[Senate Hearing 112-507]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-507

                   FOOD SERVICE MANAGEMENT CONTRACTS:
                      ARE CONTRACTORS OVERCHARGING
                            THE GOVERNMENT?

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

                                HEARING

                               before the

              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 5, 2011

                               __________

                   Available via http://www.fdsys.gov

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                        and Governmental Affairs











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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
      Nicholas A. Rossi, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee


              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                       CLAIRE McCASKILL, Chairman
THOMAS R. CARPER, Delaware           ROB PORTMAN, Ohio
MARK L. PRYOR, Arkansas              SUSAN M. COLLINS, Maine
JON TESTER, Montana                  JOHN McCAIN, Arizona
MARK BEGICH, Alaska                  JERRY MORAN, Kansas
                     Margaret Daum, Staff Director
                Brian Callanan, Minority Staff Director
                       Kelsey Stroud, Chief Clerk
















                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator McCaskill............................................     1
Prepared statement:
    Senator McCaskill............................................    21

                               WITNESSES
                       Wednesday, October 5, 2011

Phyllis K. Fong, Inspector General, U.S. Department of 
  Agriculture....................................................     4
John F. Carroll, Assistant Attorney General, Office of the 
  Attorney General of the State of New York......................     6
Charles Tiefer, Professor of Law, University of Baltimore School 
  of Law, and Former Commissioner, Commission on Wartime 
  Contracting in Iraq and Afghanistan............................     7

                     Alphabetical List of Witnesses

Carroll, John F.:
    Testimony....................................................     6
    Prepared statement...........................................    30
Fong, Phyllis K.:
    Testimony....................................................     4
    Prepared statement...........................................    23
Tiefer, Charles:
    Testimony....................................................     7
    Prepared statement...........................................    45

                                APPENDIX

Questions and Responses for the Record from:
    Ms. Fong.....................................................    55
    Mr. Carroll..................................................    59
    Mr. Tiefer...................................................    62

 
    FOOD SERVICE MANAGEMENT CONTRACTS: ARE CONTRACTORS OVERCHARGING
                            THE GOVERNMENT?

                              ----------                              


                       WEDNESDAY, OCTOBER 5, 2011

                                   U.S. Senate,    
          Ad Hoc Subcommittee on Contracting Oversight,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2 p.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. I want to welcome everyone to this 
hearing today. I have an opening statement that I will give.
    I have to say, before I begin this opening statement, 
though, that I am not shocked that this is not a full room. As 
I began to prepare for this hearing today, I began to 
understand the nature of the problem. This is really 
complicated and hard, and it is precisely when something is 
complicated and hard that bad things happen. Today, we seek 
clear direction and transparency because that usually 
translates into better accountability. And I think the lack of 
accountability in this particular area can be traced directly 
to the complexity of this issue.
    So I am really glad that we have the three of you here 
today. This is going to be one of those hearings that I talk 
about a lot in this Subcommittee. That is, this subject matter 
is, as you can tell by the room, not the sexiest in Washington. 
We are not going to have breaking news online about this 
hearing today. But this is important work. This really brings 
``getting into the weeds'' new meaning.
    The irony is, everyone is running around this building 
giving political statements about how we have to bring down the 
spending of the Federal Government. Well, here we have a line 
item in the Federal Government that is north of billions and 
billions and billions of dollars, and yet it is not going to 
garner the attention as some other sexy headline that I am sure 
others are covering as we speak over in the main building.
    So let me give the formal opening statement that has been 
prepared and then we will get to your testimony and questions. 
Unfortunately, and Senator Portman asked me to convey to you 
that he cannot be here today even though he thinks this is a 
terrific subject for this Subcommittee to go at. I think he 
would have liked to have been here to discuss even the 
complexities of this, but he could not, and so he asked me to 
convey that to you and I am happy to do so. He and I are 
working well together on this Subcommittee.
    Today's hearing focuses on how the government buys food. 
Every day, the government provides meals to our soldiers at 
home and overseas, veterans, government employees, and to our 
children through the National School Lunch Program (NSLP). 
Every year, billions of taxpayer dollars are paid to the food 
service contractors who supply the food for dining facilities 
on military ships, bases, and on the battlefield, as well as at 
government buildings, hospitals, and schools.
    When food service contractors buy food for the government 
they get rebates from the manufacturers, suppliers, and 
vendors. In their simplest form, rebates often are based on 
volume purchases that contractors make from food manufacturers 
and distributors. For example, a contractor may order cases of 
cereal from a food manufacturer, for which it will receive a 
rebate in the form of a discounted price or a cash payment from 
the manufacturer.
    In cost reimbursable contracts, the contractor will then 
submit invoices for its food purchases to the contracting 
agency. The problem is that the invoice price may not include 
the rebates received from the manufacturer or the distributor. 
So the agency then pays the full amount of the invoice and the 
contractor pockets the difference. When contractors buy food 
with the taxpayers' money, they should not be able to keep the 
change.
    Recently, reports of fraud and other abuses on food service 
contracts have snowballed. Last July, the New York Attorney 
General's Office announced a $20 million settlement with 
Sodexo, one of the largest food service management contractors 
in the world, regarding allegations that the company failed to 
pass along rebates that it received through its contracts with 
the New York public schools participating in the National 
School Lunch Program.
    In September 2010, the Department of Justice (DOJ) 
announced a $30 million settlement with U.S. Food Service, 
another major contractor, based on allegations that it had 
overcharged the government by inflating food prices on 
contracts with the Defense Department (DOD) and the Veterans 
Administration (VA).
    The Department of Justice also has a major case pending 
against Public Warehousing Company (PWC), now known as Agility, 
based in part on allegations that Public Warehousing Company 
submitted false information, manipulated prices, and 
overcharged the government for food and related services under 
its contract to supply fruit to the military in Iraq.
    This June, the Department of Agriculture's (USDA) Inspector 
General (IG) announced that it would be conducting its third 
audit of food service management contracts in the last decade. 
Both of its previous audits, conducted in 2002 and 2005, found 
serious problems with companies overcharging schools by 
withholding rebates.
    The message that these reports and investigations send is 
clear. We are not doing enough to make sure that the government 
is not getting cheated. With increased scrutiny of rebate 
withholding, contractors have turned to new practices in order 
to avoid passing rebates on to the government or to pad their 
own profits. One such method is to simply call the rebate 
another name, such as ``marketing incentives'' or ``vendor 
consideration.''
    What is more, it seems obvious that the problem is even 
more widespread. For example, some companies have said that 
their accounting practices prevent them from accounting for the 
rebates owed to individual clients. Even if the company is 
giving the government the rebates that may be attributable for 
the individual contract, there is no way for the government to 
recoup the overall rebates that may be attributable to 
discounts based on purchases made by an entire Federal agency 
or the Federal Government overall.
    We are here today to learn from some of the Nation's 
experts on this issue on how contractors can manipulate their 
prices and invoices. We will discuss barriers to effective 
oversight of these contracts, including the complexity of the 
contractors' relationships with their vendors and suppliers and 
the ambiguities in the Federal regulations relating to rebates. 
We will also discuss whether the practices that they have seen 
are exceptions or part of a pattern of fraud in these types of 
contracts across the Federal Government.
    In this time of belt-tightening, we need to be more careful 
than ever to ensure that taxpayer dollars are not being 
wasted--particularly because every dollar that is lost through 
rebate schemes is a dollar that we cannot use to feed our 
soldiers and the children who need nutrition.
    I thank the witnesses for being here today and I look 
forward to their testimony.
    Senator McCaskill. And now let me introduce the witnesses 
and we will begin the testimony.
    It is the custom of this Subcommittee to swear in all 
witnesses that appear before us, so before I do your 
introductions, if you do not mind, I would ask you to stand.
    Do you swear that the testimony you will give before this 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ms. Fong. I do.
    Mr. Carroll. I do.
    Mr. Tiefer. I do.
    Senator McCaskill. Thank you all.
    Phyllis Fong was sworn in as the Inspector General of the 
U.S. Department of Agriculture on December 2, 2002. Prior to 
her appointment at USDA, Ms. Fong served as the Inspector 
General of the U.S. Small Business Administration (SBA) from 
1999 until 2002. Among many other positions of distinction, Ms. 
Fong also served as the Assistant General Counsel for the Legal 
Services Corporation and an attorney with the U.S. Commission 
on Civil Rights. Ms. Fong is also currently serving as Chair of 
the Council of Inspectors General on Integrity and Efficiency.
    John Carroll is an Assistant Attorney General in the 
Criminal Division of the New York's Attorney General, where he 
is leading an investigation of billing and marketing practices 
among food service companies. He is also the Deputy Chief of 
the recently formed Taxpayer Protection Bureau. Mr. Carroll 
specializes in civil and criminal investigations involving 
allegations of public corruption as well as complex corporate 
investigations.
    Charles Tiefer is currently a professor at the Baltimore 
School of Law, where he teaches government contracting and 
legislative process. Professor Tiefer also recently served as a 
Commissioner on the Commission for Wartime Contracting in Iraq 
and Afghanistan, a commission that is very near and dear to my 
heart, and did excellent work.
    By the way, I should tell you, Professor Tiefer, that 
yesterday, Jim Webb and I hosted here at the Capitol one of the 
investigators for the Truman Committee. She was one of the 
first women ever hired in Congress to be an investigator for a 
congressional Committee and she was in charge of investigating 
on the Truman Committee the civilian manpower issues. She was a 
1943 graduate of Vassar--and came to work for the Committee for 
several years. So Senator Webb and I had a chance to visit with 
her. She is anxious to see the report of the Commission, and 
asked us to send her one. She lives in Virginia and is a 
fascinating woman, and if you are interested, I would be glad 
to give you her contact information, because she told some 
great stories about the Truman Committee and the work it did 
and it was terrific.
    Professor Tiefer has also served in both Chambers of 
Congress as Legal Counsel and investigated controversies 
related to Bosnia as well as the Iran Contra Affair.
    We would ask that your testimony be around 5 minutes, but 
take as long as you would like, and we will begin with you, 
Inspector General Fong.

