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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

   MANIPULATION AND FRAUD IN THE REPORTING OF VA SMALL BUSINESS GOALS

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

                             JOINT HEARING

                                  with

                        Small Business Committee
       Subcommittee on Investigations, Oversight and Regulations

                               before the

              Subcommittee on Oversight and Investigations

                                 of the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                         TUESDAY, JUNE 23, 2015

                               __________

                           Serial No. 114-27

                               __________

       Printed for the use of the Committee on Veterans' Affairs

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         Available via the World Wide Web: http://www.fdsys.gov
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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

DOUG LAMBORN, Colorado               CORRINE BROWN, Florida, Ranking 
GUS M. BILIRAKIS, Florida, Vice-         Minority Member
    Chairman                         MARK TAKANO, California
DAVID P. ROE, Tennessee              JULIA BROWNLEY, California
DAN BENISHEK, Michigan               DINA TITUS, Nevada
TIM HUELSKAMP, Kansas                RAUL RUIZ, California
MIKE COFFMAN, Colorado               ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio               BETO O'ROURKE, Texas
JACKIE WALORSKI, Indiana             KATHLEEN RICE, New York
RALPH ABRAHAM, Louisiana             TIMOTHY J. WALZ, Minnesota
LEE ZELDIN, New York                 JERRY McNERNEY, California
RYAN COSTELLO, Pennsylvania
AMATA COLEMAN RADEWAGEN, American 
    Samoa
MIKE BOST, Illinois
                       Jon Towers, Staff Director
                Don Phillips, Democratic Staff Director

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION

                    MIKE COFFMAN, Colorado, Chairman

DOUG LAMBORN, Colorado               ANN M. KUSTER, New Hampshire 
DAVID P. ROE, Tennessee                  Ranking Member
DAN BENISHEK, Michigan               BETO O'ROURKE, Texas
TIM HUELSKAMP, Kansas                KATHLEEN RICE, New York
JACKIE WALORSKI, Indiana             TIMOTHY J. WALZ, Minnesota

                      COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman

STEVE KING, Iowa                     NYDIA VELAZQUEZ, New York, Ranking 
BLAINE LUETKEMEYER, Missouri             Member
RICHARD HANNA, New York              YVETTE CLARK, New York
TIM HUELSKAMP, Kansas                JUDY CHU, California
TOM RICE, South Carolina             JANICE HAHN, California
CHRIS GIBSON,New York                DONALD PAYNE, Jr, New Jersey
DAVE BRAT, Virginia                  GRACE MENG, New York
AMATA COLEMAN RADEWAGEN,             BRENDA LAWRENCE, Michigan
    American Samoa                   ALMA ADAMS, North Carolina
STEVE KNIGHT, California             SETH MOULTON, Massachusetts
CARLOS CURBELO, Florida              MARK TAKAI, Hawaii
MIKE BOST, Illinois
CRESENT HARDY, Nevada
                    Kevin Fitzpatrick Staff Director
            Stephen Dennis Deputy Staff Director for Policy
             Jan Oliver Deputy Staff Director for Operation
                      Barry Pineles Chief Counsel
                  Michael Day Minority Staff Director

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

                              ----------                              

                         Tuesday, June 23, 2015

                                                                   Page

Manipulation and Fraud in the Reporting of VA Small Business 
  Goals..........................................................     1

                           OPENING STATEMENTS

Mike Coffman, Chairman...........................................     1
Cresent Hardy, Chairman of Subcommittee on Investigations, 
  Oversight and Regulations......................................     2
Ann Kuster, Ranking Member.......................................     3
Alma Adams, Ranking Member of Investigations, Oversight and 
  Regulations....................................................     4
Nydia Velazquez, Ranking Member of Small Business Committee......     5

                               WITNESSES

Mr. Jan Frye, Deputy Assistant Secretary and Senior Procurement 
  Executive, Office of Acquisition and Logistics, Department of 
  Veterans Affairs...............................................     7
    Prepared Statement...........................................    31
Mr. Thomas J. Leney, Executive Director, Office of Small and 
  Disadvantaged Business Utilization, Department of Veterans 
  Affairs........................................................     9
    Prepared Statement...........................................    33

    Accompanied by:

        Mr. Norbert Doyle, Chief Procurement & Logistics Officer, 
            VHA, Department of Veterans Affairs

Mr. Kevin Youel Page, Deputy Commissioner, Federal Acquisition 
  Service, GSA...................................................    11
    Prepared Statement...........................................    35
Mr. John Shoraka, Associate Administrator, Office of Government 
  Contracting & Business Development, SBA........................    12
    Prepared Statement...........................................    45
 
   MANIPULATION AND FRAUD IN THE REPORTING OF VA SMALL BUSINESS GOALS

                              ----------                              

                         Tuesday, June 23, 2015

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                   Washington, D.C.
    The subcommittees met, pursuant to notice, at 4:01 p.m., in 
Room 334, Cannon House Office Building, Hon. Mike Coffman 
[chairman of the Subcommittee on Oversight and Investigations, 
Committee on Veterans' Affairs] presiding.

           OPENING STATEMENT OF CHAIRMAN MIKE COFFMAN

    Present from Subcommittee on Oversight and Investigations, 
Committee on Veterans' Affairs: Representatives Coffman, Roe, 
Walorski, Kuster, O'Rourke, Rice of New York, and Walz.
    Present from the Subcommittee on Investigations, Oversight 
and Regulations, Committee on Small Business: Representatives 
Hardy, Rice of South Carolina, Knight, Bost, Adams, and 
Velazquez.
    Mr. Coffman. Good afternoon. I'd like to welcome everyone 
to today's joint hearing titled ``Manipulation and Fraud in the 
Reporting of VA Small Business Goals.'' I'm pleased to welcome 
Chairman Cresent Hardy and his fellow members of the 
Subcommittee on Investigations, Oversight and Regulations for 
the House Committee on Small Business for this joint hearing.
    This hearing follows two recent hearings held by this 
subcommittee exposing massive circumvention by VA of the 
Federal Acquisition Regulations and related procurement laws. 
These laws are designed to ensure best value to the government 
and to reduce the risk of waste, fraud, and abuse. The previous 
hearings revealed how VA has incurred billions of dollars of 
unauthorized commitments through its misuse of purchase cards 
for the procurement of goods and services above the 
micropurchase threshold without contracts and through the 
procurement of non-VA care without contracts.
    Due to the persistent failure of VA to enter into necessary 
contracts, VA has not only amassed huge liabilities, it has 
also seriously undermined its compliance with government-wide 
small business goals by grossly exaggerating the data it has 
provided to the Small Business Administration, General Services 
Administration, and the Office of Federal Procurement Policy.
    According to a letter to Secretary McDonald from VA's 
Senior Procurement Executive, Mr. Jan Frye, who will testify 
today, VA officials at the highest levels knew that the data 
was false at the time they submitted it. This incredible 
admission would be shocking but for the fact it concerns the 
VA. Tragically, this is the same Department where senior-level 
managers received bonuses for reporting false patient 
appointment wait times. Moreover, this is the same Department 
where it appears as of this date that only one employee has 
been fired for such shameful conduct.
    Perhaps, given this backdrop, where malfeasance largely 
goes unpunished, it should not be surprising that VA is cooking 
the books regarding its small business performance. Based on 
incorrect data that VA entered into the Federal Procurement 
Database System, FPDS, or more importantly, required data that 
was never entered into FPDS, VA has received an A on the Small 
Business Procurement Scorecard every year reported since fiscal 
year 2011 and has exceeded its goals with regard to service-
disabled veteran-owned small businesses.
    According to Mr. Frye, FPDS data for VA has understated 
this by as much as $6 billion to $10 billion annually, and as a 
result, the percentages stated in VA's Small Business Scorecard 
are absolutely false given the immense inaccuracy of the 
denominator used to calculate them.
    Underreporting of required contract data undermines 
transparency and obscures how billions of taxpayer dollars 
intended for veterans programs may be diverted and squandered 
without any accountability. Business opportunities that should 
normally be reserved for service-disabled veterans are 
jeopardized by false data. By gaming the numbers, VA puts in 
doubt not only its own scorecard, but also the scorecard for 
the entire Federal Government.
    With that, I now recognize Chairman Hardy for his opening 
statement.

    OPENING STATEMENT OF SUBCOMMITTEE CHAIRMAN CRESENT HARDY

    Mr. Hardy. Good afternoon. Thank you, Chairman Coffman, for 
working with us on this important issue.
    In 2007, then Senator Obama said: We should do everything 
we can to ensure the American public can easily access and 
track how the Federal Government does its business, because we 
can't reduce waste, fraud, and abuse without knowing how, 
where, and why the federal money is flowing out of the door.
    I only wish the Department of Veterans Affairs and other 
agencies assembled here today had taken those words to heart. 
Instead, we have a story of fraud, waste, and abuse, and the 
victims are our Nation's veterans and small businesses. Allow 
me to give three examples.
    First, the allegations here today include $6 billion to $10 
billion in VA spending be hidden from public violation of the 
Federal Funding Accountability and Transparency Act of 2006, 
the law the President himself introduced and championed through 
Congress.
    Second, as a candidate for President, Senator Obama 
promised to end the diversion of federal small business 
contracts. However, the allegations are the VA had ignored 
provisions from the Small Business Act to reserve all awards 
under $150,000 for small businesses, instead spent that money 
without even allowing the businesses to compete.
    Third, I read that the government credit cards were abused 
and the transactions were sloppily hand jammed, the 
transactions into the FPDS, attempting to obtain small business 
credit without regard of whether the purchases had been made 
from large or small businesses and without regard for the year 
of obligation.
    The contracts we're discussing are for things like medical 
prosthetics, medical care. If the VA had followed the law, 
small business, including many veteran and service-disabled 
veteran-owned small businesses, would have had an opportunity 
to compete and provide goods and services our veterans so 
desperately need. That competition would have saved money, 
which means more services could have been provided for more 
veterans. Instead, the VA simply ignored the law.
    Today, the committees look to investigate how deep the 
problem runs at the VA and whether it could be similar fraud by 
other agencies. I expect to hear Small Business Administration 
and General Services Administration and the Office of 
Management and Budget are doing to make sure that the agency 
cannot ignore the laws without consequences. And I see that, 
given that the OMB didn't even send a witness today for the 
hearing, I suspect that I'm not going to hear the answers that 
I like.
    Finally, the committee needs to know that the VA employees 
received bonuses based on inflated small business numbers. Our 
veterans and our small businesses demand answers.
    Mr. Chairman, I yield back.
    Mr. Coffman. Thank you, Chairman Hardy.
    I now recognize Ranking Member Kuster for her opening 
statement.

         OPENING STATEMENT OF RANKING MEMBER ANN KUSTER

    Ms. Kuster. Thank you very much, Chairman Coffman and 
Chairman Hardy. And I want to welcome our colleagues, Mr. Rice 
and the Ranking Member, Ms. Velazquez, for joining us today.
    This afternoon marks the third hearing we have held over 
the course of the last number of weeks regarding procurement 
problems at the Department of Veterans Affairs. We have focused 
on the accusations made in a 35-page letter that Mr. Jan Frye, 
VA's Deputy Assistant Secretary and Senior Procurement 
Executive in VA's Office of Acquisition and Logistics, sent to 
Secretary McDonald in March. This letter paints a picture of a 
VA acquisition process where acquisition and procurement 
regulations are routinely ignored.
    Most troubling to me is that this letter highlights a 
problem we see time and time again at the VA: Broken and 
nonexistent processes and systems. These are necessary to 
ensure that policies and requirements are followed. These are 
necessary to provide accurate data with which to judge the 
effectiveness of the VA's efforts. And at the end of the day, 
the lack of objective and realistic data means that managers 
cannot manage and resources cannot be best utilized to provide 
benefits and services for our veterans.
    We must get to the bottom of the allegations we're 
addressing today, VA's misreporting of its contracts with small 
businesses to the Small Business Administration and all of the 
procurement problems that we have been exploring over the past 
month. Our hearings and the hearings we have held over a number 
of Congresses point to a VA that has lost its way, a VA that 
across all programs and departments is failing our veterans.
    This is a systemic failure. The secret waiting lists in 
Phoenix and at VA medical facilities across the country, the 
ensuing patient access crisis, the VA claims and appeals 
backlog, the current budget shortfall, and the VA's inability 
to manage procurement, all of these problems are the result of 
VA's failure to collect, use, and report accurate data.
    Today's issue is no different. The VA will never be able to 
appropriately plan, allocate resources, request necessary 
funding from Congress, and execute its mission without accurate 
data and without the necessary processes, systems, and 
leadership in place to make it happen.
    This systemwide failure did not happen overnight. It has 
been decades in the making. But we're facing the results of 
decades of problems today, and we simply must begin to work on 
addressing these problems. We can no longer slap a band-aid on 
a problem and manage from crisis to crisis.
    So where do we start? What steps must we take today and 
tomorrow and the weeks ahead to fix VA's failure to collect 
accurate data, provide sufficient oversight, hold managers 
accountable, and consistently execute the law? I'm focusing on 
accurate data systems and processes since I believe that these 
are the steps that can be taken to move us forward.
    This is not the end of the reform effort, but merely the 
beginning. The end of a reform effort must result in a VA where 
the issues that we have been addressing this past month and for 
many months and years are the exception and not the rule. That 
reform effort will need the work of all of us, and I, for one, 
cannot wait to begin.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Coffman. Thank you, Ranking Member Kuster.
    I now recognize Ranking Member Adams for her opening 
statement.

