Department of Veterans Affairs 

Office of Inspector General 

Audit of 

Consolidated Mail 

Outpatient Pharmacy 

Contract Management 

Report No. 09-00026-143 June 10, 2009 

VA Office of Inspector General 

Washington, DC 20420 
To Report Suspected Wrongdoing in VA Programs and Operations,

Telephone: 1-800-488-8244 between 8:30 and 4:00 PM Eastern Time

Monday through Friday, excluding Federal Holidays

E-mail: vaoighotline@va.gov
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Contents 

Page 

Executive Summary ................................................................................................... i-iii 

Introduction ...................................................................................................................... 1 

Results and Conclusions ............................................................................................. 3 

Stronger Contract Development Controls Will Help Ensure 

Cost-Effective Services ....................................................................................................... 3 

Better Oversight of Contract Monitoring Will Help Ensure 

Contractor Performance ....................................................................................................... 6 

Recommendations ......................................................................................................... 8 

Appendixes

A. Objectives, Scope, and Methodology .......................................................................... 10 

B. Monetary Benefits in Accordance with IG Act Amendments ..................................... 12 

C. Acting Under Secretary for Health Comments ............................................................ 13 

D. Executive Director for Acquisition, Logistics, and Construction Comments ............. 15 

E. OIG Contact and Staff Acknowledgments .................................................................. 17 

F. Report Distribution ...................................................................................................... 18 

VA Office of Inspector General 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Executive Summary 

Results in Brief 

The Office of Inspector General (OIG) performed this audit to determine if Consolidated 

Mail Outpatient Pharmacy (CMOP) contracting processes comply with Federal 

acquisition requirements and if CMOPs effectively monitor contracts. 

CMOPs, which are organizationally aligned under the Veterans Health Administration’s 

(VHA) Pharmacy Benefits Management (PBM) service, provide pharmaceuticals to 

Department of Veterans Affairs (VA) patients using automated order processing and 

delivery systems. VA has seven CMOPs that serve VA patients nationwide. In fiscal 

year (FY) 2008, CMOPs dispensed 97.4 million (77.4 percent) of the 125.9 million total 

prescriptions for VA patients. CMOP costs totaled about $2.6 billion, of which 

$2.3 billion was for pharmaceuticals and about $231 million was for operating services 

and supplies. Although the amount spent on services and supplies is small relative to 

overall CMOP costs, we considered the risk of additional fraud or ineffective controls to 

be high since previous fraud investigations focused on CMOP service and supply 

procurements. 

VA needs to improve CMOP contract management. Although the National CMOP 

Office generally complied with Federal and VA acquisition requirements when 

developing, competing, and monitoring contracts, CMOP managers did not always 

ensure that the contracts were effective, were economical, and adequately protected VA's 

contractual interests. We identified two issues pertaining to contract development and 

contract monitoring. For one of six contracts we reviewed for contract development, the 

National CMOP Office did not comply with Federal acquisition requirements. In 

addition, for three of 13 contracts we reviewed for contract monitoring, we identified a 

significant risk that CMOPs could overpay for contract services valued at $40.7 million 

due to poor monitoring controls. Without effective controls over contract development 

and monitoring, VA lacks reasonable assurance that CMOPs are procuring supplies and 

services cost-effectively and that contracted supplies and services are received in 

accordance with contract terms. 

Stronger Contract Development Controls Will Help Ensure Cost-Effective Services. 

One of the six contracts did not meet Federal and VA acquisition requirements. In 2008, 

officials at the National CMOP Office awarded a 3-year, $808,837 contract to transport 

and store computer backup data for all seven CMOPs without fully considering noncontract alternatives, ensuring competition, and adequately determining price 

reasonableness as required by the Federal Acquisition Regulation (FAR) and VA 

Acquisition Regulations (VAAR). This occurred because CMOP management did not 

have policies and procedures in place to review contract requirements and contracting 

practices. As a result, VA had no assurance that the most cost-effective backup storage 

VA Office of Inspector General i 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

option was selected, that the contract price was fair and reasonable, or that the 

Government’s interests were protected in this procurement. Management reviews of 

contract requirements and contracting practices could have saved VA at least 

$724,426 on this contract. 

