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EXAMINING CONTRACTOR PERFORMANCE AND

GOVERNMENT MANAGEMENT OF RETROACTIVE

PAY FOR RETIRED VETERANS WITH DISABILITIES

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JULY 16, 2008

Serial No. 110–168

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

JACKIE SPEIER, California

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

DIANE E. WATSON, California

CHRISTOPHER S. MURPHY, Connecticut

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

BRIAN HIGGINS, New York

BRUCE L. BRALEY, Iowa

JACKIE SPEIER, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

CHRIS CANNON, Utah

BRIAN P. BILBRAY, California

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 16, 2008 ............................................................................... 1

Statement of:

Gaddy, Zack E., Director, Defense Finance and Accounting Service; Joseph Cipriano, president, Lockheed Martin Business Process Solutions;

Gordon Heddell, Acting Inspector General, U.S. Department of Defense

Office of Inspector General, accompanied by Henry Kleinknecht, Program Director, Acquisition and Contract Management Directorate; and

Pierre Sprey, independent statistics expert ................................................ 20

Cipriano, Joseph ........................................................................................ 28

Gaddy, Zack E. .......................................................................................... 20

Heddell, Gordon ......................................................................................... 35

Sprey, Pierre .............................................................................................. 48

Letters, statements, etc., submitted for the record by:

Cipriano, Joseph, president, Lockheed Martin Business Process Solutions,

prepared statement of ................................................................................... 30

Gaddy, Zack E., Director, Defense Finance and Accounting Service:

Followup question and response .............................................................. 60

Prepared statement of ............................................................................... 23

Heddell, Gordon, Acting Inspector General, U.S. Department of Defense

Office of Inspector General, prepared statement of ................................... 37

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of ................................................................ 12

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Information concerning staffing profiles ................................................. 224

Letter dated June 1, 2008 ........................................................................ 72

Prepared statement of ............................................................................... 4

Staff report ................................................................................................. 84

Sprey, Pierre, independent statistics expert, prepared statement of ........... 50

Watson, Hon. Diane E., a Representative in Congress from the State

of California, prepared statement of ........................................................... 16

(1)

EXAMINING CONTRACTOR PERFORMANCE

AND GOVERNMENT MANAGEMENT OF RETROACTIVE PAY FOR RETIRED VETERANS

WITH DISABILITIES

WEDNESDAY, JULY 16, 2008

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 12:03 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Issa, Tierney and Watson.

Staff present: Jaron R. Bourke, staff director; Jean Gosa, clerk;

Charisma Williams, staff assistant; Vic Edgerton, legislative director; Leneal Scott, information systems manager; Larry Brady, minority senior investigator and policy advisor; Alex Cooper, minority

professional staff member; Grace Washbourne, minority senior professional staff member; and Molly Boyl, minority professional staff

member.

Mr. KUCINICH. As the witnesses are getting ready to be seated,

I just want to let you know that we have had votes called. We expect votes to be called shortly. So I am going to try to get through

at least the opening statements of myself and Mr. Issa, and we will

be back right after votes.

The committee will come to order. This is the Domestic Policy

Subcommittee of the Oversight and Government Reform Committee of the U.S. Congress. I am Dennis Kucinich of Ohio. I am chairman, and joining us is Mr. Issa of California who is the ranking

member.

The title of today’s hearing is ‘‘Examining Contractor Performance and Government Management of Retroactive Pay for Retired

Veterans with Disabilities.’’ Today’s hearing is going to examine

the reasons for the significant delay in delivering the retroactive

pay award to disabled retired veterans and assess the Government’s management of the program.

Without objection, the Chair and the ranking minority member

will have 5 minutes to make opening statements followed by opening statements not to exceed 3 minutes by any other Member who

seeks recognition and, without objection, Members and witnesses

will have 5 legislative days to submit a written statement or extraneous materials for the record.

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To my colleagues and to those who are here today, veterans are

told every year that their political leaders, their military leaders

and their Nation are grateful to them. The President, just last

month, awarded the Presidential Medal of Freedom in part on his

assessment that the recipient demonstrated the love and care that

should be shown to our veterans.

But do the leaders believe it? Has caring for our veterans become

an empty gesture? Is it a hollow sentiment?

This subcommittee began an investigation into the cause of delay

in delivering of benefits to severely disabled veterans whose injuries and diseases are related to their combat and military service

experience.

Congress mandated in 2003 and 2004 that such veterans were eligible to receive their full military retired and VA disability pay

where previously their retired pay had been deducted by the value

of their disability pay. The new benefit was going to make a real

difference in the lives of those veterans with awards ranging from

thousands of dollars to tens of thousands of dollars, but the payments barely got out the door.

My staff sifted through a total of over 16,000 pages of documents

produced separately by the Defense Finance and Accounting Service, DFAS, and Lockheed Martin. They interviewed veterans whose

eligibility for VA retroactive pay was denied or delayed. The findings are shocking:

The Department of Defense waited 2 years after enactment of

the law to hold its first formal meeting on implementing the new

benefit—two years.

It took a total of 51⁄2 years to review the claims of just 133,057

veterans who became eligible when Congress changed the law.

Up to 8,763 disabled veterans died before their cases were reviewed for VA retroactive eligibility.

DFAS gave a no-bid, cost-plus contract to Lockheed Martin.

Lockheed’s performance proved to be deficient, but DFAS was unable to assess penalties because the contract did not permit it.

Unable to do more than exhort Lockheed to do better, DFAS cut

back on its own quality control. Essentially, the Government let

Lockheed monitor itself. DFAS suspended its own rigorous independent verification of calculation made by Lockheed and instead

outsourced quality assurance to Lockheed. In doing this, DFAS effectively bypassed GAO regulations on statistical sampling in Federal quality control procedures.

Lockheed applied a weaker standard to quality assurance than

the standard mandated by GAO.

DFAS also used Federal workers to supplement Lockheed’s work

force. This is highly unusual since there is a prohibition on assigning Federal workers to tasks that the Government has contracted

out to a private company.

While these measures had the effect of clearing the backlog of

cases waiting for review, it did so at the expense of accuracy:

Up to 60,061 payments to veterans were issued after a suspension of quality control measures went into effect on March 1, 2008.

At least 28,283 veterans were denied retroactive pay based on

determinations made wholly without quality assurance review.

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These denials were made by Lockheed technicians who received all

of 6 weeks training.

This subcommittee doesn’t know how many denials and payments were made in error, but we do know that DFAS hasn’t a

clue either because DFAS failed to do due diligence. In suspending

its own quality control measures, DFAS shifted the burden of error

detection onto disabled veterans. DFAS and Lockheed have told

disabled veterans they are on their own to figure it out themselves

and fight with the bureaucracy if they disagree with what Lockheed and the Government told them.

These findings are why this hearing is really about something

bigger than the execution of a specific policy called VA Retro.

Do we care enough about our veterans to get it right the first

time?

Do we care enough about our veterans to verify the accuracy of

the payments we send to them?

Do we care enough about our veterans to check the work of a

Lockheed technician who, with 6 weeks training, has made a decision that a disabled war veteran is not eligible for retroactive pay?

Our investigation has, unfortunately, found that Lockheed and

DFAS did not care enough in this case to do that. Their policies

and practices in VA Retro are an intolerable insult to veterans. The

management of the VA Retro project and the performance of Lockheed have been disgraceful.

I want to say on behalf of all of those families who waited and

waited and waited and waited, hoping for some financial help

which they needed so sorely because they were already at a disadvantage because of the disabilities that they had that were service-connected. I want to say on behalf of them that this Congress

is going to relentlessly pursue this matter.

We are going to do everything we can not only to see that these

payments are brought up to speed, but we are going to do everything we can to hold to an accounting those who saw this system

fall apart while people who served this country, put their lives on

the line, waited and waited and waited and didn’t get the financial

help that they needed and that they were entitled to under laws

that this Congress passed.

There is a lot of routine business that is done before this committee. This is not routine business. This deals with people’s lives in

ways that are quite compelling.

I want you to think of what it would be like if you were one of

those 8,700 veterans who were waiting by the mailbox as their

lives ebbed away for a check that never came. A response from a

Government that they were willing to put their lives on the line to

protect was never forthcoming.

The Chair recognizes Mr. Issa.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. ISSA. Thank you, Mr. Chairman. Thank you for holding this

not routine hearing on this important subject.

I would like to ask unanimous consent that a record of the ITrelated hearings in the previous Congress be placed in the record

at this time.

Mr. KUCINICH. Without objection.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. Chairman, as you said, this is not routine, but we have been

there before. First, let us be blunt. We are fighting two wars, and

our service men and women from all the services including the

Guard and Reserves deserve the very best support from us, the

Congress, and throughout the Government, but they are not getting it.

When Tom Davis was chairman of this committee, regular and

in-depth oversight was conducted on some non-routine problems

service men and women were facing. This included the persistent

problems at Walter Reed, the persistent problems in military pay

which continue until today, the inability of DOD to get its business

processes and financial management systems properly updated.

The oversight on these issues continued when the Subcommittee

on Government Management, headed by Todd Platts, examined the

modernization failures of financial management systems Government-wide.

Over the years, we have asked the GAO for help in assessing the

causes of these repeated failures. They have once, twice, thrice and

many more times said that the financial management practices of

the U.S. Government cost us billions of dollars and have come nowhere close to best practice in the past, the present and show no

sign of doing so in the future.

We know the root cause of these problems is the lack of best

practices, the lack of adhering to concepts which have been long

proven in the private sector. To this end, I do applaud private sector companies, whether they be flawless or not, in at least exposing

to the Government system the opportunity to use best practices.

Today, in our hearing, we are going to deal with an example of

both the best and the worst example of that. We are going to see

a contractor who is accused of perhaps profiting by the very errors

that the Government had within its system.

We are going to hear, and I think accurately, that multiple Government data bases were not properly assessed prior to the commencement of this contract for what their real costs were going to

be.

We are going to see more than 15, if you will, redefining moments in the contract. These added cost and, in many cases, inevitably cost us time.

We are going to see some good news in this case, and the chairman referred to it in his opening comment, and that was that assets, both public and private, were put to bear quickly to try to reduce the time for our veterans to receive what Congress had entitled them to.

The shortcuts taken will be criticized here today, and they should

be. We need to plan better. We need to implement better.

Certainly we need to insist that contractors obey the law, and if

they need or want exclusions from existing and well thought-out

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laws such as contractors not using Government employees, that in

fact the proper exemption be granted in a timely fashion.

Having said all of that, the chairman and I both take a keen interest in this subject. Both of us have immediate family members

who are disabled veterans. Both of us see every day how difficult

it is for veterans of previous wars to get by.

And, I think I can speak on behalf of both of us. We can only

estimate the hundreds of thousands of veterans exposed to injuries

particularly from IEDs in this war who will, over a period of time,

develop debilitating injuries not immediately apparent. So, if we

don’t get it right today and we continue to not get it right, it is very

clear that in the future we will be faced with a much larger problem.

Having said that, I would like to applaud everyone involved in

taking from multiple data bases, paper documents, some of them

from microfiche and some of them just poorly scanned, finding a

way to turn them into at least somewhat meaningful data. I don’t

think that we can sell short the fact that 20 years ago, what was

done in the case of bringing these records into a digital age would

have been impossible. Notwithstanding that, implementation of

technology is expected by our contractors and expected by the

American people.

So today, as we focus on a series of what will be characterized,

I am sure, as mistakes, I want us to focus on the positive. I also

very much appreciate that we will be dealing with ways to get to

the best practices that clearly we don’t have today.

Mr. Chairman, once again, I would like to thank you for this subcommittee continuing to work on a bipartisan basis on all of our

issues and yield back.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Mr. KUCINICH. I thank Mr. Issa and appreciate his willingness

and demonstrated capacity to work together on these matters.

Here is how we are going to proceed. We have a vote that is on

right now. I am going to read, with unanimous consent, a statement into the record of Command Sergeant Major Harold Lewis

who, for medical reasons, was not able to be here. I am then going

to swear the witnesses, introduce them, swear them in, and then

we are going to recess until we complete the votes.