      OPENING STATEMENT OF ALMA ADAMS, RANKING MEMBER OF 
           INVESTIGATIONS, OVERSIGHT AND REGULATIONS

    Ms. Adams. Thank you, Mr. Chairman. Thank you for holding 
this important meeting, to our ranking members as well.
    The Veterans Administration has an important role to play 
in fostering small business growth and especially helping 
veteran-owned small businesses succeed. When the VA meets its 
procurement needs by contracting with small businesses, 
veteran-owned firms, minority-owned companies, and other 
disadvantaged businesses, it creates a win-win situation. The 
taxpayer and the agency benefit from high-quality goods and 
services delivered at reasonable prices to the VA, and small 
businesses, especially those owned by veterans, secure a 
valuable customer, allowing them to grow their operations and 
in some cases even add employees to their payrolls.
    Unfortunately, we've seen too often with many agencies that 
fraud, waste, and abuse can interfere with this laudable goal, 
depriving legitimate small businesses of their fair share of 
federal contracts. The House Veterans' Affairs Committee has 
held previous meetings examining how the VA's Purchase Card 
Program has been abused. It's been suggested that the VA has 
committed as much as $5 billion a year in improper and 
unauthorized procurement expenditures for at least the last 5 
years.
    The lack of control that contributed to this mismanagement 
and abuse raise a number of troubling concerns. Certainly, if 
the 
agency is purchasing biologics and medical supplies without 
contracts, there are serious patient safety issues. In 
addition, this lack of transparency means that the VA may 
routinely circumvent the terms of the Federal Acquisition 
Regulations. Many of these purchases may be illegally steered 
to vendors that do not provide the most competitive prices or 
services or may not actually be truly a small business or 
veteran-owned.
    It should be highlighted from the previous work conducted 
by our committee how easily fraud can occur in programs like 
the Service-Disabled Veteran-Owned Small Business Program. 
Working with GAO, the committee found that when proper controls 
are not in place, multinational corporations often pose as 
veteran-owned firms for purposes of securing federal work.
    Likewise, given the previously documented misuse and 
overuse of the Card Purchase Program, there's good reason to 
believe that the VA's small business, veteran-owned, and women-
owned contracting numbers are significantly inflated. 
Procurements that are made without contracts are not included 
in calculations to determine small business goals that were set 
in statute by Congress. In other words, because of the practice 
of avoiding standard regulations, the very agency charged with 
assisting veterans may well be shortchanging not only small 
businesses, but veteran-owned small businesses.
    Mr. Chairman, our two committees both have a responsibility 
to watch out for two groups, both of which have made our Nation 
great, small businesses and veterans. When there's waste, 
fraud, and abuse at any agency, as come to light here, groups 
like these are often the ones who suffer most. It's my hope 
that by working together we can exercise vigorous oversight and 
determine the extent of the problem and move forward with any 
necessary reforms.
    I thank the witnesses for being here this afternoon, and I 
look forward to your testimony.
    I yield back, Mr. Chairman.
    Mr. Coffman. Thank you, Ranking Member Adams.

OPENING STATEMENT OF RANKING MEMBER MS. NYDIA Velazquez OF THE 
                    SMALL BUSINESS COMMITTEE

    I now recognize Small Business Committee Ranking Member 
Velazquez, who has joined us today on the dais, for any opening 
remarks she may have.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman and 
Ranking Members of respective subcommittees.
    It is clear that entrepreneurship is a critical path 
forward for our Nation's veterans. In fact, according to the 
SBA, there is about 1 veteran-owned firm for every 10 veterans, 
and veteran-owned firms employ 5.8 million individuals. Another 
study found that military service exhibits one of the largest 
effects on self-employment, and veterans are 45 percent more 
likely to be self-employed than nonveterans. When taken 
together, it is not hard to see that veteran-owned small 
businesses are an important and growing part of our economy.
    One way that these companies can become successful is 
through working with the U.S. Government, which buys nearly 
$500 billion in goods and services annually. The Department of 
Veterans Affairs is a large part of this equation, awarding the 
second-highest amount to small businesses, much of which are 
veteran-owned, behind only the Department of Defense. In 2013, 
the agency awarded $6.6 billion to small businesses, which 
amounted to nearly 40 percent of its contracting dollars.
    Unfortunately, these numbers have been called into question 
due to allegations of fraud, waste, and abuse at the VA. Such 
accusations suggest that the agency failed to use legally 
required contracts, did not adhere to small business set-aside 
requirements, and misused GSA schedules. In the end, we do not 
know what the total value of small business contracts at the VA 
is, but estimates suggest that small businesses lost out on 
between $2.8 billion and $3.7 billion in contracts.
    If this is true, this is a failure not just of the VA, but 
of the acquisition system more broadly. Time and time again we 
are presented with similar allegations in which opportunities 
were 
improperly diverted away from those that they were intended to 
reach. The truth is that we need more oversight, a better 
trained acquisition workforce, and legislative reforms that 
make these types of actions less likely.
    For the small businesses, veteran-owned or otherwise, that 
play by the rules, it is critical that we begin to clean up 
this mess, whether it is at the VA or elsewhere. Doing so will 
help all small businesses better compete for opportunities with 
the Federal 
Government, and that is something I hope we can all agree on.
    I want to thank all the witnesses for appearing here today, 
and I look forward to your testimony.
    Thank you, Mr. Chairman.
    Mr. Coffman. Thank you, Ranking Member Velazquez.
    I ask all members waive their opening remarks as per the 
committee's custom. Without objection, so ordered.
    Seated at the witness table, we welcome Mr. Kevin Youel 
Page, Deputy Commissioner for the Federal Acquisition Service 
of the General Services Administration, and Mr. John Shoraka, 
Associate Administrator of the Office of Government Contracting 
and Business Development for the Small Business Administration.
    For the Department of Veterans Affairs, we will hear from 
Mr. Thomas Leney, Executive Director of VA's Office of Small 
Business and Disadvantaged Business Utilization. He is 
accompanied by Mr. Norbert Doyle. Norbert Doyle, Chief 
Procurement and Logistics 
Officer for the Veterans Health Administration. We will also 
hear separately from Mr. Jan Frye, Deputy Assistant Secretary 
and Senior Procurement Executive for VA's Office of Acquisition 
and Logistics.
    I note that we also invited the Honorable Mrs. Anne Rung, 
Administrator of the Office of Federal Procurement Policy of 
the Office of Management and Budget. It is disappointing that 
she is not here. It is no wonder that federal procurement is in 
disarray when the head of the office in charge of policy runs 
from responsibility and fails to provide necessary oversight 
and transparency.
    I now ask the witnesses to please stand and raise your 
right hand.
    [Witnesses sworn.]
    Mr. Coffman. Please be seated. All of your complete written 
statements will be made part of the hearing record.
    Mr. Frye, you are now recognized for 5 minutes.

                     STATEMENT OF JAN FRYE

    Mr. Frye. Chairman Coffman, Ranking Member Kuster, and 
members of the subcommittee, thank you for inviting me to 
testify again today.
    In a June 11, 2015, letter to VA Secretary McDonald, you 
invited me to testify as a witness on behalf of VA along with 
my colleagues, Messrs. Leney and Doyle. I was intentionally 
excluded by the VA leadership and do not appear before you 
today as a VA witness. I appear today of my own volition as a 
VA whistleblower representing American taxpayers and America's 
military veterans.
    As you know, I alleged massive violations of acquisition 
and fiscal laws to Secretary McDonald in March of 2015. As you 
are also aware, I received no response from him regarding my 
disclosures. Thus, I was compelled to report them to this 
congressional body. In the first of now three joint hearings, 
beginning May 2015, I reported that some VA senior leaders have 
willfully violated the public trust, debasing federal 
procurement and financial laws.
    A reasonable person might conclude my disclosure of illegal 
acts would be accepted with open arms by VA's leadership for 
further investigation. That has not been the case. My 
intentional removal as a VA witness for this hearing is 
irrefutable proof of continuing scorn for those who attempt to 
uphold the public trust. Further, these VA leadership acts can 
serve to cast a chill upon future potential whistleblowers.
    We have a senior leader integrity malaise in VA. Like 
substance abusers before the journey to recovery, we will not 
be cured until we admit we have a disease.
    During the June 1 hearing on these matters, you heard one 
of VA's chief law enforcers testify emphatically that violating 
U.S. federal statutes and regulations is not ``illegal,'' 
quote, but just, quote, ``improper.'' In my opinion, parsing 
words in this manner is a stark reflection of our denial and 
exemplifies just how low some VA senior leaders will stoop to 
avoid culpability and protect themselves. As government 
servants, we did not take an oath to serve ourselves.
    Massive violations of public trust continue unabated. In 
the past several weeks it was disclosed that VHA officials 
committed 
approximately 2,000 illegal transactions for kidney dialysis 
from October 2014 to May 2015. This represents 34 percent of 
the transactions under these multiple award contracts. These 
are unauthorized commitments that require ratification before 
payment. However, payment has already been made, in violation 
of federal fiscal law.
    This month, the VA Office of Inspector General reported the 
theft of approximately $225,000 by a VHA West Roxbury, New 
York, employee using a government purchase card. This theft was 
avoidable. It occurred because required internal controls in 
VHA and the Department are lacking. These funds will never be 
returned to VA to take care of veterans.
    Over a year ago, I personally authored a new policy that 
would vastly improve internal controls in the use of purchase 
cards for contract payment. VHA rejected the policy. It was 
apparently inconvenient for them to execute.
    In this hearing, we will discuss VA's failure to accurately 
report our small business goal accomplishment. We are guilty. 
In doing so, we have deceived the veteran-owned small business 
community while violating federal laws. I have previously 
alleged that billions of dollars extended over multiple years 
have not been placed under contract as required, and thus, have 
not been reported in the Federal Procurement Data System as our 
VA total-spend denominator for contracting.
    Today, I'm providing this subcommittee information 
concerning one of the most deceptive schemes I have uncovered 
in my 41 years of government service. Each year VHA purchases 
over $1 billion in medical surgical products. All of these 
products must be procured in accordance with federal 
contracting laws. Departmental policy requires most be obtained 
through our medical/surgical prime vendors, who serve as 
distributors using federal supply schedules as underlying 
contracts.
    I first learned we had hatched a scheme that avoids use of 
FSS in late 2014. We pretend to use them, we have never 
informed OMB or the public we are not using them, but in fact, 
we are not. Using a convoluted ruse, we buy products off a 
shopping list while throwing federal acquisition laws to the 
wind.
    We are illicitly and deceptively pretending that federal 
supply schedules are being used while executing open market 
purchases. Federal supply schedules do not require small 
business set-asides. Open market purchases do require set-aside 
consideration.
    Our illegal behavior allows us to avoid set-asides, 
intentionally fencing these purchases from small businesses. In 
these acts, exceeding $1 billion annually, we are in violation 
of federal procurement law, as well as the Small Business and 
the Veterans First Acts.
    After learning of these shocking practices in late 2014, I 
attempted to rally VHA senior leaders as well as my supervisor 
to systematically cease these unlawful deeds. I have been 
totally thwarted in my efforts to get VHA to properly place 
their products on contract.
    We weave a tangled web. In previous hearings, I've outlined 
VA's failure to award billions of dollars for products and 
services via contracts, which is illegal and affords potential 
harm to veterans. These failures led to massive understatements 
of our annual total spend for multiple years in Federal 
Procurement Data System. In a domino effect, this resulted in 
an overstatement of departmental small business goal 
accomplishments.
    And finally, as revealed today, we further duped the 
American public and the veteran-owned small business community 
with deception using federal supply schedules. It is my opinion 
these acts combined and separately constitute corruption and 
gross mismanagement.
    I conclude with this rhetorical question, which I posed to 
Secretary McDonald in my March report to him: Without 
demonstration of responsible stewardship, why would the 
American public support ever increasing and generous annual 
congressional appropriations to care for our Nation's veterans.
    Mr. Chairman, this concludes my statement. I'm prepared to 
answer any questions this committee may have.