   TESTIMONY OF PHYLLIS K. FONG,\1\ INSPECTOR GENERAL, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Ms. Fong. Thank you, Madam Chairman, for the opportunity to 
testify today about the work that our office has done to help 
improve the Food and Nutrition Service's (FNS) oversight of the 
School Lunch and Breakfast Programs and the relationships with 
food service management companies (FSMC).
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Fong appears in the appendix on 
page 23.
---------------------------------------------------------------------------
    You have my full statement for the Record, so let me just 
highlight the key points.
    In fiscal year (FY) 2010, approximately 43 million children 
participated in the School Lunch and Breakfast Programs, which 
together served an estimated 7.2 billion meals in 14,000 school 
districts around the country involving $12.5 billion in Federal 
funds. Generally, as you note, the food service management 
companies who contract to provide these meals are required to 
pass discounts, rebates, and credits for USDA-donated 
commodities back to the local school food authorities (SFA), 
and those savings can then be used to benefit the students and 
the local school meal programs.
    Over the last 10 years, we have issued several reports 
identifying problems in this program. As you note, in 2002, we 
audited eight food service management companies contracting 
with 65 local authorities in seven States and we found that 
five of those eight companies improperly retained $6 million in 
cost savings that should have been passed on to the local food 
authorities.
    The management companies, who had fixed-rate contracts, 
received $5.8 million in USDA-donated food, but they did not 
credit this amount to their local food authorities' accounts. 
This happened because the FNS requirements on these programs 
were not clear and because some companies revised their 
contracts to allow themselves to retain savings that should 
have gone to the local food authorities.
    The remaining $280,000 involved companies with cost 
reimbursable contracts, and in those situations, the bid 
solicitations would require that rebates and credits be passed 
along to the food authorities. In those situations, the 
companies that won the bids either modified their contracts or 
they ignored the contract requirements.
    So in 2005, we did another audit to take a closer look. We 
looked at one management company that had cost reimbursable 
contracts in 22 States and we found that the company violated 
its contracts with 106 food authorities in eight States by not 
crediting them with discounts, rebates, and other cost savings 
of about $1.3 million.
    Together, when you look at the recommendations that our 
audits made, we recommended that FNS needed to develop specific 
contract terms for State agencies and local authorities to use 
when contracting with food service management companies. We 
felt that the terms should ensure that SFAs benefit from the 
value of the food donated by USDA and also that the SFAs 
benefit from any discounts or rebates that companies received. 
We also recommended that FNS amend its regulations to require 
that these contract terms be included in specific contracts, to 
require that State agencies approve contracts before the local 
districts sign them, and to require State agencies to have the 
local districts enforce the contract provisions. In response to 
our recommendations, FNS revised its regulations in 2007, and 
in 2009 issued updated guidance to the State agencies and local 
authorities.
    The issue of food service management companies improperly 
retaining savings, however, continues to be a concern, and due 
to express concerns that we have received from Congress and 
others, we have decided to initiate a new audit to assess the 
effectiveness of these corrective actions that FNS has 
implemented and to assess the effectiveness of State agency 
action. We will also be looking to see if the food service 
management companies with cost reimbursable contracts are 
passing along the discounts and savings as they should be.
    So, in conclusion, we are committed to working with USDA to 
strengthen this program. We welcome the opportunity to answer 
your questions and appreciate the opportunity to be here today. 
Thank you.
    Senator McCaskill. Thank you, Ms. Fong. Mr. Carroll.