Is there any other Member who seeks recognition before I do

that?

Ms. WATSON. I did have an opening statement. Do we have a second to read it?

Mr. KUCINICH. The gentlelady is entitled to read her opening

statement, and we will proceed with your opening statement.

Ms. WATSON. Thank you. I want to thank you, Mr. Chairman, for

holding today’s very, very important hearing to examine the reasons for delay in delivering retired veterans their disability compensation.

In 2003 and 2004, Congress passed legislation that would allow

retired members of the Armed Forces to receive retired pay and

veterans disability compensation concurrently. The enacted legislation was good for our veterans because, previously, retired pay was

cut by the amount of disability compensation a veteran received

from the VA.

According to the Defense Finance and Accounting Services, as a

result of new entitlements, over 215,000 veterans became eligible

for retroactive pay due to changes in their disability status.

DFAS created the Veterans Retro program in September 2006 to

disburse retroactive payments to veterans. In order to process

claims, DFAS contracted Lockheed Martin to review and adjudicate

cases.

According to the committee, Lockheed was to create a software

solution for calculating benefits, but that was never done.

They also missed every deadline for completion of the VA Retro

program. The official deadline for completing the retroactive payments backlog was scheduled for November 2007 but not completed, according to the DFAS, until the end of June 2008.

So, Mr. Chairman, we have to run and vote at the time, but I

certainly look forward to hearing from today’s panel, and I hope

they can explain in detail as to why it was difficult to complete the

retroactive payments in timely manner.

Thank you very much.

[The prepared statement of Hon. Diane E. Watson follows:]

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Mr. KUCINICH. I thank the gentlelady for her participation and

for her statement.

I want to read into the record a statement of Command Sergeant

Major Harold E. Lewis.

Command Sergeant Major Lewis is a disabled Army veteran who

received his injuries in combat in Vietnam. Originally a draftee, he

served 28 years in field artillery and eventually rose to command

levels of authority. He also received a denial of VA retroactive eligibility from DFAS, and this is his statement.

‘‘Most guys who get a letter saying they get zero money would

never challenge it. They wouldn’t know how. I would be surprised

if they understand what they get in the mail, and a lot of guys

would just trust their Government.

I get sad to the point of crying, seeing the guys in worse shape

than me, but DFAS wants us to die or just give up trying to get

our benefits.’’

That is a statement from Command Sergeant Major Harold E.

Lewis to the subcommittee majority staff by telephone on July 8,

2008.

Now Mr. Lewis did challenge it. Thanks to his fortitude and the

help and support given to him by his wife and her impeccable recordkeeping, he was able to persist and prevail. Last month, he received notification from DFAS that he was, in fact, eligible for a

$15,000 retroactive pay award.

For the record, I want this subcommittee to know that Mr. Lewis

wanted to testify here today, but Mr. Lewis’ VA doctors advised

him that the stress of making the trip and testifying before us

would endanger his life.

The Army attributes his multiple disabilities, including Diabetes

Type II, acute peripheral neuropathy, tinnitus and hearing loss,

and post-traumatic stress disorder to numerous combat experiences

and injuries including concussions and broken vertebrae from rocket attacks and exposure to Agent Orange.

If there are no additional opening statements, the subcommittee

is going to receive testimony from the witnesses here today. I want

to start by introducing our panel.

Mr. Zack Gaddy is the Director of Defense Finance and Accounting Service. In his role, he oversees the day to day accounting and

finance activities in the Department of Defense, leading more than

12,000 civilian employees in a complex mission that includes paying over $446 billion annually to 5.9 million military, civilians, retirees and annuitants. Mr. Gaddy has been working for the DFAS

since 1991.

Mr. Joseph Cipriano is the president of Lockheed Martin Business Process Solutions. Under his leadership, the Lockheed Martin

Business Process Solutions serves the Federal Government and

regulated industries with innovative outsourcing solutions. Prior to

joining Lockheed Martin, Mr. Cipriano served as the Program Executive Officer for Information Technology at the U.S. Department

of the Navy.

Mr. Gordon Heddell became the Acting Inspector General of the

U.S. Department of Defense on July 14th of this year. Previously,

Mr. Heddell held the title of Inspector General at the U.S. DepartVerDate 11-MAY-2000 12:28 Jun 16, 2009 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 U:\DOCS\49970.TXT KATIE PsN: KATIE
20

ment of Labor since January 2001. His multifaceted career includes

29 years in the U.S. Secret Service.

Mr. Pierre Sprey is an independent defense expert, aeronautical

engineer and statistician. A former Pentagon analyst, he has

served as Special Assistant to the Assistant Secretary of Defense

for Systems Analysis during the Johnson and Nixon administrations. While working at the Pentagon, Mr. Sprey also helped

launch the military reform movement in the 1980’s which led to

the passage of a number of military reform laws.

I want to thank the witnesses for appearing before the committee. We also have Mr. Kleinknecht who is here to be of assistance

in answering questions to Mr. Heddell, if I am correct at that. He

will be sworn, but he will not testify.

So I would ask all the witnesses who are to be sworn, would you

please stand? It is the policy of our Committee on Oversight and

Government Reform to swear in all witnesses before they testify.

I would ask you to raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. I thank you, gentlemen.

Let the record reflect that the witnesses answered in the affirmative.

When this committee returns from this brief recess for the votes,

we will then ask that each witness give a brief summary of their

testimony. Keep their summary under 5 minutes in duration. I will

assure you that your complete statement will be in the record.

When we return, we will begin with Mr. Gaddy. I thank you for

your patience.

We are in recess until we return after the votes. Thank you.

[Recess.]

Mr. KUCINICH. The committee will resume its sitting.

Mr. Gaddy, you may proceed.

STATEMENTS OF ZACK E. GADDY, DIRECTOR, DEFENSE FINANCE AND ACCOUNTING SERVICE; JOSEPH CIPRIANO,

PRESIDENT, LOCKHEED MARTIN BUSINESS PROCESS SOLUTIONS; GORDON HEDDELL, ACTING INSPECTOR GENERAL,

U.S. DEPARTMENT OF DEFENSE OFFICE OF INSPECTOR

GENERAL, ACCOMPANIED BY HENRY KLEINKNECHT, PROGRAM DIRECTOR, ACQUISITION AND CONTRACT MANAGEMENT DIRECTORATE; AND PIERRE SPREY, INDEPENDENT

STATISTICS EXPERT

STATEMENT OF ZACK E. GADDY

Mr. GADDY. Chairman Kucinich, Ranking Member Issa and distinguished subcommittee members, my name is Zack Gaddy, and

I am the Director of the Defense Finance and Accounting Service,

DFAS.

Thank you for this opportunity to address the retroactive distribution of Federal benefits to disabled retired veterans under the

project known as VA Retro.

I request that my full statement be included in the official committee record.

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I want to assure the members of this subcommittee that caring

for our military retirees and veterans who have served this Nation

is one of my top priorities.

DFAS pays more than 21⁄2 million military retirees and their sur- viving spouses approximately $4 billion each month and pays over

283,000 eligible military retirees more than $298 million monthly

for their combat-related special compensation or concurrent retirement and disability payments.

During the VA Retro project, eligible retirees have continued to

receive their current monthly entitlement to these benefits of VA

disability compensation.

The VA Retro program is a temporary project begun in 2005 by

DFAS and the Department of Veterans Affairs to pay eligible retirees and veterans all retroactive entitlements they are due as a result of statutory changes. VA Retro refers to the retroactive nature

of VA disability awards which directly impacts disabled retirees’

entitlements previously paid by DFAS and the VA.

When DFAS is initially informed of a retiree’s new or modified

VA award, there is typically a need to calculate a five to 6-month

retroactive entitlement on the retiree’s previously paid pay.

Mr. Chairman, I am pleased to report that as of July 1, 2008,

DFAS adjudicated all of the original and new and returning claims

and as of July 13, 2008, adjudicated over 229,000 claims and paid

out over $149 million in entitlements. We have also created a reliable and repeatable process enabling us to adjudicate incoming

claims within 30 days of receipt.

DFAS initially underestimated the difficulty of processing many

of these claims. In November 2007, when we missed our deadline

for completing all original claims, we reviewed our overall approach

and revised our plan to complete the remaining original claims by

April 30, 2008 and the new and returning claims by June 30, 2008.

In February 2008, we realized that we would be hard pressed to

meet our revised deadlines, and the Under Secretary of Defense,

Comptroller, committed to triple the contractor work force dedicated to this project.

Pursuant to her commitment, by the end of April 2008, we quadrupled the contractor staffing from 51 to more than 200 personnel.

We also deployed a set of automated tools to more readily categorize the claims and, in the case of the more easily calculated

claims, allowed the processing of those claims through automated

payrolls.

We added an additional 15 Government employees to oversee the

program, and we streamlined the quality control process by adjusting the Government review process to rely more heavily on a postpayment review to remove any potential delays in delivery of accurate VA Retro payments to deserving veterans. While the processing of these claims is our responsibility, we rely heavily on contractor support to process timely and accurate payments.

In early March 2008, when the contractor failed to meet planned

outcomes and fell behind their established schedule, DFAS issued

a letter of nonperformance to move the project to completion within

established milestones.

During the month of March 2008, the contractor adjudicated

more than 13,000 original claims. However, despite quadrupling

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the work force, streamlining the quality control process and deploying additional automation, by April 2008, we saw the contractor

was not meeting production goals.

Our analysis of the situation revealed that the less complex

claims had been processed, and the remaining claims included ones

with a combination of entitlements for veterans with multiple disability percentages and disability codes, consideration of former

spouses’ community property interests, prior year taxes, deaths and

other unique characteristics, requiring manual process.

At this point, we were significantly behind our revised schedule.

On April 23, 2008, as a result of lack of performance and our eroding confidence in the contractor’s ability to meet its milestones, we

issued a second letter documenting our concerns and requiring the

contractor to get the project back on schedule.

Additionally, we initiated a Contract Past Performance Assessment Report to document the unsatisfactory performance and initiated action to transition the cost plus fixed fee contract modification to a performance-based contract modification that will be implemented before the end of the year for the VA Retro project.

We also instituted the use of a standard set of approved data

sources for the calculation of each claim to minimize calculation errors, expedite reconciliations and ensure consistency in review and

validation through quality control.

The contractor realigned quality control personnel to the production floor to produce quality payrolls. They also established a production dashboard to foster performance accountability at every

level in the organization.

While we were not able to complete the original claims by the

April 30, 2008 deadline, we were able to adjudicate all of the original and the new and returning claims by July 1, 2008. We also institutionalized a process that enables us to process claims within

30 days of receipt.

Mr. Chairman, I clearly recognize that this subcommittee is concerned about the delays in the distribution of Federal benefits to

disabled retired veterans who are eligible for a one-time VA Retro

payment. I want to assure that this issue remains one of my top

priorities, and DFAS will continue to work the VA and our contract

partner to do everything possible to pay retired service members

correctly and in a timely manner.

I will be happy to respond to any questions you may have. Thank

you.

[The prepared statement of Mr. Gaddy follows:]

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Mr. KUCINICH. Thank you, Mr. Gaddy.

Mr. Cipriano, you may proceed.

STATEMENT OF JOSEPH CIPRIANO

Mr. CIPRIANO. Chairman Kucinich, my name is Joe Cipriano. I

am President of Lockheed Martin Business Process Solutions. I

manage the business responsible for our program with the Defense

Finance and Accounting Service [DFAS], and the VA Retro project

as part of that program.

I appreciate the opportunity to speak to the committee, and I am

pleased to discuss the VA Retro project and the progress we have

made in completing its mission. I ask that a copy of my written testimony be inserted to the record.

Mr. KUCINICH. So ordered.

Mr. CIPRIANO. Today, I will describe what the Lockheed Martin

team has done in conjunction with our customer to accomplish the

VA Retro project’s important goal of paying eligible military retirees any retroactive compensation they are due.

Lockheed Martin began working with DFAS in 2003 following

our acquisition of the Federal Government business of Affiliated

Computer Services. We are proud to support the Department of Defense in its important mission of paying our Nation’s military retirees.