    [The prepared statement of Mr. Jan Frye appears in the 
Appendix]

    Mr. Coffman. Thank you, Mr. Frye.
    Let's see. Mr. Leney, you are now recognized for 5 minutes.

 MR. THOMAS J. LENEY, EXECUTIVE DIRECTOR, OFFICE OF SMALL AND 
  DISADVANTAGED BUSINESS UTILIZATION, DEPARTMENT OF VETERANS 
AFFAIRS, ACCOMPANIED BY MR. NORBERT DOYLE, CHIEF PROCUREMENT & 
 LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, DEPARTMENT 
                      OF VETERANS AFFAIRS

                  STATEMENT OF THOMAS J. LENEY

    Mr. Leney. Good afternoon, Chairman Coffman, Chairman 
Hardy, Ranking Members Kuster and Adams, and members of the 
subcommittees. I appreciate the opportunity to address your 
concerns about the impact of the validity of the Department's 
procurement data on our socioeconomic goal achievements. I'm 
joined today by Mr. Norbert Doyle, Chief Procurement and 
Logistics Officer of the Veterans Health Administration.
    VA has acknowledged in previous hearings that our approach 
to documenting procurement, such as non-VA care, prosthetics, 
and uses of purchase cards, has not been fully compliant with 
the Federal Acquisition Regulation. As a consequence, these 
transactions were not included in our reporting to the Federal 
Procurement Data System.
    VA's socioeconomic goal achievements are reported based on 
procurement data in FPDS, the completeness and accuracy of 
which is certified annually by VA's Senior Procurement 
Executive to the Office of Federal Procurement Policy. 
Achievements are then calculated in accordance with methodology 
established by the Small Business Administration.
    VA has a legal authority and a moral imperative to provide 
healthcare to eligible veterans. In fiscal year 2014, in order 
to provide an expedited means for ensuring that veterans had 
prompt access to non-VA care when needed, the VA processed 
approximately $3.2 billion in transactions for non-VA care that 
were not reported into FPDS primarily through the use of 
individual authorizations. These authorizations, though 
enforceable, were not FAR-compliant contracts, and thus, were 
not included in the FPDS data upon which our socioeconomic goal 
achievements are determined.
    While I cannot state how inclusion of these individual 
authorizations would have affected our socioeconomic goal 
achievement, as we do not know how many of these providers 
would have been considered small businesses, I can state that 
the procurements in question were made to support the care of 
veterans, the funds that were appropriated by Congress were 
used for their intended purpose, and VA's internal financial 
controls were used to track and monitor the expenditures.
    As we are increasingly reliant on non-VA care to improve 
the timeliness of care for veterans, VA has sought 
congressional support for its legislative proposal to authorize 
VA to purchase care in certain circumstances through agreements 
that are not subject to certain provisions of the law 
concerning federal contracts.
    In addition to proposed legislation, VA has taken action to 
procure the care through FAR-compliant contracts as part of the 

Patient-Centered Community Care Program, PC3 for short. The 
goal is to improve veteran access to care and to heighten the 
reporting and oversight of these transactions. After passage of 
the Veterans Choice Act legislation, VA modified the PC3 
contract to bring the Choice program within the scope of these 
contracts.
    In fiscal year 2014, we only spent $15 million on non-VA 
care that was procured under these contracts. So far in 2015, 
over $160 million has been spent under this program. We expect 
use of these contracts to increase over the coming months as 
VHA has established a hierarchy of purchase care to guide 
procurement of non-VA care and to minimize the use of 
individual authorizations moving forward.
    We recognize that the increased use of care in the 
community will have a significant negative impact on our 
ability to achieve our socioeconomic goals. Because of the need 
to provide extensive referral networks, these contractors are 
necessarily large businesses.
    Nevertheless, this is the right thing to do. Our imperative 
must be to get healthcare to veterans in a timely and effective 
way. To the extent we need to rely on the Choice program and 
other care and community programs to ensure timely care, we 
will do so, regardless of the impact on socioeconomic goal 
achievement.
    VA has also taken action to properly include prosthetics 
purchases in FPDS. Based on concerns raised in 2011, VA has 
determined that all prosthetic spend above the micropurchase 
threshold must be awarded and reported by warranted contracting 
officers. The transition under this approach was completed in 
October 2013.
    As of June 2015, our Electronic Contract Management System 
showed 57,047 prosthetics transactions, representing more than 
$730 million. Of these transactions, 56,884 included an 
appropriate code indicating they had been reported to FPDS. 
This is a 99.7 percent compliance rate with 42 percent of our 
prosthetics purchases going to small businesses.
    Where we have the opportunity to contribute to the 
government's efforts to ensure a fair proportion of contracting 
dollars are awarded to small businesses, we seek to do so, 
consistent with our mission to provide care and benefits for 
veterans. While the VA has been deficient in reporting all 
spending in FPDS, in fiscal year 2014 VA procured $6.6 billion 
from small businesses, $3.9 billion from veteran-owned small 
businesses, and awarded more dollars to service-disabled 
veteran-owned small businesses than all the other federal 
agencies in the government combined.
    We believe we've made progress in improving the accuracy, 
completeness, and reliability of our procurement data, but we 
also know we have farther to go to be fully compliant. We seek 
your support to obtain the legislative authority that will 
allow us to continue to meet the expectations of both veterans 
and taxpayers.
    Thank you, and I'm prepared to take your questions.

    [The prepared statement of Mr. Thomas J. Leney appears in 
the Appendix]

    Mr. Coffman. Thank you, Mr. Leney.
    Mr. Youel Page, you are now recognized for 5 minutes.

                 STATEMENT OF KEVIN YOUEL PAGE

    Mr. Youel Page. Good afternoon, Chairmen Coffman and Hardy, 
Ranking Members Kuster and Adams, and honorable members of the 
subcommittees. My name is Kevin Youel Page. I'm the Deputy 
Commissioner for the Federal Acquisition Service at the General 
Services Administration.
    In my current position, I lead operations, including the 
Federal Procurement Data System, known as FPDS, and the 
SmartPay purchase card program. These two programs support 
efficiency, transparency, and enable continuous monitoring and 
improved federal award management. I appreciate the opportunity 
to appear here today to discuss GSA's role in providing federal 
contract award reporting capabilities and the SmartPay purchase 
card program.
    FPDS provides a comprehensive Web-based tool for agencies 
to report their contract actions in accordance with the Federal 
Acquisition Regulations. The accuracy of the information 
submitted is the responsibility of each agency to manage. As of 
May, there are more than 8 million civilian and defense actions 
reported to FPDS with reporting obligations of $262 billion for 
fiscal year 2015 to date.
    FPDS generates the Small Business Goaling Report. GSA 
collaborates annually with the Office of Federal Procurement 
Policy and the Small Business Administration to define the 
Goaling Report methodology. Procurements data entered into FPDS 
by agency contracting officials throughout the fiscal year are 
used to provide the Goaling Report, which is public 
information.
    GSA also manages the SmartPay government-wide commercial 
charge card program. The charge cards reduce procurement 
administrative processing costs, enhance transparency, and 
support streamlined acquisition of goods and services under the 
micropurchase threshold, freeing highly trained contracting 
staff to focus on larger, more complex acquisitions. Over the 
micropurchase threshold, purchase cards have been used to 
streamline payment under some procurement contracts.
    In fiscal year 2014, agencies spent approximately $17 
billion through 20 million transactions and 263,000 cardholder 
accounts. Each agency is responsible for its system of 
management controls and overseeing cardholders' use of the 
program. Agencies decide which employees are issued the cards, 
and also determine spending limits within specified guidelines. 
GSA, through its contractor banks, provides card account 
management and oversight tools, training, and business rules to 
assist them in doing so.
    The card management systems allow agencies to establish 
accounts and access information and reports on every purchase 
their cardholders transact. GSA supports agencies in effective 
charge card management through publications, training sessions, 
workshops, and regularly scheduled card manager meetings. 
Additionally, GSA has embarked on a government-wide charge card 
metrics and benchmarking program focused on CFO Act agencies. 
The metrics and benchmarks are designed to indicate potential 
card management emphasis areas for the agencies to examine.
    Thank you for the opportunity to discuss the Federal 
Procurement Data System and the SmartPay programs. I stand 
ready to answer any questions the committees may have. Thank 
you.

    [The prepared statement of Mr. Kevin Youel Page appears in 
the Appendix]

    Mr. Coffman. Mr. Page, thank you for your testimony.
    Mr. Shoraka, you are now recognized for 5 minutes.

                   STATEMENT OF JOHN SHORAKA

    Mr. Shoraka. Thank you. Chairmen Coffman and Hardy, Ranking 
Members Kuster and Adams, and members of the subcommittees, I 
am honored to be here today to discuss SBA's methodology as it 
pertains to setting goals for and reporting on the small 
business procurement performance of federal agencies.
    The Small Business Act tasks the Federal Government with 
awarding at least 23 percent of federal contracting dollars to 
small businesses. Goals have also been established for awards 
to small disadvantaged businesses of 5 percent, women-owned 
small businesses of 5 percent, service-disabled veteran-owned 
small businesses of 3 percent, and firms located in 
historically underutilized business zones of 3 percent. The 
U.S. Small Business Administration is responsible for annually 
reporting on the Federal Government's performance towards these 
goals and does so via the Small Business Procurement Scorecard.
    The Small Business Procurement Scorecard for fiscal year 
2013 revealed that for the first time since 2005, the Federal 
Government met the 23 percent goal for prime contracting 
dollars awarded to small businesses with 23.39 percent of all 
federal small business eligible dollars being awarded to small 
businesses. Additionally, the Federal Government exceeded the 5 
percent for SDBs and also met the 3 percent goal for SDVOSBs. 
These achievements represent a dedication across government in 
improving small business access to the many opportunities 
available within the federal supply chain.
    The grading associated with the scorecard follows a 
publicly available methodology, which can be found in the 
contracting section of SBA.gov. Each federal agency has a 
different small business prime contracting goal, which is 
negotiated with the SBA annually. When negotiating agency small 
business prime contracting goals, SBA considers each agency's 
past small business performance and the small business 
opportunity available by specific industries. SBA ensures that 
sum of all agencies' goals exceeds the 23 percent target 
established by law.
    Although the small business prime contracting goals 
negotiated with SBA differ for each agency, as described above, 
each agency has the same goals for prime contract spending 
within the socioeconomic categories. As an example, each agency 
has a 5 percent goal for prime contracting dollars awarded to 
women-owned small businesses.
    The scorecard is based on information pulled from the 
Federal Procurement Data System, or FPDS-NG. It is a Web-based 
tool for all agencies to report contract action. This system is 
maintained, as you've heard, by the GSA, and governed an 
interagency council, on which SBA is a nonvoting member. The 
Federal Acquisition Regulation provides agencies with 
guidelines on the data that is to be entered into FPDS-NG, and 
each agency is responsible for inputting its own data and 
ensuring its accuracy. The FAR also requires that each agency 
certified to GSA and the Office of Management and Budget that 
the data that has been entered into FPDS is complete and 
accurate.
    After agencies certify this data, GSA provides this data to 
SBA for scorecard calculations. Grading is based in part on 
information provided to SBA by each federal agency to document 
its performance. This information is reviewed by an independent 
peer panel comprised of directors of agencies of Office of 
Small and Disadvantaged Business Utilization, or OSDBUs. These 
panelists review each agency's submissions and the average 
score is reported on the agency's scorecard.
    This administration has emphasized its commitment to 
ensuring small businesses get their fair share of federal 
contracts. SBA has made significant progress in increasing the 
transparency and reliability of its scorecard methodology and 
the reliability of the data provided by agencies.
    As mentioned previously, the scorecard methodology is 
publicly available, as is the FPDS-NG data, in real time. 
Although SBA cannot change the data in FPDS-NG nor enter it on 
behalf of agencies, SBA does conduct data anomaly reviews and 
shares these findings with agencies prior to the data 
certification date to allow agencies to correct any potential 
errors.
    SBA initiated these practices in fiscal year 2011, and in 
fiscal year 2013 SBA worked with GSA to develop a standard 
anomaly reporting process that can be run by agencies at any 
time. SBA encourages agencies to run the standard anomaly 
reports quarterly and correct errors as they are discovered. 
SBA has continued to identify anomalies through other forms of 
analysis and shares those findings with agencies to correct as 
well. Additionally, SBA has allocated new staffing resources to 
improve data quality and provide training to agencies.
    Finally, data quality best practices are incorporated into 
the scorecard so SBA can score agencies on their internal 
practices. SBA continues to work with OMB's Office of Federal 
Procurement Policy and each federal agency to ensure that 
effective policies and practices are in place to provide 
maximum practicable opportunity to small businesses.
    Thank you again, and I look forward to your questions.