 TESTIMONY OF JOHN F. CARROLL,\1\ ASSISTANT ATTORNEY GENERAL, 
    OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF NEW YORK

    Mr. Carroll. Madam Chairman, please accept the greetings 
and the thanks of Attorney General Eric Schneiderman for taking 
testimony on this important topic, what are known as in the 
industry sometimes as off-invoice rebates. And indeed, Senator 
McCaskill, you raised the issue of transparency and the 
Attorney General believes that is exactly the problem with this 
practice, because it is inherently opaque.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Carroll appears in the appendix 
on page 30.
---------------------------------------------------------------------------
    I am an Assistant Attorney General and the Deputy Chief of 
General Schneiderman's Taxpayer Protection Bureau. Our focus, 
like that of this Subcommittee, is to investigate and prosecute 
allegations of fraud and waste in government contracting.
    The United States and local governments provide millions of 
Americans with meals every day, and as a general proposition, 
individuals who are receiving meals from the government are 
among the most vulnerable. The meals provided by the government 
include through the National School Lunch Program, meals in 
health care facilities, and meals for soldiers in the field.
    The meals are often provided through government contractors 
known in this industry as the food service management 
companies. Typically, such companies assume complete 
operational responsibility for delivering meals in a facility, 
whether in a Marine mess hall or a local elementary school. One 
task delegated to food service companies which contract with 
schools and others to provide this service is the daily task of 
ordering food to make meals for children, hospital patients, 
and soldiers. Food is bought either directly from food 
manufacturers or through distributors. These food vendors pay 
food service management companies millions of dollars to buy 
food from them. These payments are called rebates or, 
tellingly, off-invoice rebates.
    The Attorney General's investigation has identified several 
problems with the system which, in other contexts, has been 
labeled as an unlawful kickback. First, the most obvious 
problem. Many food service contracts, as, Senator, you pointed 
out, are some version of cost-plus arrangements, but rebates 
are most often off-invoice. So, in other words, government 
customers who should be getting credit for rebates have no way 
to actually account for the numbers because the entire rebating 
process takes place behind the scenes, and so they have no way 
to police their contracts.
    But there is a second, almost more important and definitely 
more insidious issue, which is that the rebates create a 
conflict of interest, and our investigation has seen the 
conflict of interest play out in such a way that very often 
food service companies will make food choices driven by the 
chase for rebates, which for some companies can amount to 
hundreds of millions of dollars in income, rather than issues 
of quality or other preferences. So, for example, food service 
companies are more likely to enter into rebating agreements 
with large agribusiness and may thereby forego entering into 
business arrangements with local farmers, which would serve to 
thwart the National School Lunch Program's efforts to create 
farm-to-school efforts.
    So, in conclusion, I am happy to take questions, and once 
again, the Attorney General expresses his gratitude for your 
interest.
    Senator McCaskill. Thank you very much, Mr. Carroll. Mr. 
Tiefer.

TESTIMONY OF CHARLES TIEFER,\1\ PROFESSOR OF LAW, UNIVERSITY OF 
BALTIMORE SCHOOL OF LAW, AND FORMER COMMISSIONER, COMMISSION ON 
          WARTIME CONTRACTING IN IRAQ AND AFGHANISTAN