Under our DFAS contract, we perform complete payroll and customer service functions for 21⁄2 million customers. This program demands accurate, timely, personalized business process services for

a very special customer base. We have successfully executed on this

program since we took it over and take pride in supporting those

who have defended our Nation’s freedoms.

In 2006, we began working with DFAS on the VA Retro project

as a task order under our larger DFAS contract. When we began

the project, there was a backlog of over 133,000 cases awaiting adjudication. I am pleased to report that all these cases have been adjudicated as of June 6, 2008.

The initial phase of the VA Retro project required Lockheed Martin to develop a prototype solution to process many of the VA Retro

cases. This phase was successfully completed on time.

A 12-month plan was then put in place dependent on 9 initiatives to complete the 133,057 original cases by November 2007. A

key assumption in the schedule was that we would only need one

file from one source for data required from the DVA.

We set an interim goal of processing 50 percent of the cases by

the end of March 2007. This was completed 2 weeks early.

By August 2007, we had processed over 102,000 cases.

In September, we notified DFAS of a 6-month slip in schedule if

we were not able to use the DVA’s SLC06 file as the source of rating decision data.

In December 2007, DFAS determined the data quality would not

support our plans for automation. Together, with our customer we

recognized that most cases would have to be processed manually,

and we began an accelerated hiring initiative with a goal of completing the original 133,000 by the end of April 2008 and the new

and returning backlog of over 86,000 by July 1st.

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We were successful in completing all original cases on June 6,

2008 and the new and returning backlog on June 26th.

The process to determine accurate payments for some of the final

cases proved more difficult than anyone anticipated. Identification

on May 1, 2008, of a single authoritative source for each data element greatly simplified the process and supported increased productivity.

Case processing is people-intensive. We doubled and subsequently tripled the work force originally assigned to the task. The

Government support our staffing efforts by assuming a small portion of the calls coming into our customer call center. This change

allowed us to reallocate some of our staff to meet everyone’s top

priority, paying retirees.

Additionally, during this time, we made significant improvements in our reconciliation process that contributed to decreased

processing time and improved quality.

Throughout this entire project, we have followed the quality assurance requirements set forth by DFAS in our contract. Lockheed

Martin’s quality processes are documented in specific VA Retro

standard operating procedures. These procedures specify authoritative sources of data in adjudicating cases, sample sizes and methods.

They are reviewed by DFAS’s quality assurance officer regularly

for appropriateness, ensuring the process supports accurate payroll

production. Each payroll is certified by Lockheed Martin’s program

manager and both the DFAS assurance officer and certifying officer. DFAS continuously reviews Lockheed Martin’s process as one

of their inherently governmental responsibilities.

Thank you again for the opportunity to be here today, and I am

pleased to answer any questions you may have.

[The prepared statement of Mr. Cipriano follows:]

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Mr. KUCINICH. Thank you, Mr. Cipriano.

Mr. Heddell.

STATEMENT OF GORDON HEDDELL

Mr. HEDDELL. Mr. Chairman, thank you for the opportunity to

appear before you this afternoon.

My name is Gordon Heddell, and I am currently the Acting Inspector General for the Department of Defense.

The DOD is one of the largest and most complex organizations

in the Federal Government. Oversight of its programs and functions is essential to the success of our troops regardless of the mission in which they are engaged.

The magnitude and complexity of the Department of Defense requires nothing less than full time effort. We are in a time of war,

and our work not only saves taxpayer dollars but also, much more

importantly, the lives of U.S. service members.

My testimony today addressees the DOD IG experience with

OMB Circular 76 competitions and, more specifically, work relating

to the competition that privatized military retired and annuitant

pay functions.

In March 2003, my office completed the audit of the public-private competition for the DFAS military retired and annuitant pay

functions. This effort was initiated in a response to a request from

you, Mr. Chairman.

Our review found that although the competition process was

completed and the 10-year contract was awarded: A calculation error of $31.8 million was identified for the inhouse estimate;

DFAS’s overhead costs of $33.7 million used for the in-house estimate based on the OMB-directed 12 percent cost factor were not

reduced after the functions were awarded to the contractor, and;

The contract had inadequate standards to measure performance.

In fact, 7 out of 10 were inadequate.

In response to the above report, DFAS contracted with the Center for Naval Analysis, CNA, to examine the choices available. To

address the errors identified in our previous audit report, CNA estimated that the current contract was $42 million less expensive

than the most efficient organization.

In response to a second request from you, Mr. Chairman, my office completed an additional audit in June 2004. We reviewed the

$42 million cost savings associated with retaining the existing contract and did not agree that the contract was $42 million less expensive than the MEO.

We believe the amount of system work to be performed in the remaining years was unknown and, as such, the reduction in the

level of work should have been applied to all portions of the inhouse cost estimate in order to fairly compare the contractor proposal and the MEO offer.

Thank you, Mr. Chairman, for the opportunity to appear before

this committee today address our work related to OMB Circular A–

76.

As I am not the subject matter expert on the issue, I have

brought with me, Henry Kleinknecht. Mr. Kleinknecht is a Program Director in the Acquisition and Contract Management DirecVerDate 11-MAY-2000 12:28 Jun 16, 2009 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 U:\DOCS\49970.TXT KATIE PsN: KATIE
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torate. Other than the CNA review, Henry also performed all of the

audits that we discussed in my statement here today and is here

to answer any specific questions regarding the previous work of the

Department of Defense IG.

I ask that my prepared statement be submitted for the record,

and I thank you again for the opportunity to appear before you

today, and we would be happy to answer any questions that you

may have, sir.

[The prepared statement of Mr. Heddell follows:]

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Mr. KUCINICH. I thank the gentleman.

Mr. Sprey.

STATEMENT OF PIERRE SPREY

Mr. SPREY. Thank you, Mr. Chairman.

Your committee staff asked me to review all the available statistical evidence justifying the transfer of quality control functions for

retired disability payments from the Government, that is from the

CGA, to an outside contractor, Lockheed Martin.

I did review all the available evidence, and the short answer to

my review is there is not a shred of statistical evidence that this

transfer was justified. Let me briefly summarize why I feel that

way.

First of all, the only evidence, the only statistical evidence produced was a small tabulation by DFAS of a set of CGA audits that

were a very small sample. Eight hundred and forty-one payments

were reviewed by CGA and determined to be in error or not in

error.

My first comment on that is looking at the internal correspondence of DFAS over the period of this contract, it is obvious that

there is far more error data than those 841 samples, but that is

all that has been presented. I believe that between the Government

and the contractor, a lot of error data that would be very useful for

determining whether quality control was accomplished and properly transferred has been suppressed or withheld from the committee.

Looking at the actual data that was presented to see whether it

justifies the fact that errors were so small that transferring quality

control was justifiable, this was a small tabulation put together by

what was referred to as the Moxley Team.

It was supposed to show that errors were much smaller than the

21⁄2 percent total dollar error mandated by GAO under the Improper Payments Information Act. The sample, in fact, totally fails

to show that.

First of all, the first simple reason is the payments that were

sampled, the 841 payments, are the wrong payments. The payments that are supposed to be sampled under the GAO procedure

are supposed to be under $2,500 payments. All payments over

$2,500 are supposed to be 100 percent sampled. The sample that

as produced by the Moxley Team is, in fact, an over $2,500 sample

as far as I can tell.

Second, the sample is not random. I think as anybody understands who has ever looked at political opinion polls, if you get to

choose what is in the sample, you can get any answer you want to.

That is exactly the case with this sample.

It was not randomly drawn and, in fact, it consists of relatively

the easiest cases to do. So, obviously, errors in that sample are understated.

Third, the tabulation, the Moxley Team tabulation, showed a little over 1 percent dollar error as their estimate. That is a totally

wrong calculation.

That calculation is not based on dollar errors as assessed by

CGA. It is based on a guess on what the dollar error might be because DFAS never insisted that CGA give them the dollar error.

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All that DFAS basically turned over to them was a payment was

right or wrong.

In fact in a way, this sample was a 1.19 percent dollar error in

the Moxley tabulation. It shows, in fact, that the sample fails to

meet the GAO standard because these are over $2,500 payments

and the GAO standard is they have to be 100 percent reviewed and

100 percent accurate or corrected. So 1 percent error rate in the

dollars means that the sample is unacceptable.

But there is a much larger issue in this whole thing in the simple statistical validity of these 841 payments. That larger issue is

that no one, not DFAS, not Lockheed Martin, has ever reviewed,

audited or checked the denials of payments to veterans. In other

words, the zero payment decisions which are very much a part of

the sample, very much a part of the mandated checking process by

GAO, have simply been left out.

By my calculations, that means about 43,000 veterans have been

given payment decisions that no one knows whether they are right

or wrong.

Furthermore, in that 43,000 is exactly where the largest financial errors are likely to be. In many of these cases where veterans

have been told they are owed nothing, they may in fact be owed

tens of thousands of dollars. So the very largest errors may be buried in this sample of zeroed payments that nobody has looked at.

But even larger than the statistical question of whether this invalidates the statistical sampling is the fact that this is the single

area in which the greatest injustice has been done to veterans. The

veterans who have been denied payment, by my estimate, 43,000

of them, have been denied that in the absence of anybody knowing

whether this was right or wrong.

That completely invalidates all the rest of the argument about

the statistics, the audits, are the errors large, small and so on. This

is really an ethical and a moral issue, not a statistical issue at all.

There is one more major issue beyond the ethical failures of not

reviewing denials of payment and the terrible small sample that

was presented to prove that errors were acceptable, and that is the

simple question of sound financial management.

Imagine that you are the CEO of a company and you suspect

your payroll department is either making horrible arithmetic errors

or maybe embezzling the money. Would you, under those circumstances, assign the quality control function to that payroll department? Of course not.

Yet, in effect, that is exactly what the Government has done. It

has assigned the quality control function to the very process that

is in question and that we know in 43,000 cases has failed to address the most important question, whether a veteran is owed

money or not.

[The prepared statement of Mr. Sprey follows:]

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Mr. KUCINICH. I thank the gentleman. Your time is expired. We

are going to get back into some of these issues in questioning. I can

guarantee you that.

I would just like to know. Everybody on this panel has heard Mr.

Sprey’s testimony.

Mr. Heddell, do you have any comment on what you just heard?

Is this consistent with what you have found in your work?

Mr. HEDDELL. Mr. Chairman, I could comment on that, but with

your permission I would like to defer to Mr. Kleinknecht because

he actually performed the audit.

Mr. KUCINICH. OK. I would like Mr. Kleinknecht to comment on

the previous testimony because it kind of gets to the heart of the

question of this issue of veterans really being denied benefits without any essential review.

Mr. KLEINKNECHT. On the VA Retro pay, we have not done any

work in that area.

Mr. KUCINICH. OK.

Mr. KLEINKNECHT. This was all kind of after the fact where we

did all the initial, looked at all the initial decision to competitively

source it. At your request back in 2001, we looked at all these

issues, and we wrote our reports and addressed all that, but this

is all. We haven’t been in since that work.

Mr. KUCINICH. Thank you.

Mr. Gaddy, it is evident from the correspondence staff has reviewed in our investigation that you monitored the progress on the

VA Retro program and frequently complained to Lockheed about

low productivity and high number of errors that the DFAS quality

control auditors were detecting.

You said, for instance, ‘‘These results for Thursday are extremely

disappointing. By now, you should have a handle on why cases are

not passing QA’’—that is quality assurance—‘‘and get the quality

level to a point where adjudicated cases pass muster.’’

Then it went on that LMCO missed the goal. ‘‘Lockheed Martin

missed the goal for the original cases by 707 for the week, nowhere

near the level required to meet productivity goals to achieve the revised plan briefed to me today.’’

‘‘Also, why were 388 cases rejected back to ops? By now, I think

Lockheed Martin should be able to produce consistently reliable results to avoid the high level of rework that has occurred since the

inception of this project.’’

Would you tell the subcommittee, Mr. Gaddy, how did you know

that Lockheed was making errors? Didn’t your CGA auditors tell

you that?

Mr. GADDY. Chairman Kucinich, I am not quite sure the timeframe of that specific e-mail reference, but I was getting some.