Better Oversight of Contract Monitoring Will Help Ensure Contractor 

Performance. For 3 of the 13 contracts, contracting officer technical representatives 

(COTRs) and other authorized staff who function as COTRs certified invoices for 

payment without verifying the accuracy of the invoices and ensuring that the required 

services were provided at the agreed upon contract rates. This occurred because 

contracting officers did not specify effective monitoring procedures and did not 

adequately oversee COTR activities. FAR and VAAR require contracting officers to 

ensure compliance with contract terms and allow them to appoint COTRs to monitor 

contractor performance and certify contractor invoices for payment. Although we found 

no evidence of specific contract overpayments, lack of effective monitoring procedures 

increases the risk that the CMOPs will overpay for services or pay for services not 

received. Because the high value of these three contracts, about $40.7 million, 

inadequate monitoring could have resulted in large overcharges. 

Conclusion 

Strong management controls over contract development and monitoring help ensure VA 

obtains supplies and services cost-effectively and reduce the risk of contract fraud, abuse, 

and mismanagement. Contract managers need to ensure feasible alternatives are 

evaluated, contract requirements do not unnecessarily restrict competition, and contract 

prices are fair and reasonable. In addition, since contracting officers are ultimately 

responsible for performance of the contracts they manage, they need to specify the 

procedures the COTRs use to monitor contracts, and then oversee contract monitoring by 

the COTRs, to ensure that CMOPs receive the services and supplies required at the rates 

specified in the contracts. 

Recommendations 

During our audit, the authority over CMOP contracting officers transferred from the 

National CMOP Office to VA's National Acquisition Center (NAC); therefore, our audit 

report makes four recommendations addressed to VHA’s Acting Under Secretary for 

Health and VA’s Executive Director for Acquisition, Logistics, and Construction. 

1. We recommended that the Acting Under Secretary for Health require the National 

CMOP Office to establish management review processes for determining CMOP 

contract needs and evaluating the cost-effectiveness of procurement alternatives. 

VA Office of Inspector General ii 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

VA Office of Inspector General iii 

2. We recommended that the Acting Under Secretary for Health require the National 

CMOP Office to assess the continued need for the current backup data storage 

contract. 

3. We recommended that the Executive Director for VA Acquisition, Logistics, and 

Construction require the NAC to establish oversight procedures to ensure that CMOP 

contracting officers comply with FAR and VAAR. 

4. We recommended that the Executive Director for VA Acquisition, Logistics, and 

Construction require CMOP contracting officers to specify monitoring procedures for 

their assigned contracts when appointing COTRs, to evaluate the effectiveness of 

contract monitoring at least annually, and to take corrective action when warranted. 

Acting Under Secretary for Health Comments 

The Acting Under Secretary for Health agreed with the findings, recommendations, and 

monetary benefits in the report and provided acceptable implementation plans. (See 

Appendix C for the full text of the comments.) The Acting Under Secretary reported that 

VHA will develop a process to review CMOP contract needs and evaluate the costeffectiveness of procurement alternatives. In addition, PBM officials and the CMOP 

Chief of Information Technology will conduct a risk assessment to determine the 

continued need for the current backup data storage contract. 

Executive Director of VA Acquisition, Logistics, and Construction 

Comments 

The Executive Director, Acquisition, Logistics, and Construction also agreed with the 

findings, recommendations, and monetary benefits in the report and provided acceptable 

implementation plans. (See Appendix D for the full text of the comments.) The 

Executive Director reported that his office has implemented procedures for supervisors to 

review contract actions to ensure compliance with acquisition and legal/technical review 

requirements. Furthermore, the CMOP staff has completed general COTR training, and 

contracting officers will ensure that COTRs are trained on individual contract 

requirements and establish monitoring procedures when they delegate their authority. 

OIG Response 

We consider the Acting Under Secretary’s and Executive Director’s planned actions 

acceptable, and we will follow up on their implementation. 

 (original signed by:) 

 BELINDA J. FINN 

Assistant Inspector General 

for Auditing 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Introduction 

Purpose 

The OIG performed this audit to determine if CMOP contracting processes comply with 

Federal acquisition requirements and if CMOPs effectively monitor contracts. The audit 

included reviews of CMOP contract development, contract monitoring, and purchasing 

practices.

Background 

Description and Workload of CMOPs. CMOPs provide pharmaceuticals to VA 

patients using automated order processing and delivery systems. The first CMOP began 

operations in 1994 in Leavenworth, KS. Since then, six additional CMOPs have been 

added at Murfreesboro, TN; Charleston, SC; Hines, IL; Chelmsford, MA; Dallas, TX; 

and Tucson, AZ. The seven CMOPs mail pharmaceuticals to VA patients throughout the 

United States. 