    Mr. Tiefer. Senator McCaskill and Subcommittee, thank you 
for the opportunity to testify today. I am a Professor of Law, 
as you noted, at the University of Baltimore Law School and the 
author of a case book on Federal Government contracting. For 3 
years, I was Commissioner on the Commission on Wartime 
Contracting in Iraq and Afghanistan. Senator McCaskill, you 
understated what you did for that Commission. You were one of 
the two cosponsors. You created it. You nurtured it. You 
inspired it. And, not least, you never let us forget the spirit 
of Senator Truman and the Truman Committee during World War II. 
That was a very high standard you asked us to measure up to.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Tiefer appears in the appendix on 
page 45.
---------------------------------------------------------------------------
    For the Defense Department operations in the war zone, the 
government purchases the necessary food by its prime vendor 
contract managed by the Defense Logistics Agency (DLA). In 
recent years, massive criminal and civil fraud charges have 
been brought against the food services contractor Public 
Warehousing Company, renamed Agility. The scale of these 
schemes is breathtaking. Public Warehouse Contracting earned 
$8.5 billion in revenue from its Iraq food supply contracts, 
and press accounts have discussed that a settlement of the 
charges would be on the order between $500 million, $600 
million, lawyers said $750 million. Trial has not yet occurred, 
so I will use the word ``alleged,'' as you did, for purposes of 
the criminal case, but that does not prevent DLA or GAO or this 
Subcommittee from taking advantage of what is set forth in the 
indictment to make the necessary repairs in the program so that 
this does not recur.
    In brief, and the pattern is very similar to what my fellow 
witnesses described, the contract is supposed to charge the 
government a delivered price, which is what the suppliers are 
supposed to charge, plus the fee charged by PWC, or the prime 
vendor. And we are talking about, even though this is a wartime 
supply program, United States food. It is easy to parse the 
indictment and see that the bulk of what is being talked about 
is food that--meat, chicken, desserts--are produced in the 
United States, supplied in the United States, from U.S. 
suppliers. And PWC was forbidden to keep rebates or discounts 
from suppliers. Its pricing intended that this be passed along 
to the U.S. Government. But instead, it used its marketing 
muscle to obtain and to keep such discounts, and what made it a 
fraud case, a criminal fraud case, was covering this up by 
false statements.
    I am going to take one of the indictment's examples in a 
little detail. In 2005, I am quoting from the indictment--
``U.S. manufacturer S.L. engaged in discussions with defendant 
PWC.'' This was about discounts. I might say parenthetically, 
the indictment refers to these suppliers with initials, but the 
press and blogs have attributed the initials to well-known food 
suppliers like Sara Lee.
    ``Through the discussions between defendant PWC and S.L. 
about discounts, PWC insisted that the discount be called an 
early payment discount, even though S.L. did not want to use 
that term and suggested any discount offer to PWC be called 
what it was, a marketing allowance, a rebate. Defendant PWC 
insisted the allowance be labeled an early payment discount. 
Ultimately, S.L. agreed to use the label.''
    I could tick off the other U.S. suppliers mentioned in the 
indictment. My statement covers these.
    To me, the allegations in the indictment show--just as Mr. 
Carroll pointed out--that there were conflicts of interest 
here. I would point out that this amounts to corruption, that 
the prime contractor who is engaging in kickbacks makes false 
reports to the government in words, in numbers, and even 
creates an entire false stream of reporting. It corrodes the 
whole system of supply for the government and it develops a 
whole network of suppliers who may, to some extent, be witting 
in this and are willing to comply with the crookedness, to 
cooperate in it.
    I have some suggestions for what can be done about this. I 
think certifications by the prime vendor and declarations of 
what they receive would box them in. It would make it extremely 
easy to prosecute them or have False Claims Act cases qui tam 
brought against them. There is also an extensive study, an 
internal study by DLA which is extremely embarrassed that this 
happened on its watch. It could be helped to remember the 
reforms that it knows it needs to do.
    Thank you, Senator.
    Senator McCaskill. Thank you very much.
    I have a lot of specific questions, and I promise you I 
will not ask all of them, but this is an interesting concept, 
that someone buys a lot of volume from what essentially is a 
broker, a type of middleman, and the middleman service they are 
providing is going to go out and locate the various foods that 
this program needs. But the volume that is necessary is 
dictated by the size of the customer--the fact that it is the 
Federal Government, the military or School Lunch Program or 
whatever. Are they engaging in getting this kind of extra 
padding when they are dealing with potential folks that are not 
the government? Is this like the common practice in this 
industry, that you get an extra padding on the contract because 
you are buying more than one case of Cheerios?
    Mr. Carroll. May I?
    Senator McCaskill. Sure.
    Mr. Carroll. The agreements can run with food distributors, 
between food distributors and food service companies, so, for 
example, not to--just to use the name, just an example, a Cisco 
or U.S. Foods would be examples of distributors, and rebates 
can run between the distributors, like Cisco or U.S. Foods, and 
the Sodexos of the world. Or it can run between a chicken 
wholesaler, a large national chicken wholesaler and the food 
service company. And the agreements are not limited to 
particular customers, the ones that the Attorney General's 
Office has reviewed. They run--so, in other words, the 
agreement could be 25 cents rebate on every case of chicken 
delivered to Sodexo, and so they----
    Senator McCaskill. So it does not matter who is buying it?
    Mr. Carroll. Exactly.
    Senator McCaskill. And is that the excuse they use?
    Mr. Carroll. That is one excuse, that the agreements 
actually have to do with volume across all business lines. So, 
for example, it could be business for the Senate mess hall or 
it could be business for a company, and what the food service 
companies will say is, well, we buy for so many different 
entities, that is why we are entitled to these discounts. But 
the excuse kind of starts to fall apart if you consider that 
the buying power of the United States, based on that, the 
United States would certainly also be entitled to those 
discounts.
    Senator McCaskill. Right. So let me start with you, Ms. 
Fong. What recommendations are still outstanding on your audits 
that were done in 2002 and 2005? I mean, how many findings do 
you have with recommendations that they have not yet 
implemented?
    Ms. Fong. We went back to our audit records in preparation 
for this hearing, and currently, FNS has addressed all of our 
recommendations and has said to us that they have implemented 
all the corrective actions that are necessary. And by redoing 
their regulations that they issued in 2007, they believe that 
they have addressed the specific recommendations we made. Now, 
one of the purposes of our new audit is to actually go out and 
see whether their actions have been effective in dealing with 
the problems that we had seen earlier in the decade.
    Senator McCaskill. They certainly clarified it in 2007.
    Ms. Fong. Yes.
    Senator McCaskill. I mean, no one can say that is ambiguous 
at this point.