Mr. KUCINICH. I can refresh your memory. One was an e-mail

from you to Rocky Thurston, Karl Bernhardt, Robert Cook, Martha

Smith on April 4, 2008.

Mr. GADDY. OK.

Mr. KUCINICH. And the second one was an e-mail. The next one

was an e-mail from you to Howard Ruddell, Douglas Smith, Karl

Bernhardt on May 5, 2008.

You are familiar with those, the contents of those e-mails, right?

Mr. GADDY. Yes. Yes, I am.

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Mr. KUCINICH. So you knew because your auditors were telling

you that Lockheed Martin was making errors, isn’t that correct?

Mr. GADDY. Mr. Chairman, actually, what I was referring to in

those e-mails was a daily report that I started getting in February

which disclosed on it the number of cases that were dispositioned,

number of cases that were adjudicated, number of cases that were

rejected back from QA to operations, and the QA in this case was

actually Lockheed Martin’s QA or Team Blue as they called it.

So it wasn’t a government. It was the Lockheed Martin QA process that was rejecting the work back to their operational floor.

Mr. KUCINICH. Back at the start of the contract with Lockheed

on August 10, 2006, you wrote in an e-mail: ‘‘We need to start making payments in September 2006. Politically, we can’t wait.’’

This was an election year. So what did you mean when you said

it was politically impossible for payments to start any later? Were

you referring to the election?

Mr. GADDY. No. No. We were talking about the fact that it had

taken until September 2006 to get into place a process to start paying the retroactive portion of payments.

Mr. KUCINICH. You wanted to start making.

Mr. GADDY. It was taking a long time to get going.

Mr. KUCINICH. You wanted to start making payments in September. Do you know when the first payment was made?

Mr. GADDY. In September.

Mr. KUCINICH. It was October 13th, a month after you wanted

payments to start.

Did Lockheed miss the deadline for even the first payment to VA

Retro veterans?

Mr. GADDY. Well, if we wanted it in September, then if it wasn’t

until October, they missed it, yes.

Mr. KUCINICH. Mr. Gaddy, there is no question you tried to exhort your people to clear the backlog faster.

On December 2, 2007, for instance, you wrote an e-mail to your

senior manager and saying, ‘‘I can tell you right now that six more

months is unacceptable. I want these cases processed within three

months. We have already taken far too long, and I will not accept

the glide path you included. Tell me how many people you need

and how much OT is required to make three months?’’

But did you notice the same coincidence that I did, that the unacceptable 6-month glide path turned out to be the real glide path

in clearing the backlog?

In retrospect, with this evidence, do you feel that your exhortations made Lockheed move any faster?

Mr. GADDY. Well, obviously, sir, they did not.

We were briefed in December. I was briefed in December an

April schedule by Lockheed that I questioned why it would take

that long. They did not hire people as fast as I thought they would.

Of course, one of the things that was unknown to me until I visited Cleveland a little bit later was hiring people is one thing.

Training them and getting them up to speed to actually do the

work was something else. So it took several weeks to hire, several

weeks to train and then certainly to get the experience to be a

highly qualified person doing the work took many more months

after that.

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So the realism of April, in hindsight, was it was unachievable.

Mr. KUCINICH. Right. Since you suspended CGA’s 100 percent

verification on all payments that is a Continuing Government Activity, 100 percent verification on all payments above $2,500, have

you, by any other means, detected errors in such payments calculated and approved by Lockheed?

Mr. GADDY. The QA process that we implemented with Lockheed,

and by the way Lockheed had a QA process that we had evaluated

over many months to be what we thought reliable. In the CGA, the

Continuing Government Activity, what we were doing was duplicative from a QA perspective of what Lockheed was already doing.

What we intended for the CGA to do, which they have done, is

what we call a certifying officer review of payments, and they do

that and have been doing that.

Mr. KUCINICH. But you know it has come to the subcommittee’s

attention that DFAS is now aware of a certain number of VA Retro

payments that were made in error. Is DFAS aware of any VA Retro

payments that have been made since March 1, 2008 and have been

subsequently determined to be in error?

Mr. GADDY. We have reviewed almost 200 payrolls since February, and those payrolls include over 43,000 payments on what we

call a post-pay review, and the error rate that we are seeing right

now is less than 1 percent of all those payments that are reviewed.

Mr. KUCINICH. Are they overpayments or underpayments?

Mr. GADDY. It is a combination of both. I believe the number of

underpayments is seven, and the number of overpayments is 42.

Forty-nine in total, I believe, is the number.

Mr. KUCINICH. I am going to go to Mr. Issa.

I took about 7 minutes for the first round here, so you may do

the same. Thank you, Mr. Issa.

Mr. ISSA. Great. Thank you.

Mr. Gaddy, on the scale of, if you will, all of the problems in finance and distribution within your area of control, is this 1 percent

of the problem, 2 percent of the problem?

Let me just clarify it. When we look at the amount of data that

is still paper or microfiche, when we look at the amount of mistakes being made in other areas of finance, how do you compare

the problem that you had—and most of it is in the past tense—

with in fact some of the other major areas?

I will just give you a couple of quick ones. For example, the Army

Logistics Modernization Program, the LMP, that is a billion dollar

program that has been delayed for, I guess, indefinitely.

The Navy Enterprise Resources Planning, the ERP, problems in

data conversion, interface, that is $1 billion in four pilot programs,

and the estimate to complete it now is $800 million of all cost overrun.

Or the Vets Net, I believe the Vets Net system which obviously

is a very important potential program, $250 million and it is currently in sort of a hiatus.

So I give you those as just some of the tip of the iceberg. Can

you put this in perspective because I think this is an important

hearing because we want to fix problems? One to 10 or percentagewise, where are we here today?

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Mr. GADDY. Being familiar with two of the three examples you

gave me, anytime you implement a new system, it is hugely complicated, extremely expensive and tends to be way behind schedule.

This project, in comparison to those, is simpler because we are

not trying to build a very complex system. We are trying to use information from a variety of data sources, from VA, from DOD and

try to create, if we could, automated solutions, and we came up

with a variety of automated tools to help assist but could not fully

automate the process.

I have asked my chief information officer to work with the VA

to look at how we might do so, so we can eliminate the touch labor

or the manual effort associated with this.

So on a scale of one to ten, if I were to rate those huge efforts

you cited, the billion dollar efforts as, say a ten, this effort is more

like three.

On the other hand, because of the population that is impacted by

it and the length of time it took to get it completed, I would say

that, in and of itself, made it to me very, very significant and visible because we wanted the work done. We wanted to make sure the

retroactive portion of the payments was paid to deserving veterans

as quickly as possible. And so, from that perspective, very disappointed that it took the length of time it took.

But I do believe that today we now have a repeatable process.

So we can, in fact, turn claims around in 30 days or less. As a matter of fact, as of this morning, we currently have 65 unprocessed

claims where we are lacking some information from VA that we are

going back to get.

We think, going forward, we can sustain that although we do

know that there are other legislative proposals that have taken effect that will cause some more work to come our way. But between

three and five thousand of these claims a month are coming in, and

we know we can keep up with that workload on an ongoing basis.

The committee has pointed out an issue with the no pay due calculations. I would comment that in one sense the process to calculate whether pay was due or not was reviewed by the CGA, the

Continuing Government Activity.

We understand what the process is. There were adjustments

made to it over time to try to automate some of the calculations.

Some of that automation worked well. Some of that automation

didn’t work as well as we intended for it to.

The specific example of Command Sergeant Major Lewis, where

his initial claim was denied and then eventually was determined

that he was owed money, actually came out of one of the very first

attempts to use an automated solution to calculate his case, and it

was wrong.

When we found out it was wrong, we went back. We made

changes to the process to get it right. It came out and showed he

was owed money, and we are now looking at all of those no pay

due claims to ensure that proper steps were taken.

Mr. ISSA. Mr. Gaddy, I am particularly interested in part of the

lessons learned here. The laws governing this requirement, this

retroactive pay, were passed in 2002, 2004, but Lockheed, the subsidiary that Lockheed acquired got the contract in 2006.

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So, when I am sitting here in 2008 and you are giving me a mission accomplished, maybe a little more expensive than it would

have been if it had been better planned or we had known in the

beginning what we know at the end, how do we get past the 2-

years and 2 years in the future because it appears as though the

runway that we didn’t have available, that would have allowed this

to be maybe done more efficiently, was behind Lockheed at the

time that they got the contract? At that time, it had been used up.

How do we account for that time and how do we prevent it from

being lost in the future?

Mr. GADDY. You are correct, sir, that the laws were passed as I

said in my opening statement. As soon as an eligible veteran qualifies for either combat-related special compensation or concurrent

retirement and disability payments, they, in fact, are drawing

those payments the minute they are eligible.

That retroactive portion which is what we are talking about

today, while the laws were in passed in the timeframe you suggest,

what happened was from a policy perspective between VA and

DOD, which actually was before my time as Director of DFAS, no

one recognized, I believe, that there was a requirement to look at

how payments had been made and whether there was a retroactiveness required. That didn’t actually start until late 2004, early

2005 timeframe.

Then it took from February 2005, when the initial formal meetings started between DOD and VA, it took from then to determine

how do you even do it, what the data sources would be.

And then it took some time to create a contract modification with

Lockheed Martin to actually start doing the work and set up a

process around how that would work.

So we were late determining or identifying the requirement, and

then it took some time to get going with it. Then, of course, we

wanted to finish much more rapidly than we actually took.

Mr. ISSA. I appreciate that, and the veterans appreciate that.

Let me ask you a question on, I never can pronounce this acronym very well, DIMHRS. Now that is 10 years in development, and

we don’t have it. Is that something that we should be looking at

because obviously it is delayed, obviously it is not delivering the

benefits?

It is not on the scope today, but something tells me it will be

soon and it is a much more expensive project. Can you comment

on that?

Mr. GADDY. Sir, I am sorry. I am not familiar with that particular application.

Mr. ISSA. Let me just ask one more question very quickly. If you

had it to do over again and you were back to 2004ish when you

began to realize that there was a retroactive question, would it

have been better to have issued a small, perhaps no-bid, contract

to a contractor who could scope the project, who could in fact put

the assets to bear in a much shorter period of time to figure out

what data bases, where and when, particularly a contractor who

may have already been in those data bases and then, using that,

gone out with a better design contractor, knowing what you know

now?

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I am not saying that you could have done it with what you knew

then, but now isn’t that potentially a best of practice that could be

looked at rather than a year plus of Federal looking and then ultimately not having all the facts you needed at the beginning of the

contract?

Mr. GADDY. Well, actually, you identify what I believe is a best

practice, and that is to bring in experts who can assess the situation, identify a game plan to deal with it. For example, had we

known automation was not really going to be what we thought it

would be, we could have hired and trained people sooner and done

it with people as opposed to automation.

Conversely, had we known like VA was in the middle of converting to Vets Net from a variety of other systems. Had we known

that was going to occur in the middle of the operation, we may

have done things a bit different in terms of timing of when certain

things would be completed.

So, a small pilot to look at what, how to do it, the duration of

time, then quite possibly we could have written a totally different

task order of how to do the work because we would have had more

empirical information to support what would be required, what durations would be required and had a better feel for how many

claims would actually be processed.

Mr. ISSA. Thank you.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

We are going to go into a second round of questioning here.

Mr. Gaddy, what is a Red Team?

I am not talking about Cincinnati. I am talking about DFAS.

What is a Red Team? Would you tell this committee?

Mr. GADDY. Mr. Chairman, a Red Team normally is what we

would send in to review something that someone has done, for example.

Mr. KUCINICH. So it is a normal practice you have a Red Team?

Mr. GADDY. If we are going to, say, put a contract out. If we are

going to, like when we did an A–76 study in an operation I managed in Denver, we had a Red Team come in and review what we

had done.

They are independent from the operation. They come in and review what we are doing to ensure that we are thinking of all the

things we are supposed to think of, covering all the bases, those

sorts of things.

Mr. KUCINICH. What kind of circumstances would you send in a

Red Team?

Mr. GADDY. We normally send in Red Teams where we want to

know information about something from an independent set of

eyes.