In FY 2008, CMOPs dispensed 97.4 million (77.4 percent) of the 125.9 million total 

prescriptions for VA patients. FY 2008 CMOP costs totaled about $2.6 billion. Of that 

amount, $2.3 billion was for pharmaceuticals for patients. CMOPs also purchased about 

$231 million in operating services and supplies. Although this amount is small relative to 

overall CMOP costs, we considered the risk of additional fraud or ineffective controls to 

be high since previous fraud investigations focused on CMOP services and supplies. 

CMOP Acquisition Management. The seven VA CMOPs operate under the direction 

of VHA’s PBM service. The National CMOP Office in Leavenworth, KS provides 

financial management and logistics support to the seven CMOPs. 

Until FY 2007, each CMOP director was responsible for acquiring the services and 

supplies the CMOP needed. The CMOP organization was not staffed to manage 

contracts or oversee CMOP purchasing. CMOPs obtained contracting support primarily 

from local Veterans Integrated Service Networks (VISNs) or VA medical centers 

(VAMCs), and no other organization oversaw CMOP purchasing. In 2007, PBM 

initiated significant changes in CMOP acquisition management. The National CMOP 

Office added a contracting and logistics management section and began centralizing all 

CMOP contracting at Leavenworth. It hired contracting officers to manage all CMOP 

contracts and two senior supply managers to oversee purchasing and supply management 

at the seven CMOPs. Each CMOP also hired a logistics manager to strengthen 

purchasing controls and inventory management at the CMOP level. 

In December 2008, under the terms of a memorandum of understanding between PBM 

and VA Office of Acquisition and Logistics' NAC, the National CMOP Office transferred 

VA Office of Inspector General 1 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

the responsibility for all CMOP contracting and its contracting staff to the NAC. VA’s 

Executive Director for Acquisition, Logistics, and Construction has overall authority for 

the NAC. The NAC had previously provided contracting support and technical guidance 

to CMOP contracting officers when requested, but had no oversight responsibility. 

Methodology 

To review contract development and performance monitoring, we selected 13 CMOP 

service and supply contracts in effect on September 30, 2008. Our review of contract 

development focused on the six sample contracts that had been awarded by CMOP 

contracting officers and did not include contracts administered by CMOP contracting 

officers after being previously awarded by other offices. Our review of contract 

monitoring included all 13 sample contracts. We also reviewed current CMOP 

purchasing requirements, practices, and controls established by the National CMOP 

Office, assessed their effectiveness by reviewing purchasing practices at two randomly 

selected CMOPs. 

VA Office of Inspector General 2 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Results and Conclusions 

VA needs to improve CMOP contract management. Although the National CMOP 

Office generally complied with Federal and VA acquisition requirements when 

developing, competing, and monitoring contracts, CMOP managers did not always 

ensure that contracts for services were effective, were economical, and adequately 

protected VA's contractual interests. 

Specifically, we identified two issues—one pertaining to contract development and one to 

contract monitoring. For one of six contracts we reviewed for contract development, the 

National CMOP Office lacked adequate procedures for reviewing contract requirements 

and ensuring adequate competition and fair and reasonable prices. In addition, for three 

of 13 contracts we reviewed for contract monitoring, we identified a significant risk that 

CMOPs could process contractor payments in excess of the contract terms. Without 

effective controls over contract development and monitoring, VA lacks reasonable 

assurance that CMOPs are procuring supplies and services cost-effectively and that 

contracted supplies and services are received in accordance with contract terms. 

Stronger Contract Development Controls Will Help Ensure CostEffective Services 

One of the six contracts we reviewed did not meet Federal and VA acquisition 

requirements. In 2008, the National CMOP Office awarded a 3-year, $808,837 contract 

to transport and store computer backup data for all seven CMOPs without fully 

considering non-contract alternatives, ensuring competition, and adequately determining 

price reasonableness as required by the FAR and VAAR. This occurred because CMOP 

management did not have procedures in place to review contract requirements and 

contracting practices. As a result, VA had no assurance that the most cost-effective 

backup storage option was selected, that the contract price was fair and reasonable, or 

that the Government’s interests were protected in this contract. Management reviews of 

contract requirements and contracting practices could have saved VA at least 

$724,476 over the 3-year period of this contract. 

The National CMOP Office's Chief of Information Technology developed the contract 

requirements that called for transportation and storage of backup computer data for all 

seven CMOPs and for all storage locations to be at least 50 miles away from the CMOPs. 

Although the contract solicitation required full and open competition, only one qualified 

offeror responded, and the contracting officer negotiated the contract prices with the 

offeror. The resulting 3-year contract had a total cost of $808,837 ($269,612.18 per year 

for 3 years). 

