs similarly 
situated are not being abused? What oversight improvements will you 
initiate, if any?

    Response: The Department has established a comprehensive policy 
that covers the Federal Career Intern Program (FCIP), 5 CFR 
Sec. 213.3202(o). The VA policy is explained in VA Handbook 5005, 
Appointments, Part II, Chapter 2. Human resources professionals have 
been reminded of their responsibility to advise management officials on 
the policies and procedures governing FCIP. HR field officials have 
also been tasked to monitor the use of the FCIP and other hiring 
authorities. Currently, compliance with FCIP policies is one of many 
hiring authorities that are reviewed during human resources audits. As 
an oversight improvement, we are looking to bolster the number of 
oversight and compliance reviews conducted annually.

    Question 8: In the two reports issued in August, there were a total 
of 45 recommendations by the Office of Inspector General. Eleven of 
these recommendations were expected to be addressed and completed by 
September 19, 2009; the other thirty-four recommendations were expected 
to be completed by October 15, 2009. Has VA addressed the first eleven 
recommendations, and is VA on target to address the remaining 
recommendations on time?

    Response: An updated response is being sent under separate cover 
due to the sensitivity and confidentiality of the material. [The 
information was received by the Committee staff and will be retained in 
the Committee files.]

    Question 9: Federal Regulation [5 CFR 430.301] establishes the 
guidelines in which an agency is required to establish a performance 
management system. How many members are normally chosen to sit on the 
Performance Review Board (PRB) and how many PRB's are selected to 
advise the Secretary?

    Response: VA has 3 PRBs (Veterans Affairs (VA), Veterans Benefits 
Administration (VBA), and Veterans Health Administration (VHA)). The VA 
PRB (with 11 current members) is the overarching board that provides 
instructions and guidelines to the VBA (8 current members) and VHA PRBs 
(20 current members).

    Question 10: What criteria are given to the board, in order to 
establish the 5-20 percent performance award?

    Response: In accordance with 5 CFR Sec. 534.405(c), a performance 
award may not be less than 5 percent nor more than 20 percent of a 
career senior executive's base pay. Board members receive training on 
performance management which includes balancing organizational results 
against individual accomplishments; a briefing on the Department's 
performance for the fiscal year; and a copy of the performance plan and 
appraisal for each senior executive recommended for an award. Using 
this information, board members make recommendations on the ratings, 
award percentages within statutory limits, and pay adjustments for 
senior executives. Board members cannot participate in discussions 
related to their own ratings, awards, and pay adjustments.

    Question 11: If a senior executive meets fully successful criteria, 
but does not perform beyond their executive duties, why is a 
performance award given?

    Response: Although 5 U.S.C. Sec. 5384 encourages the recognition of 
executives whose performance is at the fully successful level, VA's 
policy restricts performance awards to senior executives who exceed the 
fully successful criteria. Therefore, the Department only considers 
performance awards for those senior executives who have exceeded the 
fully successful criteria by receiving either an Excellent or 
Outstanding rating.

                                 
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