Mr. KUCINICH. Like what?

Mr. GADDY. Oh, it could be any operation. It could be we sent

a Red Time, like I said, the A–76 study. If we have an operation

that we think is struggling, has some problems, we will send a Red

Team in to look at that to see what is going on.

Mr. KUCINICH. Has Red Team been assigned with respect to the

VA Retro program?

Mr. GADDY. Yes, it has.

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Mr. KUCINICH. When was it assigned?

Mr. GADDY. Let’s see. Steve Turner came in as the director. I

would say in the last maybe 2 weeks or week. I think it has been

up in Cleveland.

Mr. KUCINICH. The last week or two. Now I just want my colleague here to join me in reflecting on this moment. You have

brought in a Red Team in the last couple of weeks. You have also

testified to this committee that you only have a 1 percent error

rate.

Mr. GADDY. Right, post-pay reviews, yes, sir.

Mr. KUCINICH. Pardon?

Mr. GADDY. On post-pay reviews that we have looked at for payroll.

Mr. KUCINICH. Why did you assign a Red Team? Help us with

the significance of that.

What were they assigned to do? What did they find?

Mr. GADDY. I don’t have the results of the Red Team review. I

think they are still looking at a variety of operational areas. VA

Retro is one of those, but they are looking at, I believe, all of retired annuity pay operations.

Mr. KUCINICH. But let’s talk about VA Retro.

Mr. GADDY. OK.

Mr. KUCINICH. Now I have been looking at the scope of your

stewardship. I have seen there are times that you had real awareness that something was going on, and you kicked it up. Get it

done in 3 months instead of six.

Why did you assign the Red Team to VA Retro? What was going

on in your mind about what is your concern?

Mr. GADDY. My concerns are pretty much around what this hearing is all about.

Mr. KUCINICH. No, no. Tell me. Help us out. What?

Mr. GADDY. My concern was when the director of operations said

he wanted to send a Red Team in to look at operations in Cleveland, generic Cleveland. That means everything we do in Cleveland. We also said, well, then let’s ensure that we include VA Retro

and retired annuity pay operations as a part of the Red Team review.

Mr. KUCINICH. Could you have sent a Red Team in because you

found certain problems with the VA Retro program and you needed

another opinion about what happened and maybe what you should

do?

Mr. GADDY. Right.

Mr. KUCINICH. Is that possible?

Mr. GADDY. Yes, sir.

Mr. KUCINICH. Payroll 303 was issued after you suspended 100

percent verification of payments over $2,500, isn’t that right?

Mr. GADDY. Yes. Yes, sir.

Mr. KUCINICH. Payroll 303 contained errors which DFAS detected after checks had been sent from DFAS, isn’t that right?

Mr. GADDY. Yes, sir.

Mr. KUCINICH. Can you tell the subcommittee what those errors

were?

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Mr. GADDY. I don’t have the facts around all of the errors. I do

believe that I was told, there was a 10 percent error rate in Payroll

303.

Mr. KUCINICH. Maybe I can help.

Mr. GADDY. I think there were a total of 226 or 230 payments,

I believe, were in that payroll.

Mr. KUCINICH. OK, because I want to make sure that when you

testify that we are as precise as we can be. So I am going to ask

some questions to help.

Mr. GADDY. OK.

Mr. KUCINICH. Were there overpayments?

Mr. GADDY. Yes, there were overpayments.

Mr. KUCINICH. Is it possible that the overpayments had a total value of $117,000 in overpayments made to six individuals?

Mr. GADDY. I don’t know for sure, but that is possible.

Mr. KUCINICH. Were those individuals entitled to receive retroactive pay on the overpayments?

Mr. GADDY. I believe they were entitled to retroactive pay. I don’t

know that they were paid the correct amount.

Mr. KUCINICH. I think the appropriate answer, based on the subcommittee staff, is no.

Mr. GADDY. OK.

Mr. KUCINICH. Were those veterans even entitled to receive

monthly CRDP pay?

Mr. GADDY. I do not know.

Mr. KUCINICH. OK. Would you be able to inform this committee

in writing of the answer to that question?

Mr. GADDY. Yes, I will.

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Mr. KUCINICH. That will be fine.

If those veterans were possibly not even eligible to receive the

onthly CRDP, let alone retroactive pay, doesn’t that suggest to you

that there may be a wider problem in your retired and annuitant

division?

Mr. GADDY. As I said, Payroll 303 was included in the total scope

of the 200 payrolls that they have looked at for post-pay review.

So, in the total scheme of 200 payrolls, 1 payroll had a high error

rate. The others did not. So, in the aggregate.

Mr. KUCINICH. We are dealing with VA Retro here now, remember.

Mr. GADDY. Right, in the aggregate, that is what I am talking

about, 200 payrolls, almost 200 payrolls for VA Retro. Payroll 303

was one of those. So we had 1 payroll out of the almost 200 that

exceeded the 3 percent threshold for errors.

So, when we aggregate all of that, what my staff has told me is

the errors are less than 1 percent including that particular payroll.

Mr. KUCINICH. Has a sit rep been done about payments made in

error since March 1, 2008?

Mr. GADDY. Not to my knowledge.

Mr. KUCINICH. Are you sure about that? Is it possible it could be

done without your knowledge?

Mr. GADDY. There could have been one that went. I have not

seen a sit rep.

Mr. KUCINICH. Would you find out for this committee and let us

know?

Mr. GADDY. Yes, we will find out.

Mr. KUCINICH. OK. I would like to read to you another e-mail

written by the VA Retro contracting officer: ‘‘Even if the contractor

can meet his goal, the CGA is not able to process this level of work

flow due to the reviews mandated to comply with Certifying Officer

Legislation and the potential liability therein.’’

This and other e-mails from within DFAS lead us to the conclusion that there was a belief in DFAS that CGA audits were causing

or could cause further delay in clearing the backlog. Is this a fair

assessment of the thinking within DFAS management?

Mr. GADDY. I think so, that at the time that e-mail was sent, we

had not increased the staff of the CGA by the 15 that we subsequently added. When we saw Lockheed Martin, we anticipated they

would increase the number and volume of payroll sent to CGA for

review. We needed to add more people to the CGA to do the payroll

reviews.

At the time—I think that was January 2008—we had not added

those individuals yet.

Mr. KUCINICH. Couldn’t you have directed your own CGA auditors to adopt the lower standards that Lockheed used?

Mr. GADDY. For COL, no, we did not.

Mr. KUCINICH. Can you tell me why?

Mr. GADDY. Because we are trying to comply with Certifying Officer Legislation from the payroll certification perspective. So we

asked them to apply the standards that were applicable to all payroll operations.

Mr. KUCINICH. Well, let’s talk about the GAO rules then. Did you

go around the GAO rules in order to do this?

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Mr. GADDY. The GAO rules that require a review of payments

under $2,500 on a sampling basis and over $2,500 on a 100 percent

review, we comply with those on a post-pay review basis, and then

we sample on a pre-pay review basis. I do not believe we fully comply.

Mr. KUCINICH. Does Lockheed abide by those rules?

Mr. GADDY. No. Their QA is different from COL.

Mr. KUCINICH. Right, but DFAS asked GAO in another context

for the ability to do fewer than 100 percent verification of payments, isn’t that right?

Mr. GADDY. Yes, we did.

Mr. KUCINICH. GAO wouldn’t permit it, isn’t that right?

Mr. GADDY. Right.

Mr. KUCINICH. Was the GAO guidance from 2003 still in effect

during the VA Retro payment project?

Mr. GADDY. GAO guidance is in effect across the board for all

payments.

Mr. KUCINICH. Your CGA auditors couldn’t adopt the lower quality control standards you felt were necessary for clearing the backlog, so you did the next best thing. You outsourced it.

Now there is a legal question here, I think. Could DFAS accomplish by outsourcing what it could not do itself, namely, subject the

VA Retro payments to a lower standard of quality control than

GAO allows? What is your opinion on this question?

Mr. GADDY. Lockheed Martin’s QA process is embedded in Lockheed Martin and is required by contract, and we understand what

their QA process is. We actually review it. We have actually observed it as it is underway.

QA, from a Government perspective, Certifying Officer Legislation is not the same thing as Lockheed Martin QA. It is actually

two separate things.

Mr. KUCINICH. OK. As an administrator, you are governed by

certain legal authorities. What legal authority did you have to proceed in the way that you proceeded? Could you cite that for this

subcommittee?

Mr. GADDY. I cannot cite legal reference. I can say that when we

contract for payroll operations like Lockheed does, a part of the

contract specifies what the quality assurance steps will be and that

they will abide by those.

The Government role of Certifying Officer Legislation is distinct

from the QA process that Lockheed Martin was required to perform.

Mr. KUCINICH. Mr. Kleinknecht, you just heard testimony by Mr.

Gaddy on this matter with respect to the approach that he used,

and you are certainly familiar with the rules, regulations and laws

governing administrative conduct with respect to this matter. Does

anything in his testimony raise questions as to the possibility that

GAO rules were somehow avoided?

Mr. KLEINKNECHT. Mr. Chairman, I think clearly it would be

something we would need to look at again and get a legal opinion.

It does sound like they are circumventing the rules. Whether it is

legal, again, we would have to look at that.

Mr. KUCINICH. Right.

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Mr. KLEINKNECHT. You know I wanted to comment just one more

thing.

Mr. KUCINICH. You may.

Mr. KLEINKNECHT. Earlier on a comment about the best practices

of maybe going outside this contract and using another contractor

to do some of this function, this part of the original contract that

we looked at when it was awarded, when this function was

outsourced included to address legislative changes that affected the

military retired and Retro pay function.

Built into the contract, there was this time and materials work

which is the task where I believe it was issued to cover these kinds

of changes. And the contract included, I think it was six, seven million dollars of this time and materials work to cover just this VA

Retro pay issue. There were provisions for surge requirements. So

this is all part of the original competitively sourced retired and annuity pay function.

Mr. KUCINICH. To Mr. Gaddy, I have a memorandum here that

was given to the subcommittee staff by the Congressional Research

Service. I asked them their opinion on this question. I want to read

to you their response from this.

They said, and they are talking about Lockheed: ‘‘If Lockheed

uses statistical sampling of claims above the allowed maximum,

there is no per se violation, but the disbursing or certifying official

may not receive the protection of the statute.’’

Do you agree with that statement?

Mr. GADDY. I do.

Mr. KUCINICH. Does your certifying officer for the VA Retro payments possibly face personal liability for improper payments occurring pursuant to your decision to leave quality assurance to Lockheed?

Mr. GADDY. The certifying official faces pecuniary liability for

any improperly certified payrolls.

I keep drawing a distinction. QA is endemic to the payroll operation. Certification of payments that a certifying official approves

for payments is a separate event that the certifying official is responsible for.

Mr. KUCINICH. Knowing your efforts here, one of the things that

bothers me is I wonder if what you did would have been tolerated

in the private sector. What you did was let Lockheed audit its own

work and report to you the results. Don’t you see somewhat of a

problem here in letting a contractor audit his own work?

Mr. GADDY. Actually, this is no different than when someone in

payroll, where we don’t outsource the work, is responsible for computing payments to individuals. The process in place and the owner

of that process is responsible for the quality of what they produce.

The payroll certification process, separate and distinct from that,

certifies payrolls for payment. And so, from that perspective, no, I

don’t because, quite honestly, what Lockheed is doing is computing

something that will ultimately either be paid in the case of a payroll.

Or in the case of a no pay due, the same rules don’t apply because there is actually no payment to be made. So there is no Certifying officer Legislation requirement. There is no payment above

$2,500 requiring a review.

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So, from that perspective, I would say I don’t see a conflict of any

type here. We expect the contractor in this case to follow the procedures that were approved, to use the authoritative information that

we came up and said, when you compute a payroll and adjudicate

a case, this is how you do it.

One of the reasons there was such a high failure rate within QA

for Lockheed was at the floor level, the operations level, people

were doing what they thought was correct, how they were trained

to do their work. It would go into QA, the Team Blue that Lockheed had. It would fail because they would use a different set of

sources of information to do the calculation and verify the payment.