    Ms. Fong. That is right.
    Senator McCaskill. Mr. Carroll, for the investigations that 
you have done on the rebate withholding, can you give some 
estimate on the amount of dollars we are talking about in terms 
of what percentage of the overall contract price could you 
attribute to these withheld rebates?
    Mr. Carroll. Generally, the rebate amounts that the food 
service companies receive on particular products--so it could 
be anything from a jar of a particular spice or it could be, as 
I said, a case of chicken--run between 5 and 50 percent of the 
price that is charged to the customer. So, generally, they fall 
on average--in the National School Lunch Program, for example, 
it could be around 10 to 15 percent of the price. But there is 
a lot of variability because, obviously, you are buying very 
different foods to serve in a school program as opposed to a 
corporate dining room.
    Senator McCaskill. When they are asked for the excuse for 
keeping the rebates when they are aware that it is in violation 
of the contracts, do any of you have any--can you articulate 
what their excuse is, even though it appears fairly clear the 
contracts are obviously trying to make sure those rebates are 
passed on to the taxpayers, what is the excuse? Is the excuse 
the accounting issue?
    Mr. Carroll. One issue certainly is the accounting, 
especially for a large multinational corporation. But, the 
response there is the system is kind of designed to be 
complicated. So, in other words, they enter into agreements----
    Senator McCaskill. Right.
    Mr. Carroll [continuing]. To buy things nationwide and that 
involves millions of dollars of payments, and then in order to 
get down to how many cases of Cheerios went to this school and 
how much rebates is that school entitled to, it is a 
complicated exercise, but that is the way the system, in the 
view of the investigation, is intentionally designed. In fact, 
one target I reviewed some accounting records for entered into 
an agreement with its offshore parent in order to further 
obscure rebate flow of where the revenues were going.
    Senator McCaskill. And that could be this no value added 
addition of some company that is there just to be an excuse for 
a place to park the rebate?
    Mr. Carroll. That is right, and actually, the case that we 
settled yesterday involved a relatively smaller regional player 
and about $800,000 in rebates, but we settled the claim for 
$1.6 million based on the False Claims Act damages. They 
entered into what they called marketing agreements, as you 
mentioned, Senator, and we reviewed the marketing agreements 
and the so-called work product that they supposedly delivered 
in exchange for marketing services, and in the view of the 
investigation, at least, the so-called marketing services were 
illusory.
    Senator McCaskill. So they called it marketing services, 
created a company and ran it through there in order to add some 
legitimacy to parking it.
    Mr. Carroll. They created a special department and--
exactly, Senator, to disguise the--because if it was called 
``rebates,'' obviously, it would have had to have been 
returned. But if it is called something else----
    Senator McCaskill. Professor Tiefer, did the Public 
Warehousing Company case--are there rebates involved in all of 
the charges involving them? Is this all similar to what you 
indicated about S.L. and PWC, renaming the rebate an early 
payment bonus?
    Mr. Tiefer. It comes down to a rebate. There were a variety 
of ways that they sort of squeezed a rebate out of the stream 
as it went past them. Another way which is more complicated is 
that out of their fee, the fee they get from the government, 
which is supposed to be all the things they do, including some 
processing and packaging and consolidating, they can do it 
themselves or they can pay a consolidator. That is supposed to 
come out of their fee. But instead, they found ways to throw--
have the suppliers pay for that, add it to what the supplier 
was charging, and so the government--which is not supposed to 
pay for that, it is supposed to be a reduction in what they are 
making--ends up not being a reduction in what they are making. 
So it is a roundabout rebate.
    Senator McCaskill. Right. Was the contract flawed in the 
PWC case? Was there a flaw in the way the contract was drafted? 
I mean, if you could go back and look at the way--I mean, in so 
many of the wartime contracts, I do not need to tell you, we 
said to people, tell us what we need, write the contract, and 
tell us what we need to pay. It was all on the side of the 
contractor to do way too much of the scoping and the actual 
purview of the contract. Were the underlying contracts in the 
PWC case actually flawed?
    Mr. Tiefer. They certainly need improvement. I will say 
this, because when I and a staff team, we talked to DLA, went 
to their center in Philadelphia and delved into it, they said, 
we are not set up to deal with a fraudulent prime vendor. Our 
assumption is we are dealing with people who are honest. And so 
there is a limit to how well you can--they were saying, you can 
deal with outright fraud, people who make false statements, who 
lie about what they are doing.
    With that aside, yes, the contract is designed as a fixed-
price contract which has the least visibility for the Federal 
Government. But because of the way that the charges get added 
together from two different streams, it is not as a practical 
matter fixed price.
    Senator McCaskill. Right.
    Mr. Tiefer. The supplier price can go up and down. Things 
can be hidden in it. Things can be subtracted from it. You can 
move the back door from it. So it is drafted without protecting 
the government.
    Senator McCaskill. So it is called a fixed-price contract, 
but really, it is anything but.
    Mr. Tiefer. I agree. Yes. That is the problem.
    Senator McCaskill. I mean, and so the irony is that they 
are going to tout this fixed-price contract, oh, it is not cost 
plus, it is not cost plus, it is fixed price, but in reality, 
it is fixed price just masquerading when it is really cost 
plus.
    Mr. Tiefer. Yes, and therein lies a big problem in changing 
things. As Mr. Carroll said, the industry out there will say 
that the industry practice is to do things by fixed price and 
we should not impose on them any contract but a fixed price. 
They will fight against visibility of their suppliers on behalf 
of the U.S. Government.
    Senator McCaskill. Yes. Well, we are a big customer. We 
ought to have more leverage. You would think that we could 
bring these guys to their knees if we were tough negotiators, 
but I do not think we have been very tough negotiators, 
obviously, in light of the problems that we are hearing about 
on all of these contracts.
    What kind of contract should we look to? If we were going 
to redo--let us just assume we could wipe the slate clean and 
we were actually going to exert the power that the Federal 
Government has, and we were going to say, this is the way we 
are going to contract to buy food. What input can the three of 
you give me as to how we would design that model?
    Ms. Fong. In the School Lunch Program, as you mentioned, 
the complexity of the relationships between the parties is what 
really comes into play here. One of the issues that the 
Department faces is how can it regulate those kinds of 
contracts between a third party and a local school district, 
and I think where FNS has ended up, after consultations with 
OMB, is that the only way to really reach that is to mandate 
contract clauses that USDA can enforce against the local school 
districts, not necessarily against the food management company. 
And so this is going to be a really interesting review that we 
do to see if those contract provisions are going to do the 
trick. Basically, those provisions would require the food 