Cost-Effective Alternatives Were Not Considered. As part of acquisition planning, 

FAR 7.105 requires agencies to consider acquisition alternatives. CMOP information 

VA Office of Inspector General 3 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

technology (IT) officials requested the data backup contract and developed the contract 

requirements. Both the CMOP contracting officers and their supervisors relied on the IT 

officials to consider non-contract alternatives. However, we found no evidence that 

CMOP IT officials considered storing their backup data at other VA facilities, even 

though CMOPs are subject to the same security backup requirements as VAMCs. A 

CMOP IT manager told us that he did not consider the feasibility of storing backup data 

at other VA facilities because he was skeptical that other facilities were meeting VA 

security requirements, and he believed that a single contractor could best meet CMOP 

data storage requirements. 

We interviewed the information security officers (ISOs) at seven VAMCs located near 

each of the seven CMOP locations to determine if existing VAMC backup services were 

available for CMOP use. ISOs at five of the VAMCs told us that they could provide 

backup services to the nearby CMOPs at no cost. The other two ISOs stated that their 

VAMCs used local contract services and obtained the services at much lower costs than 

the CMOP contract (approximately $13,400 per year for the two VAMCs). By using 

existing VA resources to transport and store their backup data when feasible, CMOPs 

could have obtained the required services at little or no cost. CMOP IT managers 

acknowledged that they should have considered using existing VA resources before 

requesting a contract for backup storage services, and national CMOP managers agreed 

that their reviews of contract requests needed to include IT requirements. 

Overly Restrictive Requirements Limited Competition. Subpart 6.1 of the FAR requires 

contracting officers to promote and provide for full and open competition. One way they 

may do this is through the use of competitive proposals from different vendors. For this 

contract, the contracting officer solicited competitive bids based on contract requirements 

developed by CMOP IT officials. The requirements called for a single vendor to bid on 

transportation and storage of computer backup data for all seven CMOPs because both 

the requesting official and the contracting officer believed it was easier to administer a 

single vendor contract than contracts for multiple vendors serving individual CMOPs. 

Furthermore, the requirements stipulated that data storage sites must be at least 50 miles 

from the CMOPs. The National CMOP Office did not have a management review 

process to evaluate the contract requirements to determine if they were valid, accurate, 

and consistent with usual VA business practices. 

In response to the contract solicitation, the CMOP received only one qualified offer with 

proposed prices that were much higher than expected. The contracting officer attempted 

to obtain additional bids by re-announcing the solicitation through another source but did 

not evaluate the contract requirements or did not work with CMOP IT officials to 

determine if the requirements were too restrictive. After re-announcing the solicitation 

and still receiving only one qualified offer, the contracting officer awarded the contract to 

the vendor. The resulting contract price far exceeded the initial contract estimate of 

VA Office of Inspector General 4 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

$60,000 per year, as well as the prices this same vendor offered through a Federal Supply 

Schedule (FSS) contract with less rigorous storage location distance requirements. 

The contract requirement specifying that all data storage locations must be located at 

least 50 miles from the CMOPs was based on a CMOP IT manager's interpretation of 

VA’s off-site data storage policy contained in VA Handbook 6500, “Information Security 

Program.” This policy does not require that data be stored at least 50 miles away; 

instead, it requires that facilities conduct a local risk assessment to determine a sufficient 

distance. The CMOP IT managers were aware that the policy did not explicitly require a 

50-mile distance. They adopted a 50-mile requirement to ensure that their facilities 

would pass IT data storage security inspections. However, according to the Director of 

Strategic Operations for the Office of Information Technology Oversight and 

Compliance, application of a 50-mile rule would be arbitrary and distance requirements 

should be based on local risk assessments. 

We compared the rates charged under the current CMOP contract with rates that would 

have been charged under the FSS data storage contract discussed above. For the current 

contract, the estimated cost for storage and transportation services for all seven CMOPs 

for 1 year was $269,612. However, charges for all seven CMOPs for the same services 

and period under the FSS contract would have cost about $28,120, a difference of 

$241,492. Over the 3-year term of the contract, the savings in contract costs to VA 

would be $724,476 ($241,492 annual savings for 3 years). 

Price Reasonableness Was Not Determined. According to FAR 15.4, it is the contracting 

officer’s responsibility to determine that services acquired by the Government are 

obtained from responsible sources at fair and reasonable prices. To determine fair and 

reasonable prices, the contracting officer may use various price analysis or cost analysis 

techniques, including price competition or comparing prices to independent government 

estimates. If the contracting officer cannot obtain adequate information from sources 

other than the offeror, the contracting officer must require submission of information 

other than cost or pricing data from the offeror to determine fair and reasonable prices. 