So we said, OK, there has to be one way to figure this out, one

way to calculate this. It is an open book test. You calculate it the

same way. You will review it the same way so that we will get the

same answer if two people look at the same set of data.

And, that is what we started in the April, May timeframe, and

I do believe was why we saw the failure rates within Lockheed

Martin’s own QA process start to diminish.

Mr. KUCINICH. I want to just say, as we go to Mr. Issa, that

based on what has come before this committee today and what

staff has been able to determine, it appears that you accomplished

through outsourcing what you wouldn’t have been permitted to do

under GAO rules. For that reason, I feel it is appropriate for this

subcommittee to ask the IG to look at that and see if, in fact, there

is any action taken that contravenes GAO.

I want to now go to Mr. Issa for his questioning in the second

round. We are going to have one more round after this.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. Cipriano, how long have you been? I apologize for not knowing your whole resume, but how long have you been in the IT

world, particularly looking at Government documents?

Mr. CIPRIANO. About 6 years.

Mr. ISSA. OK. And, prior to that, where were you 25 years ago?

Mr. CIPRIANO. I spent over 30 years in the Federal Government.

Mr. ISSA. As best you can and if you can’t, just tell me, going

back let’s say 25 years ago.

This project appears to me to have taken during the period in the

rear view mirror here, it seems to have taken about 150 man years

to accomplish. That is sort of my best guess. You guys might come

up with 160 or 170. Essentially, it is a lot of man years.

Mr. CIPRIANO. Right.

Mr. ISSA. How many, if you had to do it over again, do you think

it would, assuming that we will just take 150 man years as a number, arbitrary? And, 25 years ago, what would it have taken with

the paperwork that was the source material?

I realize many of the documents you look at go back that far, and

I want to get a perspective because I want to see where we have

been and I want to know where we can go.

Mr. CIPRIANO. I think looking at the degree of automation that

we have now versus when we started, I think we could do this

with, if we started today, with what we now have with 30 to 50

percent less man years total than we expended this time.

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And I think if we look back 25 years ago, it would have taken

twice as many people as we expended probably to do this because

we wouldn’t have had the benefit of any of the automation.

Mr. ISSA. You know one of the reasons I picked 25 years ago was

25 years ago they alternately paid me as a captain or a lieutenant

in the Reserves. They couldn’t make up their mind which I was because two different data bases had two different ranks.

I served—actually with two different sets of bars on—the same

commander at the time, and only General Wes Clark could laugh

about it years later that I had worked for him as a captain, then

as a lieutenant, then as a captain. That was to be expected because

you didn’t argue with the orders no matter how bizarre they were.

But I do want us to look at it in that sense of where we were.

Let me ask sort of the other part of the question, and if you feel

comfortable, great. If not, perhaps other experts or perhaps a followup for the record.

We have countless amounts of non-digital data sitting out there

at DOD and all kinds of other areas. Would this committee be well

advised to hold hearings and in fact to potentially create a program

that says we can save money in the long run if we launch a professionalized program to get it all digitized?

I realize we have had blueprints of this ship but not this ship

and lots of other piece meals. Is that something that from a Government oversight standpoint, piece-mealing by DOD, by Veterans,

by the Department of Agriculture is costing us more than in fact

if we do it all at once?

And, let me give you the alternate. Am I being a little bit foolish

because even though it is costing us this much, will it cost us that

much less 10 years from now if we don’t need until 10 years from

now?

That is my conundrum here today. This is a project that wasn’t,

on the scale of things, that expensive, but it was expensive and it

was piece-mealed.

Do we continue piece-mealing projects in hopes that as the years

go on it gets less expensive or should we have a Government-wide

plan, if you will, the Manhattan Project of conversion of analog to

digital?

Mr. CIPRIANO. That is a very good question. I did spend 30 years

in the Government, and I will answer from that perspective.

I think when I was in the Government, we looked at that very

same question, and the answer to the question is yes, it is worth

the investment, but it is very difficult to get the capital to do it.

So if it is a tradeoff between having to take that money out of your

operation and maintenance money to do it, it never quite makes

the cut.

It would have to be a separate funding initiative, I think, but I

think there is a business case that can be made for making that

conversion.

Mr. ISSA. Mr. Gaddy, with what you have now come up against,

if you agree, how should this committee and this chairman and this

ranking member best set about holding the hearings, making the

case that might lead to that funding that is not currently available

to do this right?

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Mr. GADDY. Quite frankly, the fact that so much information is

in so many places in such a state of disrepair, quite frankly, most

people don’t even know what they have nor can you share information.

In this example, VA will use a different disability code for the

same disability that DOD. And not only do you use a different code,

you use different wording around it, so you can’t even read it to

see if they are the same thing or not. You actually have to be able

to interpret the information to understand what you are looking at.

If we lived in a world where people spoke the same language and

shared the same information, we would save a tremendous amount

of resources.

Entitlements come all the time, and one of our challenges as an

organization is to quickly, effectively implement those new entitlements. If we don’t have the tools to do it with, then you end up

with what we have here, which is kind of an ad hoc approach

where you come at it like a pickup game to try to get it done in

a reasonable timeframe and a reasonable cost, but at the same

time recognizing the impact on people is such that you want to do

it as fast and effectively as possible.

I do think and I agree with Mr. Cipriano that there is a business

case for this. Now how do you, who do you direct to do the business

case to support? What are the benefits?

There are intangible benefits certainly to individuals who will

start receiving something, but there are very tangible benefits to

organizations that manage all this disparate data that have to

work together.

You cited earlier on the Walter Reed incident. Data-sharing, I believe, between VA and DOD could get much better than it is right

now, and that is just two cabinet agencies. If you looked across

Government and multiply that times 12 or 13 times what the effect

of those two organizations is, I think you would build a tremendously viable business case that says the right information, readily

accessible, understood by decisionmakers to make those decisions

about: Well, what if I change this, what is the impact of it? If I

want to change it, what is the cost?

Mr. ISSA. Thank you.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

Mr. Gaddy, let me ask you about no pay due determinations

meaning, obviously, that someone isn’t due pay. Who determined

that 28,283 disabled veterans were not due any money in the retroactive pay project?

Mr. GADDY. The Lockheed Martin individuals, who are responsible for computing or adjudicating cases, take information, run it

through the procedures that were established and agreed to by the

CGA.

Mr. KUCINICH. So it is Lockheed Martin, right?

Mr. GADDY. Lockheed Martin, yes, sir.

Mr. KUCINICH. OK. How much training did the Lockheed technicians before deciding if veterans were eligible for Federal money?

Mr. GADDY. Roughly, 6 weeks.

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Mr. KUCINICH. When a Lockheed technician decides a person is

not eligible, what happens then? Does Lockheed’s Team Blue quality assurance operation verify the accuracy of that decision?

Mr. GADDY. No, they do not.

Mr. KUCINICH. Does the Government verify the accuracy of every

decision by a Lockheed technician that a disabled veteran doesn’t

get any Federal money?

Mr. GADDY. No, we do not.

Mr. KUCINICH. So who bothers to check a decision by a Lockheed

technician with 6 weeks training that a veteran with 28 years of

Army experience does not get a Federal benefit? Who verifies that?

Mr. GADDY. The post-decision verification, as we just established,

is not occurring.

Mr. KUCINICH. But you told us no one, right?

Mr. GADDY. Right, the post-decision.

The pre-decision process to go through and come up with a decision, there is logic. There are agreed upon procedures that were established to make that initial determination. But you are right,

there was no subsequent post-determination.

Mr. KUCINICH. No, nobody. I mean I just want to establish this,

that no one verifies this.

Mr. GADDY. No one verifies, correct.

Mr. KUCINICH. Let me ask more specifically about Command Sergeant Major Harold Lewis. He is a disabled Army veteran. He received his injuries in combat in Vietnam. Originally a draftee, he

served 28 years in field artillery, 28 years, and eventually rose to

command levels of authority.

The Army attributes his multiple disabilities including Diabetes

Type II, acute peripheral neuropathy, tinnitus and hearing loss to

numerous combat injuries including concussions and broken vertebrae from rocket attacks and exposure to Agent Orange.

Mr. Lewis was denied retroactive pay after waiting approximately 1 year for adjudication of his case. He contested the no pay

determination. He had an easy to understand reason to believe

that he would be due retroactive pay.

He had conclusive documentation which would have been available to Lockheed before they denied Mr. Lewis his eligibility. Nevertheless, it took a year-long odyssey, in his words, to finally get

DFAS to check the accuracy of Lockheed’s denial.

You know what DFAS found? Mr. Lewis was, in fact, entitled to

a total retroactive payment of nearly $15,000 and that, in fact,

Lockheed erroneously denied Mr. Lewis his benefits.

By the way, without objection, there is a letter from Harold

Lewis to DFAS in Cleveland which talks about his odyssey. Without objection, we will put that in there.

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Mr. KUCINICH. Mr. Gaddy, did this veteran with 28 years in the

Army, this veteran who drank poison water from Agent Orange

that was dumped over him and the Vietnamese, who was denied

a retroactive pay award by a Lockheed technician with 6 weeks

training, do you think this veteran deserved to have his denial

checked for accuracy before a letter from DFAS came to his door?

Don’t you think his country owes him that much, at least a quality check, Mr. Gaddy?

Mr. GADDY. Yes, I do.

Mr. KUCINICH. Now I am going to request you, Mr. Gaddy, that

DFAS’s CGA do 100 percent verification of every no pay due determination that has been sent under VA Retro. Will you assure this

committee that you will do it?

Mr. GADDY. Yes, I will.

Mr. ISSA. It is not appropriate to move, but I want to be associated with that request. I appreciate your willingness to do that review so that if one could fall through the crack, another one

doesn’t.

Mr. KUCINICH. I would like to go to Mr. Issa right now, and then

I am going to come back for one more round of questions.

Thank you, Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman, and I am going to be very

brief.

Mr. Gaddy, if you had those common terminologies or an interpreter that put them into a common data base in a like way, if in

fact all of the information from the various data bases were put together for each individual that you are trying to adjudicate proper

payment to, would this problem likely not have occurred?

Mr. GADDY. It is hard to say anything with certainty, but I do

believe if DOD and VA shared common information that was readily accessible in a data base environment, this would be no different than normal payroll operations where we actually pay millions of people every month with a proportionately much smaller

work force at a proportionately much smaller cost.

Mr. ISSA. Let me ask one more question, and this may be outside

your expertise, but I feel I need to ask it.

Being the brother of a 100 percent disabled veteran, I watched

the process that he and many of my comrades of years past have

gone through.

Isn’t it true that, unfortunately, veterans most commonly go

through a series, not one but a series of requests, reevaluations,

perhaps additional medical examinations throughout their time

post-service, so that the typical, very often 50-year-old retired or no

longer active duty, let’s say, veteran, whether they retired or simply served and went into private life, most often by the time they

get to 100 percent, they have passed through a number of other

thresholds and a series of turns and loops? Isn’t that essentially

the story of veterans?

Mr. GADDY. I believe so. My father was retired Army, and I

helped him deal with VA in Texas, and I know what he went

through right up to the very end including getting combat-related

special compensation.

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I do believe that the process we ask any veteran to go through

between DOD and VA, in many respects from my perspective, is

duplicative and could be done much more streamlined.

I do believe that what the departments are trying to do under

various lines of action as a result of what happened at Walter Reed

is to do some of those things once, jointly, so that you don’t have

to go through many of the various hoops that you go get a disability determination in DOD and then walk over to VA and get yet

a different one that may be at odds with one another.

So I think that what the departments are already starting to do

is a positive thing. Could more of that be done? I believe so. Just

like the sharing of information amongst the departments would be

very beneficial, and we are working those kinds of things with VA

right now.

Mr. ISSA. Well, since you are talking in the present sense of we

are working, we are doing this, I am going to maybe not pose it

as a question but as a request to the Chair.