    [The prepared statement of Mr. John Shoraka appears in the 
Appendix]

    Mr. Coffman. Mr. Shoraka, thank you so much for your 
testimony.
    Mr. Frye, in reference to the testimony given by Mr. Leney, 
who in a sense justifies breaking the law in terms of the 
regulations regarding contracts by saying that it was for the 
veterans, it's okay that we violated the law because we did it 
for the veterans, but in violating the law, don't you believe 
it makes it more costly? In other words, it's not done on a 
competitive bid basis. Go ahead.
    Mr. Frye. Certainly. By violating the law, by not putting 
our requirements on contract as required by law, we do several 
things. First, we put veterans at risk. If we buy products, for 
instance, that aren't on a contract, terms and conditions 
aren't included in that purchase. So, for instance, Buy 
American, Trade Agreement Act, safety, and efficacy are thrown 
out the window.
    On top of that, only a contracting officer can determine a 
fair and reasonable price. So if no contract exists, no fair 
and reasonable price determination has been made, and that's by 
definition. There's no way around it.
    Mr. Coffman. So I think it's pretty easy to say that in Mr. 
Leney's testimony and based on his leadership, that we're not 
helping veterans, we're hurting veterans, wasting American 
taxpayer dollars by going around the procurement system.
    Mr. Frye. We're doing all of that. We're hurting veterans, 
perhaps, you know, with efficacy and safety issues. But we're 
also hurting veterans because every dollar we waste is a dollar 
we can't spend on the veterans of America, who so richly 
deserve it. So, you know, to say that buying something and 
paying 20 percent more for it doesn't hurt veterans is just not 
an accurate statement. It does hurt veterans.
    Mr. Coffman. Mr. Frye, I think Mr. Leney mentioned 
something about a PC3 agreement. I don't understand how that 
fits in what we're talking about today. Could you----
    Mr. Frye. I do not know how that fits into what we're 
talking about today either.
    Mr. Coffman. Mr. Leney, could you speak to that?
    Mr. Leney. Yes, sir. What we have attempted to do, what we 
are doing, is moving more of our procurements into FAR-
compliant contracts. So that the PC3 program has two contracts 
whereby when people seek non-VA care, they're able to do it via 
these health networks, VA FAR-compliant contract. And what 
you're seeing is an order of magnitude increase in the use of 
this, and we expect to see the use of it to continue to climb 
as procurements that were done outside of FAR-compliant 
contracts now come into FAR-compliant contracts. So I think it 
has everything to do with what we're talking about today.
    Mr. Coffman. Mr. Frye.
    Mr. Frye. Again, I would focus on what we haven't done in 
this case instead of trying to--if I were on the VA panel, I 
would not personally agree with a strategy that tries to 
convince you what we have done right.
    In this case, I think we need to do the mea culpa. We've 
done wrong. We screwed up. What's wrong with just coming in 
front of this body and saying that and finally admitting that 
we've got a problem and saying we're going to fix the problem?
    Again, it goes back to the first hearing, the hearing that 
took place over a month ago, where I said obfuscation is our 
game. We come here and hope we can give you an answer that will 
lead you to a question that we can quickly extinguish that 
won't lead you to a question that we can't answer. And I think 
that's what we're doing here. That's my personal opinion.
    Mr. Coffman. Mr. Leney, I think that the allegations are 
pretty profound. They're really about fraud. It's about the 
fact that there are SBA requirements dealing with veteran-owned 
small businesses, among others, and the way the VA has done its 
contracting. The numbers aren't real. And yet, people got 
bonuses based on those numbers. I mean, tell me, don't you 
think that's a problem?
    Mr. Leney. I'm not prepared to say this is an issue of 
fraud. This is an issue of improper accounting. We did not 
account, as I acknowledged in my statement, as the VA has 
acknowledged in two previous hearings, we have not properly 
accounted for all of our non-VA care purchases.
    Mr. Coffman. But you went around the law. I mean, these are 
interesting semantics you have. I don't understand how the VA 
is ever going to reform itself when they never acknowledge that 
they have problems and the extent of those problems.
    And the fact is, I mean, that you've grossly violated the 
law when it comes to contracting, compromised the safety in 
terms of public health of our veterans in doing so, paid more 
than we should for those products by not doing it in a 
competitive manner. And then the subject today is, in doing so, 
the numbers were also fudged for meeting the SBA requirements 
in terms of contracting.
    So I don't have any confidence in your leadership, 
certainly, and in the senior leadership of the VA to clean up 
this mess because you all never come forward here and are able 
to define the problem.
    I will now turn the gavel over to Chairman Hardy for his 
questions and to preside over the remainder of this hearing.
    Mr. Hardy [presiding]. Thank you, Mr. Chairman.
    I'd first like to start off by asking all of you, all four 
of you except Mr. Frye, if you believe that you dropped the 
ball, and if so, how did you drop the ball on making sure that 
you ensure that contracting requirements are met? Start with 
you, Mr. Shoraka.
    Mr. Shoraka. I'm happy to go first. Thank you, sir.
    I think on our part, we are entirely reliant when we report 
on the scorecard and small business spend on what is entered 
into FPDS-NG as the system of record. So when we pull from that 
data, we rely on the certifications from the agencies to the 
accuracy of that data.
    What I would add in addition to that is that it's not clear 
that the entire impact of this, it would have been negative to 
small businesses. Right? We're not sure if that money--not 
saying that it should not have been in FPDS, because clearly 
the discussion has been that that should have been in FPDS--but 
we're not clear if those funds went toward small businesses, 
went toward large businesses, and what the potential impact 
could have been on the overall score of the agency. That has to 
be analyzed and determined if it would have been negative, 
significantly negative, or even potentially positive.
    Mr. Hardy. I guess I'd like to ask, doesn't the SBA have 
the responsibility to make sure that these actions are moving 
in the right direction?
    Mr. Shoraka. So we have responsibility above the $3,000 
card limit. We certainly have responsibility in ensuring that 
what we report out of FPDS is reported accurately. But we do 
rely on the agencies to certify their numbers to OMB and OFPP, 
which is what GSA pulls and gives us for analysis and reporting 
purposes.
    Mr. Hardy. I'd like to continue that line of questioning. 
Who dropped the ball? Or did you think you dropped the ball?
    Mr. Leney. VA dropped the ball. VA dropped the ball because 
we didn't properly account for all of our procurement actions. 
We've acknowledged that. We're not trying to obfuscate it. 
We're not trying to deny it.
    But I disagree with Mr. Frye, and I think what you need to 
hear from us is what are we doing about that ball. And I think 
Mr. Frye underestimates the impact of his efforts on the VA. He 
alleges that no one has paid any attention, no one has done 
anything. And I assert that we have done a great deal since 
many of these allegations were made.
    We've pulled back all purchase cards with the capacity to 
go over $3,000 for everybody who is not warranted. We're using 
contracts. We are using the PC3 n dialysis contracts to deal 
and with obtaining care that previously was not under contract. 
Prosthetics, we've gotten prosthetics under control. We've done 
a lot of stuff here.
    Mr. Hardy. Let me stop you there.
    Mr. Leney. Okay.
    Mr. Hardy. There's a law. You knew there was a law, right, 
that you're supposed to act and follow and track certain 
things, certain items within procurement? Do you believe you're 
above the law to just go on by yourself to do these things?
    Mr. Leney. No.
    Mr. Hardy. Is that the nature of what this body wants to 
hear? Or would it be better to come to this hearing and say: 
You know, legislature, you need to fix this problem we have. 
Why have we waited to do that? That would be my question.
    I guess before I run out of time here, were any of you 
aware of bonuses that were given or awarded based on meeting 
and exceeding the acquirement of these goals? And if so, do you 
believe these bonuses were deserved? And should they be paid 
back possibility? There's four of you sitting there.
    Mr. Leney. I can't speak to the way performance awards were 
provided in the VA beyond my own. I did not receive a bonus 
this year. We didn't meet our small business goals.
    Mr. Hardy. In 2013 did you get a goal?
    Mr. Leney. I received a performance award in 2013. My focus 
is on the numerator, my focus is on proving access to economic 
opportunity for small businesses, and we did that. Again, we 
can argue about the percentages, and the percentages are 
incorrect, but the----
    Mr. Hardy. Is it your responsibility to ensure that small 
businesses are being awarded contracts and purchasing between 
$3,000 and $150,000? And did you not notice that these number 
of contracts awards were severely decreased?
    Mr. Leney. The requirement is that procurements under 
$150,000 and over $3,000 are provided to small businesses or 
contracting officers have to justify their actions as part of 
the procurement process.
    Mr. Hardy. Thank you. My time has expired.
    I'd like to recognize the gentlelady, Ranking Member 
Kuster.
    Ms. Kuster. Thank you very much, Mr. Chair.
    I wanted to focus on where we are and where we're headed. 
So these questions are to either Mr. Frye or to Mr. Leney.
    What actions did the Office of Acquisitions, Logistics, and 
Construction take to ensure VA compliance, and in particular, 
in the last month since the hearing when Mr. Frye came forward 
as a whistleblower? Can you be very specific, Mr. Frye, if 
you've had a rule in responding to that? And in particular, 
have you been certifying data that's been going to the SBA at 
this point? What steps have you taken to ensure at this point 
that we have accurate data?
    Mr. Frye. I certify the data on a yearly basis. The Chief 
Acquisition Officer has delegated that to me. This year, as I 
stated in a previous hearing, I certified right at $19 billion.
    I can only certify what is on contract. For instance, let's 
take fee basis. If we have $5 billion worth of fee basis care 
that wasn't put on a contract, I can't certify that on FPDS. In 
other words, I can't certify a mirage. So it's incumbent upon 
the respective organizations, administrations, if you will, in 
VA to ensure that they put all the requirements, all their 
requirements on contract as required by the Federal Acquisition 
Regulation.
    Ms. Kuster. Do you have confidence now, since you've come 
forward, in that data going forward? Do you have confidence for 
the next year's certification that you will be in a position to 
provide accurate assessments?
    Mr. Frye. It's too early for me to tell you that I have 
confidence in 30 days' time. As I just reported to you, I was 
just informed that there are approximately 2,000 unauthorized 
commitments for dialysis, and that's just been reported to me 
in the last 21 days. So again, I don't know where we're at with 
accuracy.
    Ms. Kuster. What steps, Mr. Leney, you started to tick off 
a few of these, what steps are being taken so that we will have 
confidence in the data going forward?
    Mr. Leney. Specifically, the simplified the acquisition 
threshold, at the last meeting of the Senior Procurement 
Council we discussed reinforcing our focus on simplified 
acquisition threshold purchases. My office now reviews 
purchases under $150,000 that don't go to small businesses, so 
we've put a process and strengthen that process. We're 
establishing goals for our component organizations for their 
simplified acquisition threshold purchases. We're continuing to 
press non-VA care authorizations into our PC3 contracts. While 
I can't speak to Mr. Frye's statement about dialysis 
ratifications, we have increased the number of dollars going 
through our national dialysis contracts by over 25 percent.
    Ms. Kuster. Prosthetics has been in the news quite a bit 
VARO. We have an allegation of over $1.2 billion in prosthetics 
purchased without contracts. First of all, is that allegation 
true, and what steps are being taken to address the situation 
with prosthetics?
    Mr. Leney. In 2011 there was a large number of prosthetics 
purchases that were done not under contract. But as I said 
before, if you look at 2015, where we are today, our 
prosthetics purchases are made under contract. We have $730 
million of prosthetics purchases under contract, 42 percent 
went to small businesses, and we feel confident that we have 
captured the vast majority of all those purchases.
    Can you find somebody in some medical center somewhere 
doing something wrong? Yes. Guaranteed. But is there a 
pervasive situation of prosthetics in the VA currently? 
Absolutely not. We have fixed the problem.
    Ms. Kuster. What's the oversight in place to make sure 
that, if the statement is correct that you're making, that we 
don't run into this problem again? What's the oversight 
currently on the prosthetics purchasing?
    Mr. Leney. Well, I think the best person to give you that 
answer is Mr. Doyle, who oversees that process and has been a 
big part of fixing it.
    Ms. Kuster. Thank you.