service management companies to pass on all rebates and to 
specifically and transparently identify the rebates. A very 
interesting provision, and I think if it works, it will be a 
good model.
    Senator McCaskill. Well, and we will be anxious to see, 
because, obviously, they are trying.
    Ms. Fong. Right.
    Senator McCaskill. So if it has worked, then that is the 
time that we need to migrate it over to Department of Defense 
and to other places in the Federal Government, because 
everybody is buying food.
    Is this issue that they cannot account for the rebates--
obviously, they are keeping track of this stuff internally, 
right? They are making up companies to park it. This sounds 
like an unladylike term that Harry Truman would use that has to 
do with farm animals and bulls. I have a hard time imagining, 
with the complexity of the accounting that has to be embraced 
by this kind of contract model, if this is the norm in the food 
service industry, that they could not easily pull the thread 
and tell us how much the rebates are that they are getting for 
these individual contracts within the Federal Government.
    Mr. Carroll. I can tell you, Senator, that is absolutely 
correct. In fact, a lot of decisions are made--for example, 
employees, food service company employees are evaluated on the 
basis of manager of school or manager of Marine base, how much 
of your purchases are compliant, and compliant means on a list 
of products that generate rebates. So the companies have very 
sophisticated systems to keep track of and collect rebates from 
vendors.
    Senator McCaskill. So they are actually encouraging their 
folks to utilize those contracts that are most rebate-heavy 
internally and they are keeping track of it for purposes of 
judging how well their employees are doing at maximizing their 
profit?
    Mr. Carroll. Absolutely, Senator, and----
    Senator McCaskill. Are they giving bonuses based on this? 
Do you know?
    Mr. Carroll. Well, the personnel evaluations that the 
Attorney General's Office reviewed showed that was a component 
in the form evaluating----
    Senator McCaskill. That makes sense.
    Mr. Carroll [continuing]. So among other factors, I think, 
that it is fair to say that played a role in whether employees 
received bonuses or not. And we also did see e-mail traffic, 
for example, where one locale manager--because the way the 
business works is you take an employee of the food service 
company and they are installed in the school or on the base 
and--or in the hospital and they often wear the school's 
uniform, the facility's uniform, and there is e-mail traffic 
where, for example, one food service company employee was 
writing to headquarters saying, ``I found a great source for 
locally grown tomatoes,'' and the response came back, ``Don't 
do that. That is not where the best rebates are.''
    So to pick up on another issue that Professor Tiefer 
brought out, which is the game that seems to be being played is 
it is changing the name of the revenue flow. So, for example, 
in our most recent subpoena, the length of the definition of 
the word ``rebate'' is, I think, 250 words, because the name 
will change and then, for example, in the National School Lunch 
Program, it calls for rebates to be returned, but it does not 
necessarily say that contingent compensation has to be 
returned.
    Senator McCaskill. Or marketing incentives.
    Mr. Carroll. Or marketing incentives or whatever the 
specific word is, so----
    Senator McCaskill. Or you get a bigger bonus at Christmas 
if you buy more of this stuff.
    Mr. Carroll. Exactly, Senator. So the focus kind of as we 
have evolved and started asking smarter questions is, tell us 
about the revenue flow that is going in what seems to be the 
wrong direction. In other words, if I am buying cases of 
chicken, why is the chicken distributor sending me a check? So 
whatever you call it, you have to tell me what is that flow, 
how much cash is that.
    Senator McCaskill. So on accounting, they can keep track of 
it if it is going to be their money. They just cannot keep 
track of it if it is going to be our money.
    Mr. Carroll. That is correct, Senator.
    Senator McCaskill. And you brought up a point about the 
local tomatoes. One of the things we are struggling with in 
this country is how we hold on to independent producers of food 
in this country. We obviously have--my State, for example, we 
used to have 27,000 feeder pig operations in Missouri. It was 
the largest feeder pig operations in the country in my State. 
Now, I think we are down to about 7,000 or fewer, and that is 
all because they have been bought by or are doing contracts 
solely with the big guys.
    So as I have gotten to know and understand the issue of 
independent producers versus the mega large multinational food 
corporations, it is with a sense of urgency that I realize we 
have to hold on to the ability of independent food producers to 
get a product to market.
    Clearly, this system is not working in their favor, because 
they cannot afford--an independent producer cannot afford to 
pay a quarter on every box of tomatoes, whereas the big guys 
that are dealing with huge, huge volume can. So, I mean, the 
example you gave in that e-mail is a perfect example of how 
local independent farmers are being denied a market in their 
local schools because they cannot compete with the Ciscos of 
the world in terms of the rebate culture. Is that in any way an 
inaccurate summary of the problem?
    Mr. Carroll. I think that is absolutely right, Senator. You 
could have a situation where a grower has--or there could be a 
farm two blocks away from the school that is growing potatoes, 
but the food service company is not going to enter into rebate 
agreements with every little farmer and every little farmer 
does not have the wherewithal to engage in that kind of 
transaction.
    So, for example, we saw one e-mail string where the local 
school manager was saying, we want to buy local apples. It is 
good for the business, it is the right thing to do, et cetera, 
but we do not have a mechanism to collect rebates. Can we 
forego the rebate issue? And then, interestingly, what happens 
is the cost of the apples to buy them locally goes up so that 
the producers can pay the rebate.
    Senator McCaskill. So what they do is they force a price 
increase on the local market so that they can take a piece of 
it?
    Mr. Carroll. I have seen an example, at least one specific 
example, of that.
    Senator McCaskill. If Kirkwood High School said, there is a 
great nursery that has been in Missouri for years and years and 
has amazing peaches and amazing apples. If they said, we want 
to go out and buy from Eckert's or from these other nurseries, 
we want to go buy these, can they not do that? Can they just go 
directly and buy local products, or is it because they are tied 
to the contracts with these big mega in between companies? Do 
you guys know?
    Mr. Carroll. They are allowed to purchase locally and there 
are rules that permit--this is more a USDA issue than my area 
of expertise. They are certainly allowed to buy locally, but as 
I said, it is a choice for the food service company whether 
they buy locally. And just to give the full story, in fairness, 
what the food service companies will say is, well, it is much 
easier for us to police food safety issues, uniformity, make 
sure we are getting what we think we are paying for if it is 
all coming from one giant facility as opposed to if we buy 
locally from a thousand local farms, so that----
    Senator McCaskill. Well, that may be true, but it seems to 
me that would have a lot more credibility if we took the rebate 
issue off the table.
    Mr. Carroll. I would agree, Senator.
    Senator McCaskill. I mean, if, in fact, they were not 
getting the extra plus-up by going to the big guys, then we 
really would, pardon the expression, have an apples-to-apples 