It seems that today’s hearing is putting us in a position where

what we have uncovered is that outer skin of the onion. If we don’t

peel back the current data base, the post-Walter Reed era, and see

whether or not the next generation coming home from Iraq and Afghanistan or even noncombat tours in which they may be injured,

if we don’t make sure today that this is being done quickly, I suspect that those who come down the road 10 years from now will

be having a similar conversation about how DOD still isn’t talking

well enough to VA so that individuals, perhaps with 6 weeks of

training, but individuals are going to be trying to reconcile these

things rather than it being a single combined data base in a seamless way.

So, Mr. Chairman, I would ask that we sincerely—I don’t want

to step on other committees, VA or DOD.

But I think when it comes to the IT portion, which this committee has a primary jurisdiction over these systems and whether they

talk to each other, that we take the time to have another hearing

in which we bring back some of the experts that could tell us how

they are doing today and, perhaps picking up on the questions here

today, also look backward at these expansive data bases because it

seems like both finding out what dollars it would take to take care

of the sins of the past and getting to the real crux of are we worldclass today or are we just working on it and maybe a long way

from it.

Those two questions can only be asked, I think, if a committee

looking at it in that way does it.

So I want to close by thanking you for holding this hearing as

it has caused us, I think, to look at a bigger picture so that the

$15 million or so that we were talking about here today, we can

perhaps save billions if we act bipartisan and jointly on it. I thank

you and would make that request that you schedule it as you see

fit.

Thank you, Mr. Chairman. I yield back.

Mr. KUCINICH. Again, in the spirit in which we proceed on this,

Mr. Issa, we will certainly followup on your request and work with

you to structure a hearing that will be responsive to what you are

saying, just as I appreciate very much your associating yourself

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with my request to Mr. Gaddy that he do 100 percent verification

of every no pay due determination.

As you point out, we have more veterans coming into the system.

Because we have more veterans coming into the system, we don’t

want them to be in a position of other veterans who there are more

than 8,000 veterans who died while they were waiting for their

check to come.

And so, first of all, looking at the instant case of 100 percent verification of every of no pay due determination, once we get DFAS’s

cooperation in doing that, then it will hopefully help them look at

the systems that are involved here as well as the VA, at the systems that are involved here so that our veterans coming down into

the system in the future are not going to have to face this.

In connection with this, to help us get to the point, because I

know you are always forward-looking and I appreciate that, in

order to get to the point of clearing this system up and not failing

our veterans, I am going to be asking and requesting to Mr.

Heddell—I will do it verbally, but we will put it in writing—that

the Department of Defense Inspector General do a full-blown audit

of every aspect of the VA Retro and the R&A programs that we

have discussed at the hearing. Will you do that?

Mr. HEDDELL. Yes, sir, we will.

Mr. KUCINICH. That is a positive response as well. So what we

can do in working together is address this matter right now, and

then we go to the next step which is look at the systemic issues

that relate to the architecture of the data base infrastructures.

I appreciate working with you, Mr. Issa, because you bring a perspective to this subcommittee that enables us to pursue our effort

in a much broader way, and I appreciate it very much.

I want to go to a question here.

And, I want both of our staffs to work together so that Mr. Issa’s

idea for another hearing can be brought forward expeditiously.

Staff, please do that.

Mr. Cipriano, would you share with this subcommittee what

Lockheed’s advertising slogan is? It really, I think, speaks to what

you believe your corporate mission is.

Mr. CIPRIANO. ‘‘We never forget who we are working for.’’

Mr. KUCINICH. Could you bring that mic closer?

Mr. CIPRIANO. Yes. ‘‘We never forget who we are working for.’’

Mr. KUCINICH. Right. It was a Lockheed technician who decided

to deny Mr. Lewis his VA Retro benefit, correct?

Mr. CIPRIANO. Yes, I believe it was, but if I may elaborate on the

process.

Mr. KUCINICH. You will be able to elaborate. I just need to ask

a couple questions here.

Mr. CIPRIANO. OK.

Mr. KUCINICH. Was it Lockheed that put this technician to work,

determining the eligibility of VA Retro payments of men like Command Sergeant Major Lewis, right?

Mr. CIPRIANO. Yes.

Mr. KUCINICH. You gave these technicians about 6 weeks training to do that job, is that correct?

Mr. CIPRIANO. That is correct.

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Mr. KUCINICH. It was Lockheed that decided not to verify the accuracy of that technician’s work, is that correct?

Mr. CIPRIANO. No.

Mr. KUCINICH. What was the verification of the accuracy of that

technician’s work?

Mr. CIPRIANO. No. Our contract did not ask us to do verification.

Mr. KUCINICH. So you were not required to verify the accuracy

of that technician’s work, is that correct?

Mr. CIPRIANO. We were not.

Mr. KUCINICH. Who are you working for?

Mr. CIPRIANO. Who were we working for?

Mr. KUCINICH. You never forget who you are working for. So who

are you working for?

Mr. CIPRIANO. We are working for DFAS as our contract customer and also looking out for the veterans as well as best we can.

Mr. KUCINICH. You are working for Command Sergeant Major

Lewis, right?

Mr. CIPRIANO. Yes.

Mr. KUCINICH. You are working for him, but you really didn’t

work for him because he was denied. There wasn’t a review. Lockheed didn’t even double-check its work before you told Mr. Lewis

and, I might say, 28,282 other disabled veterans that they would

get nothing from the Government. They were denied.

How does that make you feel? Do you feel that maybe your motto

here, you need to do something more in order to justify what your

corporate——

Mr. CIPRIANO. No. I fully support the need to do a QA check.

Mr. KUCINICH. Could you speak a little bit louder? Would you say

that again but just be a little bit louder?

Mr. CIPRIANO. I fully support the need to do a QA check on the

no pay due determinations.

Mr. KUCINICH. Why did DFAS fail to demand that Lockheed verify denials of payments to veterans? Why do you think?

Mr. CIPRIANO. I don’t know.

Mr. KUCINICH. Why did DFAS fail to conduct its own quality assurance Lockheed denials of Federal benefits?

Mr. CIPRIANO. I don’t know.

Mr. KUCINICH. Do you regard payments differently from non-payments? Do you regard payments differently?

Mr. CIPRIANO. They are in one key way, which let me try to

elaborate. Most of the 90 percent of the no pay dues are determined by a computer program that looks at the data that comes

in and makes a decision based on that data that no payment is

due.

Mr. KUCINICH. A computer program, does the computer program

make a legal justification for making a distinction between payments and non-payments?

Mr. CIPRIANO. Well, the computer program has been validated

that when the data coming into the computer program is accurate,

it provides an accurate answer, and so there usually isn’t any need

for any further verification after that point.

Mr. KUCINICH. Lockheed has told us that they received $18.74

million for the work on the VA Retro program. Now, Mr. Cipriano,

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this sum represents what percentage of Lockheed’s total billing to

the U.S. Government?

Mr. CIPRIANO. $18 million?

Mr. KUCINICH. $18.7 million for the work on VA Retro.

Mr. CIPRIANO. It is a very small percentage of our total billings

to the Federal Government.

Mr. KUCINICH. Could it be like less than one-tenth of 1 percent?

You do a lot of work, so it is very small, right?

Mr. CIPRIANO. Very small.

Mr. KUCINICH. Could it be one-hundredth of 1 percent, even less

than that?

I mean with a relatively small value of the VA Retro contract in

comparison, let’s say, to Lockheed’s billion dollar contracts with the

Government for the F–22 or the Aegis Missile, would that affect

Lockheed’s commitment to performing as required?

Mr. CIPRIANO. No, sir.

Mr. KUCINICH. So I wonder, Mr. Cipriano, do U.S. taxpayers get

Lockheed’s best, get your best performance there is here in this VA

Retro program?

Mr. CIPRIANO. I think we gave it our—we did the best we could

given the circumstances in which we had to perform.

Mr. KUCINICH. Now, Mr. Cipriano, certainly, calculating benefits

for a few thousand disabled veterans can’t be as difficult as, say

making a missile hit a missile?

Mr. CIPRIANO. But veterans are important, and we care about

them.

I sent down my vice president. I sent down senior people to help

make this project work. We augmented the team that was onsite

in Cleveland with data automation experts, with production experts, with senior people from across the corporation. We send

down quality assurance experts from our corporate experts to help

improve the process, and so we treated this just as importantly as

we do our larger duty programs.

Mr. KUCINICH. Well, you know the thing, Mr. Issa, that I am

hearing here is Lockheed has a great reputation in a lot of areas,

part of the defense of our country, and they can make a missile hit

a missile. But for some reason, they can’t connect a veteran with

the benefits that are due.

I didn’t get to all my questions. I am going to have to go to one

more round, and I have exceeded my 5 minutes. Mr. Issa, it is

yours.

Mr. ISSA. Mr. Chairman, I really have pretty well exhausted my

questions.

I think there is one small point that I would like to make sure

I understand: 28,000 plus denials, do we here today know that they

are erroneous or just that there were 28,000 denials and perhaps

28,000 out of 28,500 are in fact accurate or maybe 28,499 are accurate?

Mr. Gaddy, you are going to do a full audit, and I appreciate

your willingness to do that.

Mr. KUCINICH. Would the gentleman yield?

Mr. ISSA. Of course, Mr. Chairman.

Mr. KUCINICH. The thing that I am concerned about is based on

this testimony here, no one seems to know.

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Mr. ISSA. Exactly, and I think that is why it is so important for

us to join together to ask to have that second look.

But here today, do you have a high confidence that the vast majority of those, particularly the computer ones, are accurate to the

best of the data you are going to review? If you don’t, then I would

appreciate knowing because I would like to have sort of a headsup for what to expect 60 or 90 days from now.

Mr. GADDY. Certainly, sir. Actually, our numbers of no pay dues

is 25,448.

As Mr. Cipriano just explained, we established a process to verify

whether payments were owed or not. That process was reviewed.

The criteria that were required to make that original determination were vetted through the CGA and ultimately were automated

to a large extent.

In the case of Command Sergeant Major Lewis, he was unfortunately one of the first people through the new revised automated

process which kicked out the wrong answer for him, and we found

out the problem when he came back and said, I don’t believe your

answer is right.

We went back and looked at the logic that was used to make that

decision, found the errors in it, correct it. Lockheed Martin corrected those logic errors, reran it, came out obviously with a different answer.

And so, I am going to sit here and tell you a qualified answer.

My expectation is when we are done with the review, we will not

see a large number of no pay dues where there were in fact pays

due. What percent, I couldn’t tell you, but I don’t expect it to be

a large number.

If it is, however, we will certainly make sure the individuals are

made whole, and we will go back and look at the process in place

to make that initial determination and ensure that is corrected.

Second, on an ongoing basis, there will be a review of no pay

dues to make sure that the initial cut that says no pay due gets

looked at just like when we look at pays that are due to ensure

that we have a second review of that process to make sure it is correct.

Mr. ISSA. Thank you.

Your answer brings up one more followup question very quickly.

When you discovered the Command Sergeant Major had been run

through basically a garbage in, garbage out program and it missed

something, you changed the program and reran it and then he was

granted.

Did all the previous rejections run back through that? In other

words, without appealing, would the veterans that were previously

denied reevaluated based on the now known flaw in the program.

Mr. CIPRIANO. The answer is yes. We made the change in less

than a week, and so there wasn’t very many during that interval,

and they were checked.

Mr. ISSA. OK. But I just want to understand that the normal ISO

9000 kind of quality circle occurred. Because of his effort, ultimately it led to a recognition of a problem, and then the problem

was employed to others without their having to say anything.

Mr. GADDY. Yes, sir. The QA process that Lockheed uses and

that we use on our side, every time we see a payment anomaly or

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an error condition, we go back into the process to establish was

that systematic, was that a one-time error caused by human error

or training issues or whatever it may be.

Quite frankly, it is a learning process to ensure that subsequently things were correct. If the same condition, we would run

whole payrolls through a second time just to make sure that everything that came out at the end was correct.

Mr. ISSA. Well, thank you very much.

And, Chairman, once again, thank you for holding this important

hearing.

Mr. KUCINICH. I am listening to this testimony, Mr. Issa, and I

keep thinking about Command Sergeant Harold Lewis. People who

are on disability, particularly soldiers, their entire lives end up

being organized around whether that money is coming.