    Mr. Doyle, could you give some reassurance, both to the 
Members of Congress, but more importantly, to the veterans at 
home and to small businesses that you have a system of 
assessment in place such that we won't run into this problem 
again?
    Mr. Doyle. Yes, ma'am, I will do that. We started a path in 
2011 on prosthetics transfers. The interpretations at the time 
were that prosthetics was not required to be bought by a 
warranted contracting officer. We started that process in 2011. 
My office has received an additional 211 FTEs from the 
Department to help put that process in place. We completed that 
transfer on October 1 of 2013. Since that time, all prosthetic 
purchases above $3,000 are done by a warranted contract officer 
using a contract.
    Internally, in my office, we have audits that we do. Again, 
they are done by warranted contracting officers. And then Mr. 
Frye's office runs an A-123 review of the procurement aspects 
of things, and they provide another level of oversight in how 
we're doing it.
    I am confident, though, that everything we are doing 
through my contracting officers does properly flow through 
eCMS, our Electronic Contract Management System, into the FPDS 
system and accurately reflects.
    Ms. Kuster. Thank you. My time is up.
    Mr. Hardy. Thank you.
    The chair will now recognize Ranking Member Adams.
    Ms. Adams. Thank you, Mr. Chair. And thank you, gentlemen, 
for your testimony.
    Mr. Frye, you've been forthcoming with your superiors and 
peers regarding the legality of their actions. However, you 
claim that they're still engaged in illegal contracting 
actions. Why do you believe they continue to do so?
    Mr. Frye. I'm sorry. I wear hearing aids, and I'm having 
trouble understanding.
    Ms. Adams. Okay. You've been forthcoming with your 
superiors and peers regarding the legality of their actions. 
However, you claim that they're still engaged in illegal 
contracting actions. Why do you believe that that's the case, 
that they're still doing it?
    Mr. Frye. Well, again, in the last 21 days, it was reported 
that--to me that since October of 2014 to May 2015 generally 
2,000 unauthorized commitments, which are illegal transactions, 
have taken place with the dialysis alone.
    Ms. Adams. Why do you think that's happening?
    Mr. Frye. I believe that it's a lack of leadership.
    Ms. Adams. Okay. You contend that rather than use the 
schedules as required, that staff at the VHA were ordering 
products from a shopping list of almost 400,000 items. Do you 
know how items or vendors from this list were selected?
    Mr. Frye. Yeah. That's a great question. Let me see if I 
can answer you sufficiently. What is supposed to take place is 
we're supposed to use the Federal supplies schedules which were 
put if place by our national acquisition center in Hines, 
Illinois, and we're supposed to utilize those Federal supply 
schedules by competing schedule holders against each other at a 
strategic level and putting competitive blanket purchase 
agreements in place. In this way, we can use ordering officers 
versus contracting officers simply to place orders against 
these contracts that are put in place. That makes for ease of 
use in our supply chain.
    Instead of those requirements being put in place, VHA is 
simply using a 400,000-item list as a shopping list and placing 
orders against those using our prime vendor and the prime 
vendor delivers. We're clearly in violation of FAR 8.4 which 
requires us to compete.
    In addition, we have hoodwinked the American public, we've 
hoodwinked anybody that knows anything about this business, by 
stating that they're Federal supply schedule purchases when 
they're not. They're open market purchases.
    Ms. Adams. Okay. Could you speak to the impact that these 
allegations of misconduct have on minority-owned small 
businesses looking for Federal procurement opportunities? And, 
to your knowledge, have any minority-owned firms been shut out 
of the Federal procurement programs at the VA as a result of 
these allegations?
    Mr. Frye. I can't speak specifically to minority-owned 
firms, but I can speak specifically to veteran-owned 
businesses. If we are not using Federal supply schedules which 
don't require set-asides, if we are buying use in open market 
purchases, we must consider set-asides. So we've spent over a 
billion dollars a year for a number of years for these medical/
surgical items, and given that we aren't correctly using--we're 
illegally stating that these are Federal supply schedule buys 
when in fact they're open market buys, we shouldn't consider 
set-asides for small businesses.
    Ms. Adams. Mr. Leney, your office is charged with ensuring 
that provisions meant to ensure small business participation at 
the agency like the small business reserve are followed by 
contracting officers. However, Mr. Frye's allegations seem to 
indicate that this rule was routinely not observed.
    What have you observed at the VA regarding contracting 
actions that are valued below this threshold?
    Mr. Leney. I'm sorry. I'm not sure I understand the 
question. Are you talking about contracting action below the 
simplified acquisition threshold?
    Ms. Adams. Yes.
    Mr. Leney. Contract actions below the simplified 
acquisition threshold by law are supposed to be 100 percent to 
small businesses unless a contracting officer is able to 
justify why that's an inappropriate action. We do not provide 
100 percent of our acquisitions below $150,000 to small 
businesses.
    I don't have visibility with regards to how the contracting 
officers make those justifications. In fact, Mr. Frye's office 
does a audit of contracts, and his office has the capacity to 
look into particular acquisitions and determine whether or not 
a contracting officer's done the job correctly. I have not 
heard from Mr. Frye's office that this is a particular problem 
in the VA, but I can't speak to it because it's his office that 
makes those investigations, not mine.
    Ms. Adams. Thank you, sir. I believe I'm just about out of 
time. I yield back.
    Mr. Hardy [presiding]. Thank the gentlelady.
    The chair will now recognize Mr. Bost.
    Mr. Bost. Thank you, Mr. Chairman. And, Mr. Leney, I need 
to know, and I'm going to go in a different direction here, if 
you know how involved like top level management for individual 
VA facilities and to ensure compliance with this particular 
law, the Federal Acquisition Regulations, that I'm talking 
about individual managers at our VAs, are they the ones that 
choose to have the oversight, or is that accurate?
    Mr. Leney. Our medical center directors, our network 
directors, are, at the end of the day, responsible for what 
their organizations do or fail to do.
    Mr. Bost. Okay.
    Mr. Leney. It is the approach at the VA that rather than 
just passing this off to staff members, we keep it within the 
chain of authority.
    Mr. Bost. Okay. And that leads to my second question 
because of some information I found out recently. Does the lack 
of permanent directors at some and many of our facilities 
create an opportunity for those below them to falsify the 
number of contracts awarded to small business?
    Mr. Leney. I'm not sure that it creates an opportunity for 
people to falsify. When you have half of your medical center 
directors in an acting capacity and you're missing a large 
number of senior managers, it puts additional stress on the 
people who are in those positions. So their ability to fully 
manage, fully lead is compromised. So does that mean that 
somebody that works with them can do something wrong? 
Absolutely.
    Mr. Bost. Okay. That's the concern I have. And that's why I 
went down this path. We found out and we have a situation in a 
VA near my district and then another one in my district that 
the facility manager, in a two-year period there've been seven. 
Every 120 days, because that's what the rule is, they don't 
serve longer than 120 days, and I don't know how anyone in a 
capacity of 120 days can be an overseer to a level that they 
can manage to, one, even if they want to, and I don't want to 
say some of them don't want to. I mean, if they want to, they 
can't possibly in 120 days figure out who that's been there for 
a long time that is actually doing this and find it and correct 
it.
    So it still stems down to a problem with the VA and the 
overall management of each facility and the larger picture of 
trying to make sure that the law is followed. And then to find 
the person who's responsible for following that law. Do you see 
the problem with that?
    Mr. Leney. I think you've pointed out a very serious 
problem that the agency confronts. No one is here trying to say 
that we don't have a problem when we're missing such a large 
number of senior executives.
    The challenge is a medical center director has to follow 
many, many, many laws. And at the end of the day, I will tell 
you in every single medical center director's performance plan 
is the ability to achieve small business goals. But I would be 
remiss if I were to try to tell you that that is the number one 
priority for a medical center director, nor as the small 
business advocate within the VA would I say that it should be. 
Because what is their priority? To make sure that patients are 
safer and well cared for.
    You all are very familiar with the challenges we've gone 
through. And so, yes, we are trying to follow human resources 
laws and small business laws, and at the end of the day, it's 
not about getting performance awards or bonuses, it's about 
doing your job which is to take care of veterans that walk 
through the door of your medical center. And we don't do that 
in every case, but that has been the focus of the senior 
leadership of the VA. You've asked me to focus on small 
business.
    Mr. Bost. And that should be the focus. But that focus 
should never--let me tell you that I want every time for the 
veteran to be taken care of--and everybody on this committee, 
everybody in this Congress, wants that to happen. But that 
still doesn't make law suggestion. It's still law.
    Mr. Leney. We agree.
    Mr. Bost. I yield back.
    Mr. Hardy. Gentleman yields back.
    We now recognize the ranking member Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Frye, all government purchase card holders must receive 
training prior to the issuance of their cards. Was this 
training occurring at VA?
    Mr. Frye. I don't run the government purchase card program. 
That's run by the chief financial officer. I will go out on a 
limb and say that training was provided. I think it was. I 
would state that the micro purchase piece and the use of the 
government purchase card, the micro purchase program, that is 
$3,000 and below, is run very well from everything I know in 
the VA. It's the use of the purchase card for payment of 
contracts above $3,000 where we have had our problems.
    Ms. Velazquez. Thank you.
    Mr. Doyle, the VA's office of inspector general has 
substantiated some of Mr. Frye's claims regarding illegal use 
of government purchase cards, including some cards held by VHA 
employees. Have you identified the responsible individuals and 
have their purchase cards been rescinded?
    Mr. Doyle. I don't know exactly the names that are 
involved, but generally when something like that happens, their 
cards are rescinded or their dollar values are reduced to one 
dollar so they can no longer use the card.
    Ms. Velazquez. But are you aware that it has taken place?
    Mr. Doyle. I know that has happened in some cases, yes. I 
don't know to what extent it has happened, though.
    Ms. Velazquez. Mr. Leney, if Mr. Frye's allegation prove 
true, the VA will have deprived small businesses of billions of 
dollars in contracting dollars. So the issue here is not that 
you didn't account properly, the issue is that you didn't 
follow the law. And don't come back to me and say that you are 
committed and your mission is to provide the best quality care 
to veterans, because I agree with that. But there should not be 
a contradiction between providing the best quality care that 
they need and deserve and following the law. So isn't the 
failure to properly account fraud? I'm asking you.
    Mr. Leney. I'm not clear on what the question is. Does the 
failure to properly account constitute fraud?
    Ms. Velazquez. Yes.
    Mr. Leney. I'm not a lawyer, but I'm not aware that that's 
the case.
    Ms. Velazquez,. Well, I guess that at some point once the 
investigation is concluded, those will determine whether or not 
it's fraud. Because you resist to call it what it is. When you 
fail to properly account, that is fraud. And you're providing 
misinformation.
    Mr. Leney. I don't know.
    Ms. Velazquez. Mr. Leney, the management system of the 
SmartPay program allows agencies to establish accounts and 
access information on every purchase their card holders 
transact. There are even standard reports to identify instances 
of attempts to circumvent spending limits. Mr. Leney, do you 
have access to these reports?
    Mr. Leney. No, I don't. I'd have to defer to my colleague 
Mr. Doyle.
    Ms. Velazquez. Mr. Doyle?
    Mr. Doyle. I have people who run the government purchase 
card program within my organization for VHA, and they have 
access, I believe, to that account.
    Ms. Velazquez. And if they have access, they haven't seen--
well, I guess that if I ask you this question you're going to 
say that you don't know. Have you seen those reports?
    Mr. Doyle. I do not see the reports, no.
    Ms. Velazquez. And, Mr. Shoraka, do procurement center 
representatives have access to this information?
    Mr. Shoraka. The SBA doesn't have authority to manage or 
have oversight over the Smart Card program. So in our 
surveillance reviews, our focus----
    Ms. Velazquez. Okay. You don't have the authority. That's 
it.