comparison.
    Mr. Carroll. Very fair.
    Senator McCaskill. Yes. OK. Yes.
    Mr. Tiefer. If I can come in on that----
    Senator McCaskill. Yes.
    Mr. Tiefer. Although theoretically it is possible in the 
prime vendor program for the troops in Iraq and Afghanistan to 
buy from a particularly good supplier for whatever reason they 
think that is a good supplier, the actual situation is that 
there are contractors at both ends of the transaction. The 
dining facilities in Afghanistan are run by--it used to be KBR.
    Senator McCaskill. Right.
    Mr. Tiefer. Now it is DynCorps and Fluor.
    Senator McCaskill. Right.
    Mr. Tiefer. They may very well have a subcontractor who 
does the actual running of the dining facility and they just 
sort of coordinate at a higher level. So their subcontractor 
talks to PWC or the other food service, U.S. Food Service, 
Supreme Food Service, or wherever it is. At no point does the 
desire of U.S. Government people to do the right thing even 
come into the conversation.
    Senator McCaskill. Right, because by the time it gets to 
where the rubber meets the road, it is two or three degrees 
removed.
    Mr. Tiefer. Exactly, and it is quite probable that each of 
the two corporations at both ends of the transaction are 
pursuing their interests rather than anything else.
    Senator McCaskill. Right. When you were referring to the 
indictment in your testimony and you talked about S.L., and 
whether it is Sara Lee or whether it is not. If you think about 
the environment in this country as it related to contracting in 
Iraq compared to the attitude in this country around 
contracting in World War II, I think my predecessor, Senator 
Truman, would have an awfully hard time getting his arms around 
how big this problem has become. I think in another year, 
another time, that company would have said, we refuse to change 
the name on this because it appears that maybe you are changing 
the name on it in order to profit more at the expense of men 
and women who are fighting for our country in a foreign land. I 
just do not think that would have been put up with then.
    But now, because everyone is so removed from it and it has 
gotten so complex, they folded under the pressure from PWC and 
did that. I think all of the companies that are allowing 
themselves to be manipulated in order to plus-up these 
contractors should be ashamed of themselves, particularly in 
the context of Iraq and Afghanistan. I think it is really 
inexcusable.
    Why do you think, Professor Tiefer, that we see so often 
that the government keeps doing business with these 
contractors? I mean, it is my understanding, correct me if I am 
wrong, that the government continued to do business with PWC as 
they had a lot of evidence in front of them about this fraud. 
Is that correct, or am I incorrect in those facts?
    Mr. Tiefer. You are, unfortunately, quite correct. PWC not 
only had the giant Iraq food service product, it also was one 
of KBR's major subcontractors on some stuff for the logistics 
contract. So, yes, we had multiple flows of renewing contracts 
going out to them.
    Senator McCaskill. And are we still doing business with 
them?
    Mr. Tiefer. That is a good question.
    Senator McCaskill. We will find out.
    Mr. Tiefer. Let me say, when the indictment came down, this 
was one of the ones where at least--this has not happened in 
all cases--they were suspended and debarred from obtaining new 
contracts. So there certainly was a period of time they could 
not obtain new contracts, and I cannot tell you whether that 
period came to an end of not.
    Senator McCaskill. OK. And that is extraordinary, because I 
cannot tell you how many times in this Subcommittee we have 
talked about the failure to suspend and debar.
    We have talked about the fact that we believe the guidance 
is pretty clear now, Ms. Fong, about FNS. I am aware there is 
at least one legal case that is casting doubt on FNS's ability 
to regulate contracts through the School Lunch Program. Should 
we be concerned now that the regulations that are currently 
written are not enough to hold these contractors in check as 
this case is working its way through the court?
    Ms. Fong. Right. If you are referring to the decision from 
Pennsylvania in 2009, we took a look at that and the rebates 
that were the subject of that case were rebates that had been 
paid between 1992 and 2002, which was under the prior 
regulatory framework----
    Senator McCaskill. I see.
    Ms. Fong [continuing]. Before FNS had the authority in 
place. Our sense is that with the current regulatory framework, 
there should be a way to go after these kinds of situations. 
But we are very happy to work with your staff to flesh out that 
issue a little more.
    Senator McCaskill. OK.
    Professor Tiefer, in your view, do the requirements 
outlined in Part 31 of the Federal Acquisition Regulations 
(FAR) apply to contracts executed under Part 12?
    Mr. Tiefer. They do. I looked into this especially for this 
hearing. These are commercial contracts. That is why we asked 
whether Part 31 about payments applies to the Part, I think it 
is 12 that is for commercial, and there was a holding by the 
GAO. Extraordinarily, it was by PWC itself that protested to 
the GAO that said, we are a commercial company. This is a 
commercial contract. Requirements should not apply to us. That 
is getting in the way of the commercial way that rebates freely 
flow around. And the GAO stomped on that. It is part of a 
continuing stream of rulings that GAO gives about when--what 
concessions you have to make to commercial contracts and when 
you keep government safeguards, and this is one of the 
government safeguards that GAO wanted to keep.
    Someone mentioned to me, though, that the GAO ruling is not 
the end, you can go to the Court of Federal Claims, and that 
issue is pending in the Court of Federal Claims, so there is 
still some ambiguity.
    Senator McCaskill. Since there have been protests with GAO 
and we think those have been resolved appropriately, what, if 
anything, are things specifically that you all can bring to our 
attention today that you think we need to further investigate 
in this very murky area of rebates or marketing incentives, or 
extra juice for the or middleman, whatever you want to call it? 
What other investigations do you think we can be doing from 
this Subcommittee, or what legislative fixes could we do that 
would clarify contracting law as it relates to the ability of 
the Federal Government to enjoy the discounts they get because 
of the amount of volume they are purchasing?
    Mr. Tiefer. If I can put one answer to that, I completely 
agree with Inspector General Fong earlier who said that 
identifying rebates, clearer clauses in the contracts to 
identify all manner of rebates, is necessary, and I thought 
that was a very healthy suggestion.
    I would add that there need to be audit clauses, that we 
need to get the auditors in on this situation. Let me say, if 
someone says to me, why, that is ridiculous, of course, the 
auditor is already in on this, it is a fixed-price contract.
    Senator McCaskill. Right.
    Mr. Tiefer. There are very limited capacities for auditors 
to go in. If you try to put auditors in now, it is quite 
possible that the industry will challenge this and will say, 
look, the audit clause speaks of cost reimbursement contracts, 
time and materials contracts, but it does not say fixed-price 
contracts, so the audit clause does not apply. And that applies 
in spades to the problem of looking at the suppliers, which is 
often necessary. Unless you have a flow-down clause in the main 
contract that says that the auditors can look at the suppliers, 
a Federal auditor shows up, says, who are you, which government 
are you with----
    Senator McCaskill. Right.