Because only one vendor submitted a bid for this contract, the contracting officer could 

not use price competition to determine fair and reasonable prices. Therefore, the 

contracting officer should have performed other analyses using additional information 

obtained from independent sources and/or the vendor. The contracting officer obtained a 

detailed breakdown of storage costs, which represented about 2 percent of the total 

contract value, but did not obtain detailed transportation cost or pricing information from 

the offeror and transportation pricing information from other vendors to compare with the 

offeror's prices. Without price competition, comparisons with government estimates, or 

other price or cost analyses, the contracting officer had no way to determine that the 

contract prices were fair and reasonable. 

VA Office of Inspector General 5 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

CMOPs Need Strong Oversight of Contract Development. These contract 

development problems occurred because the National CMOP Office had not developed 

procedures for reviewing contract requirements or ensuring contracting officers complied 

with FAR and VAAR. CMOP officials did not ensure that IT contract requirements were 

not unnecessarily restrictive or that IT officials had considered other cost-effective 

alternatives. In addition, CMOP managers did not ensure contracts complied with FAR 

and VAAR because they did not participate in contracting actions unless a contracting 

officer sought assistance from them. 

During our audit, the National CMOP Office transferred its contracting activities to the 

NAC under a memorandum of understanding between PBM and the NAC. We consider 

this to be a positive move towards strengthening oversight of CMOP contracting officers 

and ensuring that CMOP contracts meet Federal and VA contracting requirements. 

However, this action does not replace the need for strong oversight of contract requests 

by CMOP officials. 

Better Oversight of Contract Monitoring Will Help Ensure Contractor 

Performance 

For three of the 13 contracts, COTRs and other authorized staff who function as COTRs 

certified invoices for payment without verifying the accuracy of the invoices and 

ensuring that the required services were provided at the agreed upon contract rates. This 

occurred because contracting officers did not ensure that COTRs established effective 

monitoring procedures and did not adequately oversee COTR activities. Although we 

found no evidence of contract overpayments through our review of contract charges 

where documentation was available, the lack of effective monitoring procedures 

increases the risk that the CMOPs will overpay for services or pay for services not 

received. FAR 1.602 requires contracting officers to ensure compliance with contract 

terms and VAAR 801.603-70 allows them to appoint COTRs to monitor contractor 

performance and certify contractor invoices for payment. 

Mail Distribution Contracts. Monitoring of two mail distribution contracts (total 

value=$39.2 million) at five CMOPs was not effective, which could have resulted in 

overcharges. CMOPs use mail distribution contracts to obtain postal pricing discounts by 

pre-sorting mail by geographic destination. Mail distribution companies bill the CMOPs 

based on the postage applicable to the weight of each package shipped. 

The COTRs at the five CMOPs using these contracts routinely authorized payment of 

contractor invoices without first verifying the accuracy of the contractors' charges. 

Contracting officers did not specify monitoring procedures for verifying the accuracy of 

contract charges in either the contracts or their COTR delegation letters, and COTRs did 

not identify the need to verify contractor charges. Monitoring procedures should have 

included a method of comparing the number of packages billed to the number shipped by 

VA Office of Inspector General 6 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

the CMOPs and a method of testing package weights to ensure that the rates applied to 

individual packages were accurate. 

After we brought these monitoring problems to the attention of CMOP managers, we 

worked with CMOP staff to design tests to verify and validate current mail distribution 

contractor billings for December 2008 and January 2009. Our tests indicated that the 

contractors were not currently overcharging the CMOPs. However, we were unable to 

verify the accuracy of FY 2008 charges because neither the CMOPs nor the contractors 

maintain data longer than about 45 days because of their limited ability to store the high 

volume of data they process. 

Janitorial Service Contract. In addition, for a $1.5 million 5-year contract for janitorial 

services, the COTR did not review contractor invoices or verify the accuracy of overtime 

hours and rates charged. Instead, another CMOP program specialist inappropriately 

certified all janitorial contract invoices for payment without knowing whether the 

contractor had satisfactorily performed the required services or charged the correct prices. 

The program specialist was unfamiliar with the contract terms, and the COTR did not 

discuss contractor performance with the program specialist. The contracting officer had 

provided general monitoring instructions for the COTR but did not oversee contract 

monitoring to ensure that the COTR's monitoring practices were effective. Although we 

confirmed the contractor had charged the correct rates in FY 2008, reviews of contractor 

invoices by the COTR are needed to prevent possible future contractor overcharges. 