    Mr. Shoraka, if the agency was in fact underreporting 
contracting dollars by $6 to $10 billion, does your agency plan 
on going back to review these numbers so that we have a more 
accurate accounting of the government's small business 
contracting dollars?
    Mr. Shoraka. As I indicated before, if it's not an FPDS, or 
the Federal Procurement Data System, we have no record of that. 
So it would be--we would unable to determine what the impact 
would have been on the small business performance. Some of 
those funds could have indeed gone to--other than small, some 
of them could have gone to small. But as long as it's not 
within FPDS, we will not have the opportunity to analyze that 
data.
    Ms. Velazquez. Okay. Mr. Shoraka, in your testimony you 
noted that each agency's submission for the scorecard is peer 
reviewed by a panel of three OSDBUs. Do you know if any 
questions were raised by this panel when reviewing the VA's 
fiscal year 2013 submission?
    Mr. Shoraka. I'm sorry. The question was do I know if 
they've reviewed----
    Ms. Velazquez. If they raised any questions by the panel?
    Mr. Shoraka. I'm not aware that they've raised particular 
questions around this particular issue in the peer panel 
review----
    Ms. Velazquez. That's it, Mr. Chairman. I yield back.
    Mr. Hardy. Thank you.
    The chair will now recognize Dr. Roe.
    Dr. Roe. I thank the chairman.
    I guess I'm going to start out by just saying to Mr. Frye, 
are you just the--you've been here several times. Are you just 
the oddball uncle that every family's got that tries to hide 
out when the family gets together, or are you really a 
patriotic whistle blower that's trying to correct serious 
problems in this great organization? Because you've become a 
gigantic pain in the VA's gluteus maximums. And I think without 
you doing that we would never have known a lot of these things, 
and I think it'd still been going on. So which are you?
    Mr. Frye. Well, again, I didn't expect when I wrote this 
35-page document, which took me a few hours to write, by the 
way.
    Dr. Roe. I suspect it did.
    Mr. Frye. I did not expect it would reach this level. I 
sent it to Secretary McDonald hoping it would entice him to 
instigate an investigation. You know, what I made were 
allegations. I didn't do the investigation for them. I've got 
names. I've got documents. But I'd hoped to entice the 
Department to do an investigation. Unfortunately, that didn't 
work. So it ended up at this level because I thought it needed 
to be known.
    So, you know, I can't tell you that I'm a patriotic 
American, but I am a retired Army officer, and, you know, duty, 
honor, country does enter into my equation.
    Dr. Roe. That makes you patriotic for me.
    A couple things, just a couple of questions briefly. Why 
did it take the IG to find this $225,000 or so theft in 
Roxbury? Why wouldn't internal controls? That's a big number. 
Why?
    Mr. Frye. That is a very good question. Internal controls 
will--we're supposed to have separation of duties. First of 
all, you issue someone a purchase card, they're not supposed to 
be able to order and receive and pay for that product. There 
has to be a separation of duties to keep this from happening. 
This individual could have ordered big screen TV's for his 
house and apparently no one would have known any different.
    These are internal controls, basic--basic--to any financial 
system, and they were not stood up, or if they were, they 
weren't complied with.
    Dr. Roe. I guess the other question I'd have for Mr. Leney, 
I think why--the VA clearly didn't obey the Federal procurement 
policy and why didn't they? And the other question I have is: 
If you don't, if you just ignore a statute, and I think it just 
became slowly the way the VA did business, if you ignore that 
statute, is there a penalty for ignoring it?
    In other words, if I just decide I'm going to ignore this 
statute, that was clearly done, is there any penalty that that 
person that's ignoring it all the way up to the top where you 
sit endures?
    Mr. Leney. The VA failed to comply with statutes. That's 
clear. I guess the--my only comment would be we're talking 
about things that we discovered, and we took action to deal 
with them.
    So in terms of did we decide that we didn't have to follow 
the law? I don't think so. I'm not the person who's familiar 
with each of these details, but I have the opportunity to watch 
my colleagues work these issues very hard, and over the course 
of the last 3 years, like I say, a lot of these issues that Mr. 
Frye has noted the VA has discovered, the VA is dealing with 
them, and the VA has made progress.
    Dr. Roe. Well, I mean, my question is, is there a penalty? 
You didn't answer that question. Is there a penalty? Because if 
I go too fast at home, there is a penalty. So is there a 
penalty in the statutes? In other words, can you just--can 
members of the VA just ignore these and there's no teeth to it 
so there's no penalty. People got bonuses apparently. Is there?
    Mr. Leney. I can't speak to that.
    Dr. Roe. So you made an emphatic statement a minute ago 
that said that this problem has been solved. And I guess if 
it's been solved--if you say it's been solved, are you willing 
say: If it hadn't been solved, I resign?
    Mr. Leney. No. I'm not willing to say that because that's 
not my solution. I'm reporting to you what the VA----
    Dr. Roe. It is your responsibility. Not solution, but is 
that your responsibility to oversee that?
    Mr. Leney. No. It's not my responsibility----
    Dr. Roe. Well, whose is it? Whose responsibility? That's 
what we've been having a problem finding out whose responsible. 
Let me tell you, for 30 years I knew who was responsible when I 
went in the operating room. Me. Nobody else.
    So who's responsible for this so we can say: You are 
responsible, and then there's a penalty if you don't correct 
this problem. Because you made a very emphatic statement just a 
second ago.
    Mr. Leney. Well, I would say Dr. Lucille Beck heads the VA 
prosthetics program, and she's responsible for a lot of the 
improvements that have been made in the program.
    Dr. Roe. So we don't know who's responsible. Okay.
    Mr. Leney. No. I just told you, Congressman.
    Dr. Roe. I'm not going to ask any more there.
    Mr. Page, I've got a question for you, sir. If--how much--
what percent of, and you may not know this, and it was hard--we 
have 263,000 of these purchase cards? Did I hear you say that 
correctly?
    What percent of the purchases are made with these cards of 
the VA--what VA purchases? Does that make sense?
    Mr. Page. It does. I'm not sure I do have that specific 
number. I believe there are some numbers in the written 
testimony that VA certified to a large number in FPDS, and we 
do know that transactions through----
    Dr. Roe. Do you know the total number? I think I heard you 
say that in your testimony.
    Mr. Page. Well, I know the total number in Federal-wide is 
what I spoke to. I mean, I----
    Dr. Roe. Well, you don't have to get it. My time is 
expired, and I don't want to be--I'll get that from you 
afterwards. Thank you.
    Mr. Page. The Veteran's Administration is a very large user 
of the purchase card program, sir.
    Dr. Roe. Thank you, Mr. Page.
    Mr. Hardy. Thank you.
    The Chair will now recognize Mr. Rice.
    Mr. Rice of South Carolina. Mr. Leney, you said earlier 
that the problem with acquisition in the prosthetics had been 
corrected. Is that right?
    Mr. Leney. Yes.
    Mr. Rice of South Carolina. Mr. Frye, has it been 
corrected?
    Mr. Frye. Well, I was interested to hear that Mr. Leney 
went back to 2011. Let me go back to 2012. In 2012, actually, 
in December of 2011, the Secretary sent a letter to Mr. 
Donnelly, now Senator Donnelly, and stated that we had quit 
violating the law with regards to purchases of pharmaceuticals. 
From December of 2011 until August of 2012, self-reported by 
VHA, they violated the law 9,700 times. And that was self-
reported. It may be much higher than that.
    So when we dip all the way back to 2011 and then say that 
we fixed it from then forward, we clearly didn't. Because we 
violated the law with regard to pharmaceuticals in the period 
that I just indicated.
    Mr. Rice of South Carolina. Okay. We agree there was a 
problem before 2011, and there's a little dispute about whether 
there's one after. With respect to the problem before 2011, Mr. 
Leney, did anybody get fired?
    Mr. Leney. I don't know the answer to that, Congressman.
    Mr. Rice of South Carolina. And this----
    Mr. Leney. By the way, no one here is saying that the 
problem was solved in 2012. What I'm saying is in 2015 we have 
addressed the problem.
    Mr. Rice of South Carolina. All right. And then with 
respect to this prepared card, somebody mischarged $200,000, 
did that person get fired?
    Mr. Leney. I don't know the answer to that. The IG is 
investigating that.
    Mr. Rice of South Carolina. I read that Mr. McDonald said 
earlier that he needs to fire 1,000 people in the VA. Did 
anybody get fired?
    Mr. Leney. I don't know the answer to that. I presume he's 
following the various laws he has to with human resources.
    Mr. Rice of South Carolina. The people that got--the 
veterans that were killed in Phoenix, 80 of them, and then the 
ones that were killed in Columbia, did anybody get fired for 
that?
    Mr. Leney. I'm not in a position to answer that, 
Congressman.
    Mr. Rice of South Carolina. Does anyone else know? Did 
anybody get fired for that? I mean, the problems with the 
ignoring the law with respect to small business acquisition, 
and you said you got a bonus and other people got bonuses, 
apparently incorrectly, is there any movement to go back and 
retake those bonuses?
    Mr. Leney. I don't know the answer to that question.
    Mr. Rice of South Carolina. So it appears to me that there 
is an absolute lack of accountability. That, you know, we screw 
up, we admit we screw up. Well, so what. We're going to go to 
work the next day and we may continue to do it the way we were 
doing it or we may not, and nobody gets fired and nobody loses 
their bonus, and there's no consequence.
    So by what rationale would you change your behavior? My 
question is this. Mr. Frye, I'm curious. Is the VA fixable? I 
mean, really. It's grown to be such a monolithic, bureaucratic 
web. I hear all you guys talking about your processes and your 
accountability and this and that and the other, but it's 
clearly not working. None of it is. It's a tangled web that's 
not working. Is this mess fixable?
    Mr. Frye. We currently have a moniker in the VA called I 
Care. The I stands for integrity. In my opinion, these five 
elements are the bedrock that we build a foundation upon. Right 
now that bedrock is--or these footings are not reaching all the 
way to bedrock.
    Mr. Rice of South Carolina. Well, I think, you know, I 
think with respect to entities and the way they function, this 
is the core, this is the fundamental reason why a governmental 
entity will never ever perform as efficiently as a private 
entity. Because with a private entity, you're dealing with your 
own money. In a governmental entity somebody can charge 
$200,000 on a prepaid card and nobody will even notice. It's 
not their money. Their bonus won't get affected, and their 
job's not on the line. There's so many protections built in for 
Federal employees, that they could do anything and not get 
fired for it. Hell, these 80 people died and Mr. Shinseki held 
on for months before he finally resigned.
    Now, I think we need to do some real fundamental soul 
searching about the way this entity is organized, or I don't 
know that it can be fixed. I think maybe we should be looking 
at the cost of this overall entity versus the cost of just 
buying--you know, you were saying that the Choice program would 
violate the socioeconomic goals. Well, if the socioeconomic 
goals of the VA and VHA include keeping veterans alive, I think 
the Choice program's probably pretty important and maybe we 
ought to look at expanding the Choice program to the ultimate 
detriment of a large part of the VHA.
    Thank you very much.
    Mr. Hardy. Thank you.
    The chair will now recognize Mr. Knight.
    Mr. Knight. Thank you, Mr. Chair.
    I think a lot of the questions have been asked today, but I 
got just a couple that will still follow the same lead, I 
think, as Congressman Rice was talking about.
    I'd like to talk about the performance awards and how that 
happens. I mean, I'm a government guy right now, and, you know, 
I get a performance award or I get a performance demotion every 
2 years. That's about it.
    Can you explain how performance awards happen? Is there a 
yearly or is there a biannual kind of look at your performance? 
Can you explain this to us? I mean, Mr. Leney?
    Mr. Leney. Yes. The process is annually the employee 
establishes a performance plan with objectives, and we seek to 
have, you know, the term smart objectives, and then he or she 
is evaluated on the basis of their performance against that 
plan. And that's in accordance with OPM guidance. We try to do 
that in accordance with how the Federal Government tells us to 
do it.
    Performance awards are provided at the end of that period 
if a person has performed in an exceptional manner and exceeded 
their goals.
    I am not fully--read any of this, but I don't believe any 
senior executive in VHA received a performance award this year, 
but I may be wrong.
    Mr. Knight. Okay. But we've been having serious problems 
with the VA for several years now. This isn't a 2015 issue or 
2014 issue. We've had severe issues. And there has been 
performance awards previously in the last 5 years with several 
staff, several leadership.
    Again, can you tell me is this something that we have 