    Mr. Tiefer [continuing]. We never heard of you. The United 
States? Are you somewhere around here?
    Senator McCaskill. Right. So that would be something that 
we could actually require. And, by the way, I know this is 
possible to do because in Medicare Part D, they actually 
specified that the government was not allowed to negotiate for 
volume discounts. If I can remember back to legislative 
construction in law school, which I am trying to live every 
day--I think that would mean that there is an assumption that 
the government can always negotiate for volume discounts unless 
they are prohibited from doing so by law, like they are in 
Medicare D. So it seems to me that this is something that we 
need to underline and put an exclamation point on.
    Anything else from anyone about what we can be doing? 
Auditing clauses and identifying the rebates in the contracts. 
Are there other things that you think we need to be doing?
    Mr. Carroll. Well, if there was a mechanism, and I have no 
expertise whatsoever in legislative drafting, but if there was 
a mechanism to move the rebates up so that they appear on 
invoices.
    Senator McCaskill. Transparency.
    Mr. Carroll. Transparency----
    Senator McCaskill. On the invoice.
    Mr. Carroll. Right. And then it is hard to see how anybody 
could have any objection to regulating this, if the question 
is, we just want to know what is going on and then we are 
negotiating on fair territory.
    And one other thing I wanted to pick up on what Professor 
Tiefer raised, and I think you also raised, Senator, is this 
issue of why are companies paying this. In some conversations 
with vendors, the sense is if we do not pay them, we do not get 
access to the markets, and food service companies like the 
large ones have enormous markets. So we may not like paying 
them, but we are going to get shut out if we do not. So I would 
think that you would have some constituency there. It would not 
be a completely one-sided battle. I think that there are a lot 
of entities who would like to eliminate this practice.
    Senator McCaskill. So the vendors would probably be on our 
side?
    Mr. Carroll. I suspect.
    Senator McCaskill. Yes. I bet you that is correct. And I 
know the local independent producers would be.
    Mr. Carroll. Absolutely, Senator.
    Senator McCaskill. Right.
    Ms. Fong. One issue that we would like to put on the table, 
as you mentioned, is suspension and debarment as a remedy. We 
have been trying to give some thought to that, as to whether 
suspension or debarment would be appropriate or available with 
respect to food service management companies. And the sense 
that we have is that the Federal Acquisition Regulation, would 
not allow a procurement debarment for an FSMC because the FSMC 
is not a contractor with the Federal Government and so that is 
a big issue.
    Then the other question is, is there any way--because the 
food----
    Senator McCaskill. But we could fix that legislatively. We 
could say, if the flow of dollars are Federal dollars, then any 
agents that are hired to run programs that are funded through 
Federal dollars must be subject to Federal laws of suspension 
and debarment for failure to perform under the contract. I 
would think we could do that.
    Ms. Fong. I think that would be worth exploring.
    Senator McCaskill. We do an awful lot with putting 
handcuffs on everyone about what they can do and not do if it 
is Federal money. I cannot imagine that we could not do that. 
It seems like, to me, that is much more logical than a lot of 
the handcuffs we have out there right now. So, OK, that is a 
good suggestion.
    Anything else? Inspector General Fong. Mr. Carroll. 
Professor Tiefer.
    Mr. Tiefer. You talked about what investigations could be 
done. Now, you have a lot on your plate, Senator. You look at a 
whole wide array, and I do not know if I want to bog you down 
on this one, but I would think a survey of some of the 
contractors here, whether it is the suppliers or the main 
vendors--Mr. Carroll noted the wide range of discounts 
involved, the percentages involved, and it would be interesting 
to get some sense. They have to answer under oath if they are 
surveyed.
    Senator McCaskill. That is exactly right.
    Mr. Tiefer. Yes.
    Senator McCaskill. I will tell you that the Subcommittee 
intends to submit document requests at the close of this 
hearing to agencies, to Federal agencies and companies with 
food service management contracts. We are going to try to get 
an accounting of the retention of rebates by the contractors 
and an understanding of the policies that are in place at the 
agencies that contract for food service management. We want to 
address through these document requests the potential issues in 
domestic contracting, such as that seen in the New York Schools 
contracts and the problems discussed by DLA. The investigation 
should also hopefully shed some light on service contracts in 
contingency operations, as demonstrated by the Agility case and 
the support for further oversight and transparency.
    I cannot go into details, but I got second-and third-hand 
that there was actually a conversation that was had in 
Afghanistan not too long ago about a potential contract and 
someone mentioned that might not be a good idea because of the 
quote-unquote team, and my name was used. But my name should 
not be used because I think they were referring to the team of 
people who work on this Subcommittee who feel very strongly 
about really shedding the light on contracting abuses in the 
Federal Government and the amount of money that is being wasted 
as a result of those abuses.
    And I want to take this hearing to congratulate the field 
of government auditors on the arrests that were made yesterday, 
the Inspector Generals that worked on that case involving the 
Army Corps of Engineers, an Alaska Native Corporation, and the 
blatant and brazen fraud that was going on between government 
contracting officials and this company involving massive 
kickbacks and massive over-billings to the Army Corps of 
Engineers. That case came about because of people like you, and 
I know what you would do if you had the opportunity right now. 
You would point to your staff and the great work they do, 
because there are thousands of government auditors out there 
that deserve the respect and, frankly, the funding of this 
government because they are really doing the heavy lifting in 
this regard. So congratulations to all the government auditors 
involved in that case and the many others that do not get the 
attention they deserve.
    We will continue down this road. If I could ask that you 
all continue to be cooperative with the staff on this 
investigation, we are going to keep going down this road 
because I think there is real money here. I think there are 
significant dollars that we can save in the purchase of food by 
the Federal Government if we pull this thread all the way to 
its logical conclusion and clean this area up once and for all 
and provide that transparency. It will allow everyone to figure 
out what they are paying for and whether they are getting the 
best deal.
    And please convey to your boss, Mr. Carroll, that we 
appreciated his cooperation with allowing you to come here 
today. I have taken that train back and forth and it is easier 
sometimes than the shuttle. I do not know which you took, but I 
am glad you came here today to help us with this, and we will 
continue to call on you for the expertise you have developed in 
the cases you have worked on.
    I thank all of you for what you have provided here today 
and we will continue to be in contact with you as we continue 
down this path to try to clean this up once and for all. Thank 
you all very much for today.
    [Whereupon, at 3:03 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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