CMOPs Need Clear Monitoring Procedures and Oversight. These contractmonitoring weaknesses occurred because contracting officers did not ensure that COTRs 

established effective monitoring procedures and did not adequately oversee COTR 

activities. According to FAR, contracting officers are ultimately responsible for ensuring 

compliance with contract terms. 

Monitoring Procedures. COTRs did not develop effective procedures for verifying 

contractor charges because they needed more specific guidance, particularly when 

monitoring complex mail distribution contracts. When contracting officers designate 

COTRs, they provide them general instructions on contract monitoring, and COTRs 

receive general contract monitoring training. However, neither the contracting officers 

nor CMOP managers developed specific monitoring procedures for ensuring contractor 

charges were accurate. 

Oversight of COTR Activities. Contracting officers did not oversee monitoring for any 

of the three contracts or ensure that the required services were provided at the agreed 

upon contract rates. The contracting officers assigned to manage CMOP contracts we 

reviewed stated they expected the COTRs to contact them in the event of a significant 

problem in contractor performance and that it was not their responsibility to ensure that 

contracts are effectively monitored. 

VA Office of Inspector General 7 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Although we did not identify actual overcharges for the contracts we reviewed, 

ineffective contract monitoring significantly increases the potential for contractor 

overcharges. Because the value of these three contracts was high, about $40.7 million, 

inadequate monitoring could have resulted in large overcharges. 

Conclusion 

Strong management controls over contract development and monitoring help ensure VA 

obtains supplies and services cost-effectively and reduce the risk of contract fraud, abuse, 

and mismanagement. Contract managers need to ensure feasible alternatives are 

evaluated, contract requirements do not unnecessarily restrict competition, and contract 

prices are fair and reasonable. In addition, since contracting officers are ultimately 

responsible for performance of the contracts they manage, they need to specify the 

procedures the COTRs use to monitor contracts, and then oversee contract monitoring by 

the COTRs, to ensure that CMOPs receive the services and supplies required at the rates 

specified in the contracts. 

Recommendations 

1. We recommended that the Acting Under Secretary for Health require the National 

CMOP Office to establish management review processes for determining CMOP 

contract needs and evaluating the cost-effectiveness of procurement alternatives. 

2. We recommended that the Acting Under Secretary for Health require the National 

CMOP Office to assess the continued need for the current backup data storage 

contract. 

3. We recommended that the Executive Director for Acquisition, Logistics, and 

Construction require the NAC to establish oversight procedures to ensure that CMOP 

contracting officers comply with FAR and VAAR. 

4. We recommended that the Executive Director for Acquisition, Logistics, and 

Construction require CMOP contracting officers to specify monitoring procedures for 

their assigned contracts when appointing COTRs, to evaluate the effectiveness of 

contract monitoring at least annually, and to take corrective action when warranted. 

Acting Under Secretary for Health Comments 

The Acting Under Secretary for Health agreed with the findings, recommendations, and 

monetary benefits in the report and provided acceptable implementation plans. (See 

Appendix C for the full text of the Acting Under Secretary’s comments.) In response to 

the recommendations, the Acting Under Secretary reported that VHA will develop a 

process to review CMOP contract needs and evaluate the cost-effectiveness of 

procurement alternatives. In addition, PBM officials and the CMOP Chief of Information 

VA Office of Inspector General 8 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

VA Office of Inspector General 9 

Technology will conduct a risk assessment to determine the continued need for the 

current backup data storage contract. We will follow up on the implementation of the 

planned improvement actions. 

Executive Director for VA Acquisition, Logistics, and Construction 

Comments 

The Executive Director, Acquisition, Logistics, and Construction also agreed with the 

findings, recommendations, and monetary benefits in the report and provided acceptable 

implementation plans. (See Appendix D for the full text of the Executive Director’s 

comments.) The Executive Director reported that his office has implemented procedures 

for supervisors to review contract actions to ensure compliance with acquisition and 

legal/technical review requirements. He also reported that the CMOP staff has completed 

general COTR training. Furthermore, contracting officers will ensure that COTRs are 

trained on individual contract requirements and establish monitoring procedures when 

they delegate their authority. We will follow up on the implementation of the planned 

improvement actions. 

OIG Response 

We consider the Acting Under Secretary’s and Executive Director’s planned actions 

acceptable, and we will follow up on their implementation. We will close the 

recommendations when all proposed actions have been completed. 