written--this isn't something in statute. This is something 
that is by performance goals written in a MOU, in some sort of 
an understanding by the department? Can you kind of----
    Mr. Leney. It's written into a thing called a performance 
plan, which is between the employee and their supervisor. So 
it's not--I don't believe it's in statute, but, again, I 
hesitate to hold forth on this because I'm not a human 
resources expert. I just know how my performance plan was done.
    Mr. Knight. I'm not going to beat this too much, but the 
performance awards, how do we budget that? How does the VA 
budget performance awards? Do they have a certain amount that 
is put into performance awards in a yearly basis and we can use 
them for people who have achieved their goals or exceeded their 
goals?
    Mr. Leney. I could only speak to my own organization. I was 
given nine-tenths of one percent of the salary base in my 
organization for performance awards. So if everybody in my 
organization was great, they would get nine-tenths of one 
percent of their salary in a performance award.
    Mr. Knight. Okay. Or someone could get a much bigger bonus 
if only one or two exceeded their goals.
    Mr. Leney. If only one or two exceeded their goals, they 
could get a bigger bonus, yes, sir.
    Mr. Knight. Okay. I think that the main question that a lot 
of us want answered is over the last 2 or 3 years, what has 
been the leadership change in the VA? What can we kind of look 
to and say: Well, I know we've had these serious problems and 
we've all talked about what's happened in Phoenix, we've all 
talked about what's happened on these death lists and things of 
this nature, and then can we point a serious leadership change? 
Because I can tell you in any department that I've worked at, 
if we've had serious problems like this, the organization would 
look differently the next year, and it would look differently 
from top down. Can we look at that and say that these are the 
people that have been changed? These are the reasons why we 
don't expect this to happen over the next couple of years?
    Mr. Leney. When I was a senior executive in a commercial 
company, I had the opportunity and the authority to change out 
people at will. I don't have that authority. The Secretary 
doesn't have that authority. I think Secretary McDonald has 
made enormous changes both--attempted to make changes in the 
culture of the organization and in the people while doing so 
within the parameters and constraints that he operates under.
    I think there are probably days he wishes he was king for a 
day and could do everything he wanted to do. But he doesn't get 
to operate that way. I am not responsible for many of these 
actions. However, I have had the opportunity to participate in 
many of the discussions and see people who are responsible 
operate. And I got to tell you, there's a lot of people in the 
VA that work very hard on behalf of veterans. Are they all 
perfect? No. Do we make mistakes? Yes. Did we fail to comply 
with the law in reporting all of our procurements? That is 
correct. Are we fixing it? Yes. Have we fixed it? No.
    Mr. Knight. And I agree with you. I think that there are a 
lot of great people in the VA, and I think that most of them 
are looking out for the betterment of our veterans. But the 
problem is, is when you have problems like this and these 
problems get rampant or out of control in a certain regard and 
no one is there to say that these are the problems and we have 
corrected them because we have fired some people, we have 
changed what we're going to do, the procedures are different, 
then it makes us all kind of look and say: Has anything really 
changed?
    And, Mr. Chair, I yield back.
    Mr. Hardy. Thank you.
    I'm going to go with a second round of questions, and I'd 
like to recognize Chairman Coffman if I could.
    Mr. Coffman. All right. Thank you, Mr. Chairman.
    Mr. Leney, I think you said that we failed to report, but 
when we're referring to procurement law, but it's failure to 
adhere to by virtue of going around the system and using 
multiple credit card purchases in violation of the limit that 
would have required contracting. I mean, that's adhere. That's 
not a reporting issue. Why did you say report?
    Mr. Leney. We have both issues. There are people who have 
failed to adhere to the law. There are people who have divided 
contracts. All of those things have happened in our agency. We 
have failed to adhere to the law in terms of accounting for all 
of our procurements. Mr. Frye said an interesting thing. The 
VHA self-reported 9,600 incidents of that. So----
    Mr. Coffman. Okay. Mr. Leney, under the Small Business Act 
you are required to ensure contracts are being properly set 
aside for small businesses. However, there's at least $6 to $10 
billion awarded in amounts subject to the small business 
reserve but not set aside for small business. So did you fail 
to review these because of your verification distractions, or 
did you simply concur with the decision to illegally bypass 
small businesses?
    Mr. Leney. I did not fail to review these because of 
distractions from verification. We do review procurements, as I 
said. And Mr. Frye's office also audits procurements to make 
sure that contracting officers are doing it in accordance with 
the law.
    I must say I don't find anywhere in the Small Business Act 
where it's my responsibility to ensure the execution of 
contracts. That's not my role.
    Mr. Coffman. Mr. Frye.
    Mr. Frye. This afternoon I met with my--or earlier today, I 
should say, I met with my staff regarding these A123 reviews 
that we conduct of contracting across VA. The number one issue 
out there is lack of compliance, and it's ubiquitous.
    We open contracts, of course they're electronic, we find a 
almost total lack of compliance in many areas. I don't blame 
the contracting officers that are out in the field. What I'm 
looking for is leadership starting with the senior leaders of 
each of the administrations and down to their heads of 
contracting activity is their responsibility to run their 
procurement organizations in accordance with the law. And it's 
not being done in all cases. Obviously, in many cases it's not 
being conducted properly. So it's a leadership issue.
    Mr. Coffman. Mr. Leney, I think you said that you're 
correcting these issues--you're taking the initiative to 
correct these issues. But isn't that--didn't that corrective 
action only occur after Mr. Frye, a whistle blower, brought the 
issue forward?
    Mr. Leney. At the time Mr. Frye brought a number of these 
issues forward, he wasn't a whistle blower, to my knowledge. He 
was a senior procurement executive.
    Mr. Coffman. But, you know, and the reason why I bring this 
up is because it just seems like from--VA senior leadership 
never identifies these problems. They're always identified by 
whistle blowers within the organization. I mean, every problem 
that's brought before this committee has never been identified 
by--self-reported by the leadership of the VA. It's always by 
others within the organization that fundamentally care about 
what this organization is doing and whether or not it's meeting 
it's obligations to our Nation's veterans.
    So I just want to, again, express my disappointment in the 
senior leadership of the VA. And it just--and I don't feel--I 
mean, what I feel from you is the same with others that testify 
on behalf of the VA, VA's leadership, is a sense of indignation 
that, you know, we're disappointed we got caught. We don't feel 
like we did anything wrong, and we'll just say the right things 
here, but we'll continue doing what we've always done.
    Mr. Chairman, I yield back.
    Mr. Hardy. Thank you. The chair will now recognize ranking 
member Ms. Adams.
    Ms. Adams. Thank you, Mr. Chair. I just have one question.
    Mr. Leney, would it be fair to say that there is a 
necessity for an overhaul to the way the VA approaches small 
business contracting starting with an increase in transparency 
to acquisitions as a whole?
    Mr. Leney. I believe we are transparent with respect to our 
FAR complaint acquisitions. We have less transparency with 
respect to those things that are operating under other 
controls.
    Ms. Adams. So you don't think transparency is an issue?
    Mr. Leney. I don't think transparency's a very large issue 
with respect to the $19 billion that we put into FPDS. We have 
acknowledged, we have admitted, we've come to this committee 
and stated where we've had problems on things like purchase 
cards, where we've had problems on non-VA care, and I'm stating 
that again today. I'm not trying to hide that we have a problem 
$3.2 billion was spent on non-VA care outside of the FAR. We 
accept that. And it's our responsibility to get it fixed.
    And much of what Mr. Frye has done was done when he was a 
senior procurement executive which he still was prior to him 
declaring himself a whistle blower. And a great deal of action 
has been taken on much of what he has spoken to.
    Ms. Adams. Thank you, Mr. Chair.
    Mr. Hardy. Thank you. I'll now recognize myself for 5 
minutes.
    Mr. Leney, since 1978 the small business director was 
required to make sure that the VA awarded contracts under the 
simplified acquisition threshold to small businesses. This is a 
statutory procurement, 15 U.S.C. 64-K-4. Are you trying to say 
that you just now started this in 2015 and this has been around 
since 1978?
    Mr. Leney. No. We didn't just start it in 2015, Mr. 
Chairman.
    Mr. Hardy. Try that again.
    Mr. Leney. No. We did not just start it in 2015.
    Mr. Hardy. Okay. A discussion was just held just a minute 
ago about whose responsibility it was, and it says: When the 
small business act says that the director of the small business 
is disadvantage utilized, it shall be the responsibility for 
implementation and the execution of the functions and duties 
under Section 8 and 15 of the act related to such agencies. 
That's talking of you. Aren't you responsible for that?
    Mr. Leney. I think under 15 U.S.C. 644 on the paragraph 
you're talking about I'm responsible for the implementation and 
execution of the functions and duties under that section.
    Mr. Hardy. Okay. June 26 of 2012, a memo was sent to you by 
Mr. Frye, and it talks about actions required, and this is for 
approvals are required as below. COs have to sign off. The 
acquisition officer director, the customer, consumer SES level, 
and the contracting officer has to sign off. Basically did you 
send that letter off to your folks?
    Mr. Leney. Mr. Chairman, I was the origin of that letter.
    Mr. Hardy. And you did not send that review out to your 
folks?
    Mr. Leney. That review was sent by the deputy secretary to 
under secretaries and assistant secretaries and key officials. 
It was sent to Mr. Frye to all the contracting officials. My 
folks received it.
    Mr. Hardy. Okay. And the other question I have for you, it 
says here on your evaluation for 2012 and 2013, it says: Tom 
has led the VA efforts to achieve socioeconomic procurement 
goals to increase small business access to the VA procurement 
opportunities. Do you remember what your bonus was for that 
year? For 2013----
    Mr. Leney. No, I don't.
    Mr. Hardy. Almost $9,000. And with now understanding what 
we do, it would probably put you at an F rating rather than an 
A based on the way things have been evaluated. Do you believe 
that the staff was entitled to those kind of bonuses? And 
yourself?
    Mr. Leney. My focus and my mission has been to work on the 
numerator of that number and to make sure that we provided 
access to economic opportunity to small businesses, and I 
believe we did that.
    Mr. Hardy. Okay. I'll yield back. And we got anybody left?
    Okay. We're going to close here. I have a closing 
statement, and I'd like to thank the panel for being here. I 
know it wasn't all fun and games for you, and I don't think any 
of us here meant it to be fun and games.
    I wish I could say that I'll be leaving here today 
confident that the practices detailed by Mr. Frye on March 2015 
letter to the Secretary McDonald are being addressed and that 
the American veterans and small businesses are being well 
served. Unfortunately, everyone seems happy to say how much 
they value these communities, but neither the VA, the SBA, or 
the GSA, nor the OMB seem to be willing to be responsible or 
take responsibility for fixing the problem. Even though what I 
have heard today appears to be a serious and massive violation 
of Antideficiency Act, the Small Business Act, the Veteran's 
First Law and the Federal Funding Accountability Transparency 
Act. No one being held accountable.
    Based on what we've heard here today, it is evident to me 
that the VA and the Obama administration have failed our 
veterans, small business owners, and American taxpayer. For 
this I give these agencies and this administration an F. When 
the executive branch fails to act responsibly, we in Congress 
need to revisit the authorities provided to those agencies, and 
I look forward to working with my colleague Chairman Coffman 
and all the other members, respective committees, to ensure 
that our Nation's laws are upheld, our veterans are honored, 
and our small businesses thrive--until our small businesses 
thrive.
    I would like to recognize Chairman Coffman if--he's not 
here.
    With that being said, I'd like for unanimous consent that 
all members have 5 legislative days to revise and extend their 
remarks and include extraneous materials. Without objection, so 
ordered.
    I'd like to once again thank you all for being here, and 
all the witnesses and members who have joined us today on this 
conversation. With that, the hearing is adjourned.
    [Whereupon, at 5:44 p.m., the subcommittees were 
adjourned.]