 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Appendix A 

Objectives, Scope, and Methodology 

Objectives. The audit objectives were to determine if CMOP contracting processes 

comply with Federal acquisition requirements and if CMOPs effectively monitor 

contracts. 

Scope. The FAR defines contracting as a means of purchasing, renting, leasing, or 

otherwise obtaining supplies or services from nonfederal sources. Contracting includes 

the description of supplies and services required, the selection and solicitation of sources, 

the preparation and award of contracts, and all the phases of contract administration. Our 

review focused on two major areas of CMOP contracting: contract development and 

contract monitoring. Contract development includes contract planning, solicitation, 

evaluation and selection of sources, and award of contracts. Contract monitoring is the 

process of ensuring compliance with the terms of contracts. Our audit evaluated CMOP 

contracting practices and controls in effect during FY 2008. We also evaluated 

significant changes in CMOP contracting management that occurred from October 2008 

through December 2008. 

Methodology. To meet our audit objectives, we reviewed applicable laws, regulations, 

policies, and program guidance; interviewed program officials, CMOP managers, 

contracting officers, and purchasing agents; and analyzed contracts, purchase orders, 

contractor invoices, and supporting documents. 

To review contract development and performance monitoring, we first compiled a list of 

CMOP service and supply contracts and blanket purchase agreements (all referred to as 

contracts) in effect on September 30, 2008. We did not include building lease or utility 

contracts or prime vendor agreements for pharmaceuticals. We verified the accuracy of 

this information by comparing it with CMOP contract files and discussing it with CMOP 

logistics managers. The 42 contracts in the population had a value of about $217 million. 

Of the 42 contracts, CMOP contracting officers had developed 21, the NAC had 

developed six, and VISN contracting officers had developed the remaining 15 contracts 

before the contracts were transferred to the National CMOP Office to manage and 

oversee. 

We categorized the 42 contracts by type of service and assessed the risk of significant 

internal control weaknesses for each category. Based on this risk analysis, we randomly 

selected 13 contracts for review. We focused our review of CMOP contract development 

on the six sample contracts that had been awarded by CMOP contracting officers and did 

not include the contracts currently administered by CMOP contracting officers after 

being previously awarded by a VISN or NAC contracting officer. For our review of 

contract monitoring, we reviewed all 13 sample contracts. A list of the contracts we 

reviewed is shown in Table 1. 

VA Office of Inspector General 10 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Appendix A 

VA Office of Inspector General 11 

Table 1. Sample Contracts Reviewed 

Contract Number Originating Office Service/Supply Description Contract Value 

V769P-0011 CMOP Cleaning Supplies $30,000 

VA769P-0003 CMOP Software Upgrade $96,000 

V769P-0021 CMOP Employee Assistance $92,425 

V769P-0014 CMOP Dispensing Machine Repair $165,769 

V769P-0008 CMOP Off-Site Data Storage $808,837 

V764P-1013 CMOP Mail Management $4,000,000 

VA797BP-0069 NAC Mail Management $21,773,750 

V797P-8100 NAC Drug Repackaging $28,859,127 

V797P-8097 NAC Staffing $4,634,274 

V255P-1185 VISN 15 Staffing $2,990,468 

V247P-0047 VISN 7 Janitorial Services $1,527,434 

763-C80003 VISN 17 Storage Trailer Lease $33,176 

76607BPA-01 VISN 7 Mail Management $17,398,281 

Total Value $82,409,541 

We also reviewed purchases initiated by local CMOPs to determine whether purchasing 

agents selected suppliers in accordance with Federal acquisition requirements and 

whether they ensured that the CMOPs were receiving services and supplies purchased at 

the specified prices. We identified current CMOP purchasing requirements, practices, 

and controls established by the National CMOP Office. To assess the effectiveness of 

national CMOP controls at the CMOPs, we reviewed purchasing practices at two 

randomly selected CMOPs. 

We conducted our audit work from September 2008 through January 2009. Our 

assessment of internal controls focused on those controls relating to our audit objectives. 

We conducted this performance audit in accordance with generally accepted government 

auditing standards. These standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit 

objectives. 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management

Appendix B 

VA Office of Inspector General 12 

Monetary Benefits in Accordance with 

IG Act Amendments 

Recommendations Explanation of Benefits Better Use of Funds

1–2 Strengthen controls over contract 

development and evaluate the 

current need for the backup storage 

contract. 