                                APPENDIX

                   Prepared Statement of Jan R. Frye

    Chairman Coffman, Ranking Member Kuster, and Members of the 
Subcommittee, thank you for inviting me to testify today.
    In a June 11, 2015 letter to VA Secretary McDonald, you invited me 
to testify as a witness on behalf of VA, along with my colleagues 
Messrs. Leney and Doyle. I was intentionally excluded by the VA 
leadership, and do not appear before you today as a VA witness. I 
appear today of my own volition, as a VA whistleblower, representing 
American taxpayers and America's military veterans.
    As you know, I alleged massive violations of acquisition and fiscal 
laws to Secretary McDonald in March 2015. As you are also aware, I 
received no response from him regarding my disclosures. Thus, I was 
compelled to report them to this Congressional body. In the first of 
now three joint hearings, beginning May 2015, I reported that some VA 
senior leaders have willfully violated the public trust, debasing 
Federal procurement and financial laws.
    A reasonable person might conclude my disclosure of illegal acts 
would be accepted with open arms by VA's leadership for further 
investigation. That has not been the case. My intentional removal as a 
VA witness for this hearing is irrefutable proof of continuing scorn 
for those who attempt to uphold the public trust. Further, these VA 
leadership actions serve to cast a chill upon future potential whistle 
blowers.
    We have a senior-leader integrity malaise in VA. Like substance 
abusers before the journey to recovery, we will not be cured until we 
admit we have a disease. During the June 1 hearing on these matters, 
you heard one of VA's chief law enforcers testify emphatically, that 
violating U.S. Federal statutes and regulations is not ``illegal'' but 
just ``improper.'' In my opinion, parsing words in this manner is a 
stark reflection of our denial, and exemplifies just how low some VA 
senior leaders will stoop to avoid culpability and protect themselves. 
As Government servants, we did not take an oath to serve ourselves.
    Massive violations of public trust continue unabated. In the past 
several weeks, it was disclosed that VHA officials committed 
approximately 2000 illegal transactions for kidney dialysis from 
October 2014 to May 2015. This represents 34 percent of the 
transactions under these multiple-award contracts. These are 
unauthorized commitments that require ratification before payment. 
However, payments have already been made, in violation of Federal 
fiscal law.
    This month, the VA Office of Inspector General reported theft of 
approximately $225,000 by a VHA, West Roxbury, NY employee, using a 
government purchase card. This theft was avoidable, and occurred 
because required internal controls in VHA and the Department are 
lacking. These funds will never be returned to VA to take care of 
veterans. Over a year ago, I personally authored a new policy that 
would vastly improve internal controls in use of purchase cards for 
contract payment. VHA rejected the policy. It was apparently 
``inconvenient'' for them to execute.
    In this hearing we will discuss VA's failure to accurately report 
our small-business goal accomplishment. We are guilty. In doing so, we 
have deceived the veteran owned small-business community, while 
violating federal laws. I have previously alleged that billions of 
dollars, extended over multiple years, have not been placed under 
contract as required, and thus have not been reported in the Federal 
Procurement Data System as our VA total-spend denominator for 
contracting.
    Today, I am providing this subcommittee information concerning one 
of the most deceptive schemes I have uncovered in my 41 years of 
government service. Each year VHA purchases over $1B in medical/
surgical products. All of these products must be procured in accordance 
with Federal contracting laws. Departmental policy requires most be 
obtained through our medical/surgical prime vendors, who serve as 
distributors, using Federal Supply Schedules (FSS) as underlying 
contracts. I first learned we had hatched a scheme that avoids use of 
FSS in late 2014. We pretend to use them; we have never informed OMB or 
the public we are not using them; but in fact, we are not. Using a 
convoluted ruse, we buy products off a ``shopping list'' while throwing 
Federal acquisition laws to the wind.
    We are illicitly and deceptively pretending that Federal Supply 
Schedules are being used while executing open-market purchases. Federal 
Supply Schedules do not require small business set-asides. Open-market 
purchases do require set-aside consideration. Our illegal behavior 
allows us to avoid set asides, intentionally fencing these purchases 
from small businesses. In these acts, exceeding $1B annually, we are in 
violation of Federal procurement law, as well as the Small Business and 
the Veterans First Acts.
    After learning of these shocking practices in late 2014, I 
attempted to rally VHA senior leaders, as well as my supervisor, to 
systematically cease these unlawful deeds. I have been totally thwarted 
in my efforts to get VHA to properly place their products on contract.
    We weave a tangled web. In previous hearings I have outlined VA's 
failure to award billions of dollars for products and services via 
contracts, which is illegal and affords potential harm to veterans. 
These failures led to massive understatements of our annual total spend 
for multiple years in Federal Procurement Data System. In a domino 
effect, this resulted in overstatement of Departmental small-business 
goal accomplishments. And finally, as revealed today, we further duped 
the American public and the veteran-owned small-business community with 
deception using Federal Supply Schedules. It is my opinion these acts 
combined and separately constitute corruption and gross mismanagement.
    I conclude with this rhetorical question, which I posed to 
Secretary McDonald in my March report to him: Without demonstration of 
responsible stewardship, why would the American public support ever-
increasing and generous annual Congressional appropriations, to care 
for our nations veterans?
    Mr. Chairman, this concludes my statement, and I am prepared to 
answer any questions this Committee may have.

                                 

               Prepared Statement of Mr. Thomas J. Leney

    Good afternoon, Chairmen Coffman and Hardy, Ranking Members Kuster 
and Adams, and Members of the Subcommittees. I appreciate the 
opportunity to address your concerns about the validity of the 
Department's data on our small business goals. I am joined today by Mr. 
Norbert Doyle, Chief Procurement and Logistics Officer of the Veterans 
Health Administration (VHA).
    The Department of Veterans Affairs (VA) is a significant 
contributor to the Government's efforts to ensure a fair proportion of 
contracting dollars are awarded to small business. According to the 
Federal Procurement Data System (FPDS), in Fiscal Year (FY) 2013, VA 
was the fourth-largest Federal agency in terms of contract spend. Out 
of $18.3 billion in FY 2013 reported contract spend, FPDS indicates VA 
awarded over 36 percent to small businesses. VA also reported more 
dollars awarded to service-disabled Veteran-owned small businesses than 
all other Federal civilian agencies combined.
    These are results that translate into real dollars and real 
opportunities in the hands of small businesses and Veteran 
entrepreneurs. Ensuring these metrics accurately and completely report 
the Department's commitments to small business is important.
    The Small Business Administration (SBA) issues the official agency 
scorecard. SBA receives a data extract of small business prime 
contracting performance from FPDS-NG, which is an extract of all of the 
contracting data entered by the various agencies.
    The Federal Acquisition Regulation (FAR) places the responsibility 
for reporting contract actions to FPDS on the contracting officer. The 
contracting officer reports contract actions on FPDS by completing 
contract action reports. A contract action report is required for 
contract actions which are ``any oral or written action that results in 
the purchase, rent, or lease of supplies or equipment, services, or 
construction using appropriated dollars over the micro-purchase 
threshold [generally, $3,000], or modifications to these actions 
regardless of dollar value'' (FAR 4.601). The Senior Procurement 
Executive and the Head of the Contracting Activity are collectively 
responsible for ``developing and monitoring a process to ensure timely 
and accurate reporting of contractual actions to FPDS'' (FAR 4.604 
(a)). Annually, the VA certifies its data in FPDS to the General 
Services Administration (GSA) and Office of Management and Budget (OMB) 
that the data it has entered into FPDS is complete and accurate. After 
which, SBA uses the FPDS data to formulate VA's, and other agencies, 
Scorecard.
    VA's Office of Acquisition and Logistics (OAL), headed by the 
Senior Procurement Executive, has a data system that facilitates the 
timely and accurate reporting of contract actions The Electronic 
Contract Management System (eCMS), VA's contract-writing system, 
provides a range of functionality to support contract actions above the 
micropurchase threshold, including award of definitive contracts, 
modifications and options, and orders against the Federal Supply 
Schedules. eCMS currently enables a program office to plan and transmit 
requirements to an acquisition office, and for the contracting staff to 
execute the transaction all the way to award and retain source 
documents electronically. Before eCMS will allow the contracting 
officer to make the award, he or she must submit a contract action 
report to FPDS. This system has significantly strengthened VA's 
compliance with the FAR reporting requirement.
    VA still encounters risk in FPDS reporting associated with actions 
performed outside of eCMS. The FAR allows for ``express'' reporting of 
batches of transactions from the same vendor, when separate reporting 
of each individual transaction would be burdensome (FAR 4.606(a)(3)). 
If this method is utilized, the express reporting should be performed 
on at least a monthly basis. For example, VA's Consolidated Mail 
Outpatient Pharmacies provide a monthly report on the amount of 
pharmaceuticals purchased against the Pharmaceutical Prime Vendor 
contract to provide outpatient medicines to Veterans. VA has improved 
its timeliness of aggregating and submitting these express reports to 
FPDS.
    VA formerly reported its prosthetic spend similarly, using this 
express report function to ``batch'' reports of prosthetics buys 
conducted through the Graphical User Interface in the Veterans Health 
Information Systems and Technology Architecture. However, VA re-
examined its interpretation of the FAR requirements and determined that 
all prosthetics spend above the micropurchase threshold must be awarded 
and reported by warranted contracting officers. As of October 1, 2013, 
all VHA prosthetic procurements are in compliance. We believe this 
issue now has been addressed adequately. As of June 15, 2015, eCMS 
showed 57,047 prosthetics transactions,\1\ representing $730.6 million 
in spend. Of these transactions, 56,884 records included an appropriate 
code indicating they had been reported to FPDS. This is a 99.7% 
compliance rate. These prosthetics transactions are and will continue 
to be included in analysis of VA's small business achievements based on 
FPDS data.
---------------------------------------------------------------------------
    \1\ Prosthetic transactions reported in eCMS are for purchases 
above the $3000.00 micro-purchase threshold, e.g., artificial limbs, 
surgical implants, specialized custom wheelchairs and home adaptations.
---------------------------------------------------------------------------
    VA will continue to redress identified concerns with our 
procurement process and address new issues as they arise. For example, 
VHA has been implementing the Veterans Access, Choice, and 
Accountability Act of 2014. This will have policy and data reporting 
consequences which we are beginning to address. Although we will 
continue to work through these issues, we do not know how these 
transactions will ultimately affect our small business achievements.
    Additionally, OAL is seeking to improve infrastructure to better 
support efficient transactions to eCMS that will improve interfaces 
with VA's legacy systems and improve our ability to provide an 
enterprise-wide view of VA procurement. I appreciate that OAL has 
included my office as an active participant in this effort. Small 
business goal forecasting and reporting is a cross-cutting requirement 
that affects numerous other business processes across the Department.
    Continued improvements in our data systems, consistent use of eCMS, 
and timely reporting of express reports will heighten the Department's 
ability to report accurate and complete procurement data for SBA to use 
in determining small business goal outcomes. In an environment of quick 
and continuous change, we have worked to resolve identified concerns, 
anticipate future needs and address new issues as they arise. We 
welcome the input of our Congressional partners as we work to better 
serve Veterans in achieving the Department's small business goals.
    Thank you for the opportunity to appear before you today. My 
colleague and I will be pleased to answer any questions you or other 
Members may have.

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