$724,476 

Total: $724,476 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Appendix C 

Acting Under Secretary for Health Comments 

VA Office of Inspector General 13 

Department of 

Veterans Affairs Memorandum 

Date: May 27, 2009 

From: Acting Under Secretary for Health

Subj: OIG Draft Report, Audit of Consolidated Mail Outpatient Pharmacy Contract Management

To: Assistant Inspector General for Auditing (52) 

1. I have reviewed the draft report, and I concur with the report, 

recommendations, and the monetary benefit. I agree that strong management 

controls over contract development and monitoring will help to ensure that 

supplies and services are obtained cost-effectively, and help to reduce the risk 

of contract fraud, abuse, and mismanagement. 

2. As you know, the National Consolidated Mail Outpatient Pharmacy (CMOP) 

contracting activities were transferred to the National Acquisition Center (NAC) 

during your audit. Nonetheless, oversight of contract requests by CMOP 

officials is still needed. In an effort to better determine CMOP contract needs 

and to evaluate the cost-effectiveness of procurement alternatives, the Deputy 

Chief Consultant Pharmacy Benefits Management (PBM)/CMOP will develop a 

process to review CMOP contract needs and evaluate the cost effectiveness of 

procurement alternatives. The National CMOP Chief Logistics Officer will be a 

key team member is this effort, and officials at the NAC who supervise CMOP 

contracting officers will also be consulted. The Deputy Chief Consultant 

PBM/CMOP will also work with the CMOP Chief of Information Technology to 

assess the backup data storage needs of each CMOP. Based on the results of 

this assessment, new contract requirements will be developed and a new 

contract awarded. The new contract will undergo the new contract review 

process to be established for evaluating the cost-effectiveness of procurement 

alternatives. 

3. Thank you for the opportunity to review the draft report. A detailed action 

plan to implement all report recommendations is attached. If you have any 

questions, please contact Margaret M. Seleski, Director, Management Review 

Service (10B5) at (202) 461-8470. 

Original signed by: 

Gerald M. Cross, MD, FAAFP 

Attachment
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

VA Office of Inspector General 14 

Acting Under Secretary for Health Comments 

to Office of Inspector General Report 

Recommendations/ Status Completion 

Actions Date 

Recommendation 1. We recommend that the Under Secretary for Health require 

the National CMOP Office to establish management review processes for 

determining CMOP contract needs and evaluating the cost-effectiveness of 

procurement alternatives.

Concur 

The Deputy Chief Consultant PBM/CMOP will develop a process to review CMOP 

contract needs and evaluate the cost-effectiveness of procurement alternatives. 

The Associate Deputy Chief Consultant PBM/CMOP will lead the effort in this 

area. The National CMOP Chief Logistics Officer will also be a key team member. 

The review processes currently in place in Networks will be reviewed for 

applicability to the CMOP. Officials at the National Acquisition Center (NAC) who 

supervise the CMOP contracting officers will also be consulted. A National CMOP 

policy will be developed and implemented to address the issue.

 In process July 2009 

Recommendation 2. We recommend that the Under Secretary for Health require 

the National CMOP Office to assess the continued need for the current backup 

data storage contract. 

Concur 

The Deputy Chief Consultant PBM/CMOP and the CMOP Chief of Information 

Technology will conduct a risk assessment of the backup data storage needs of 

each CMOP. Based on the results of these risk assessments, new contract 

requirements will be developed and a new contract awarded. The new contract 

will undergo the improved contract review process implemented in 

recommendation 1 above. 

In process October 2009 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Appendix D 

Executive Director for Acquisition, 

Logistics, and Construction Comments 

VA Office of Inspector General 15 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

VA Office of Inspector General 16 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management 

Appendix E 

OIG Contact and Staff Acknowledgments 

OIG Contact Claire McDonald

Acknowledgments Ron Stucky 

Kevin Day 

Randall Alley 

Maria Foisey 

Thomas Phillips 

Theresa Zoun 

VA Office of Inspector General 17 
Audit of Consolidated Mail Outpatient Pharmacy Contract Management

Appendix F 

Report Distribution 

VA Distribution

Office of the Secretary 

Veterans Health Administration 

Veterans Benefits Administration 

National Cemetery Administration 

Assistant Secretaries 

Office of General Counsel 

Non-VA Distribution

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans Affairs, 

 and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans Affairs, 

 and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be on the VA OIG web site and remain on the OIG web site for at least 

two fiscal years after it is issued: http://www.va.gov/oig/publications/reports-list.asp. 

VA Office of Inspector General 18