Really, if you take it down to an individual level here, it wasn’t

like some kind of a routine procedure was being handled here

which you followed. The fact of the matter is this man struggled

for a year. He took it upon himself to struggle for a year to get recognized.

This is what drives my involvement here because what I am seeing is that here is someone. If he didn’t have the same stick-to-itiveness that he brought to service to the United States of America

driving him, he would have just been blown off. He would not have

gotten his money.

You know we come from the same community in many ways. Our

families have the same kind of concerns. I think about that veteran

who served and is just waiting for the check, and we don’t know

if they are due it or not, but they are not getting any review. So

that is why I appreciate that.

Mr. ISSA. Mr. Chairman, we have to do this. As you know, in

Cleveland, people choose to live in your district or near your district because of how long it takes to get to the Brecksville VA. If

they can’t get by transportation available to them, they can’t get

to the veterans hospital, in fact, they can’t live where they choose

to live.

So there is a myriad of issues, and you are absolutely right. Our

disabled veterans are owed every accommodation particularly.

One of the reasons I made a point here today, that I am not

upset about the money that was because of the speed of the contractor because ultimately we were letting down the veteran every

day past 2004 that we didn’t do it. I am upset about any inaccuracy

and particularly if there is additional flaws and people who are

presently entitled who are not receiving.

So, Chairman, again, thank you for making this hearing a keynote, I think, on this problem and bringing it to, hopefully, a conclusion before the end of this Congress.

Mr. KUCINICH. I thank the gentleman.

This is a copy of the staff report. I am sure you are familiar with

it. I am going to ask unanimous consent to place the entire staff

report in the hearing record.

[The information referred to follows:]

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Mr. ISSA. Thank you. And, as you know, there is a minority staff

report. I would ask for the same unanimous request although ours

is somewhat smaller.

Mr. KUCINICH. Of course, as a courtesy, so be it. Thank you.

Mr. ISSA. Thank you.

Mr. KUCINICH. I want to go back to Mr. Cipriano here.

We are talking about 217,000 cases here in the VA Retro program, is that correct?

Mr. CIPRIANO. 217,000.

Mr. KUCINICH. 217,000?

Mr. CIPRIANO. In the ballpark, yes, sir.

Mr. KUCINICH. On the project, while we qualified it is not a large

amount of money, given Lockheed’s contracts overall with the Federal Government, you are still getting $18.7 million from the Government to handle these cases, correct?

Mr. CIPRIANO. Correct.

Mr. KUCINICH. That works out to about $90 a case. Your projections estimated that your technicians handle about six cases a day,

is that correct?

Mr. CIPRIANO. I think that is pretty close to the current.

Mr. KUCINICH. So, just to do the math, 6 times 90, $540 per day

per technician that you either plan on or you bill to the Government. How much do you pay your technicians per day?

Mr. CIPRIANO. The amount——

Mr. KUCINICH. What is the hourly rate for a technician with 6

weeks training?

Mr. CIPRIANO. I don’t have the number off the top of my head,

but it is a wage determination by the Department of Labor determines the labor amount for that.

Mr. KUCINICH. Can you get back to me with the exact amount

of money that you pay your technicians per day? Would you let us

know?

Mr. CIPRIANO. I will provide that, yes, sir.

Mr. KUCINICH. You will?

Mr. CIPRIANO. I will provide the number to you.

Mr. KUCINICH. Thank you. Thank you.

Now, Mr. Gaddy, as you know, when DFAS decided to outsource

retired and annuitant pay to a private contractor that Lockheed acquired, the in-house Government bid was actually less, $31.8 million less. Even after this was brought to DFAS’s attention, DFAS

decided to retain Lockheed.

In retrospect, do you think you saved the taxpayers any money

by sticking with Lockheed?

Mr. GADDY. The CNA study projected between $11 million and

$40 million overall savings, and I know that is based on comparing

Lockheed Martin’s proposal or the ACS proposal to status quo costs

and to our MEO.

The reality to me, having been in this business a long time and

having seen most efficient organizations where the Government

wins, and in our case there has only been one outsourcing of work

and that was the R&A work. Without exception, when we win the

proposal on the Government side, much like what we saw in the

Lockheed proposal or ACS proposal as the predecessor, we would

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have gotten better and we would have more than likely reduced

our costs overall from what the original bid was.

So, are we saving the taxpayer money, based on a CNA study,

yes. Based on my gut reaction, I would say we probably could have

saved this much if the Government had won.

Mr. KUCINICH. Mr. Kleinknecht, would you comment on that?

Mr. KLEINKNECHT. Just on the CNA study, the issue was again

that a lot of the time and materials work that would be associated

really with the VA Retro pay wasn’t going to materialize. The first

couple of years, they were underrunning.

But as we have just been speaking about this whole hearing, it

all related to work that didn’t materialize. But the VA Retro pay

was a part of the original. It is kind of other stuff that was included on the original contract for legislative changes.

So, again, that CNA report that showed the underrun really

didn’t underrun. It looks like probably it is going to be a wash, a

zero number. Again, we can get the exact numbers if we look at

it to address that issue.

Mr. KUCINICH. Yes, I would like those exact numbers because

from the beginning of this A–76 program, I have raised the question about whether or not this was actually going to be a benefit

to the taxpayers. We are finding out that is questionable, but certainly it has been to the disadvantage of veterans.

I am interested in your further digging into this, though, in

terms of looking at the numbers.

Mr. KLEINKNECHT. You know one point on the MEO, on the Government side, it looked like there was a lot more labor built in on

the in-house cost estimate where they had significantly more resources, and I don’t know that.

A lot of this testimony has been about can we use data bases and

do all this stuff, but I think a lot of these cases are probably labor

intensive. Does it require more labor to fix the problem?

Mr. KUCINICH. I mean that is the point.

Mr. KLEINKNECHT. Right.

Mr. KUCINICH. You could bid. You could bid on a contract.

Let’s go back to square one. You can bid on a contract, and you

can actually get the contract by underbidding, saying it is not going

to take that much work for what is arguably a labor-intensive endeavor.

Then you get the contract, and suddenly how does the backlog

get created? Because you don’t have enough people to do the work.

Is that correct?

Mr. KLEINKNECHT. Yes, sir. Yes, sir.

We found that when we outsource things like this, again, I spoke

to a couple of the large defense contractors. You lose a lot of your

flexibility.

Again, on some of this thing with this VA Retro pay, with all

these issues, flexibility is a key thing, that had we had the resources in-house to do the function, additional resources, we could

have allocated them here, there, where we needed.

Once it is contracted out, you lose that flexibility. It is basically

what is in the scope of the work, what is the contract requirement.

Mr. KUCINICH. Which is why the GAO rules become relevant

here.

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Here is where we are at: We have work contracted out. It said,

well, the Government cannot do this or cannot do this as well as.

You can have a situation where an underbid occurs and then

based on a calculation of it taking so much labor to do this work,

so many people to handle so many cases, based on so much money

spent per day. Then they calculate that out and figure out we can

do this contract, but if they don’t build in enough workers to do the

contract, you not only end up with a backlog, but you end up with

consequential deficiencies in the system.

So what we are seeing here, I believe, an object case which raises

questions about the legitimacy of a privatization, and we are seeing

specific evidence brought forward about this privatized system not

working.

When you bring in Red Teams, when you continue to have to

double and redouble efforts just to try to catch up, I just wonder,

Mr. Gaddy. Without a privatized system here involved here, I just

wonder. If you would had had the resources in-house to meet this

challenge, I just wonder if you could have done it without any hitch

at all.

It seems to me, given your core competencies, that you would

have been able to do the job. Those decisions were made above your

pay grade, and I certainly understand that.

This is not a question of your competency. This is really a question of how this whole thing has been structured, and no one

looked down the road, thinking about the Sergeant Lewises of the

world, about the effect this could have.

Now I want to go back to Mr. Cipriano. It is clear from our research that Lockheed had hoped, as had DFAS, that Lockheed

would automate the VA Retro calculations, but it didn’t work out.

What was Lockheed’s backup plan if the process couldn’t be automated?

Where did you plan to find the people to perform the calculations

for VA Retro on a manual basis?

Mr. CIPRIANO. Your question is what is our backup plan of the

process?

Mr. KUCINICH. What was your backup plan?

You have a process. It couldn’t be automated. It required a lot

of manual work.

Maybe somebody made a mistake, maybe there is a discussion

going on somewhere in Lockheed, saying, what did we get into

here? Why in the world did we take this up? We are trying to make

money. We are not trying to lose money.

Yet it is clear you had the idea you are going to be able to automate the calculation. Now the necessity to do it manually, where

did you find the people? Where did you plan to find the people to

perform the calculations on a manual basis?

Mr. CIPRIANO. Well, our backup plan was to do it manually as

you suggested, and we found the people in the Cleveland area

through recruiting firms that had the basic skills necessary that we

could train them with the specific information needed to be able to

process these claims.

Mr. KUCINICH. But you have had to hire new people, no question

about it.

Mr. CIPRIANO. We had to hire people, yes, sir.

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Mr. KUCINICH. Because they didn’t necessarily and they couldn’t

all come from your retired and annuitant work force because they

were involved in other things, is that correct?

Mr. CIPRIANO. That is correct.

Mr. KUCINICH. OK. So did you have sufficient numbers of people

to perform the VA Retro calculations in September 2006, when you

began processing cases? Did you have enough?

Mr. CIPRIANO. We had a sufficient number of people if the automation would have worked as we had planned.

Mr. KUCINICH. But it was manual. So you didn’t have.

Did you have sufficient numbers to perform the calculations of

VA Retro in September 2006 when you began processing? Did you

have enough people in September 2006?

Mr. CIPRIANO. September 2006, we had enough people to start

the processing, and we did get 50 percent of them processed by

March.

Mr. KUCINICH. Do you still hold to that?

In November 2007, you missed your first deadline. Did you have

enough people?

Mr. CIPRIANO. Between, before then, we identified the fact that

the SLC06 file was going to be able to support the automation, the

accuracy of the data in that file, and we, at that time, started hiring enough people to be able to.

Mr. KUCINICH. Can we talk about human beings here, not machines? Did you have enough people in November 2007, when you

missed your first completion deadline?

Mr. CIPRIANO. Two thousand and seven? I am trying.

Mr. KUCINICH. In November 2008, when you missed another

completion deadline, did you have enough people?

Mr. CIPRIANO. No.

Mr. KUCINICH. In April 2008, when you missed another completion deadline, did you have enough people?

Mr. CIPRIANO. We had enough people at that time.

Mr. KUCINICH. I have a report I am going to introduce into the

record that relates to staffing profiles and how phased reductions

in staff were occurring, were projected whereas your experience is

demonstrating that the reduction in staffing would have not been

wise.

[The information referred to follows:]

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Mr. KUCINICH. What I am wondering, and this goes to one of

those core questions in this hearing, is why didn’t you have enough

sufficient numbers of people along the way capable of adjudicating

cases to meet the deadlines that you were setting for yourself? How

does this happen internally?

You see where you are at. You see you need more people. You

don’t have enough people. You miss your internal deadlines.

You set another deadline. You don’t have enough people. You

miss that deadline. How does a company like Lockheed Martin,

which is one of the great American companies, how does that happen?

Mr. CIPRIANO. We initially estimated the project was going to

take 22 months.

The Government asked us to speed it up, and we came up with

an approach using automation to do that. OK. We staffed up based

on that automation being successful.

In September, we advised the Government that automation

didn’t look like it was going to be able to work because the data

was not sufficiently accurate to provide the 97 percent quality levels. And, at that point, the Government took it under advisement

and then gave us permission to increase staffing which we started

doing.

We increased staffing significantly. However, the productivity associated with that staffing took a while to develop.

Mr. KUCINICH. But here, according to your R&A contract with

DFAS, you were cutting your work force at exactly the time you

needed employees to perform VA Retro. Isn’t that the case?

Mr. CIPRIANO. The VA Retro project is a separate contract.

Mr. KUCINICH. I know it is a separate contract, but Lockheed

Martin is one company.

Mr. CIPRIANO. Right. Those, any people that were reduced under

that contract would, if it wasn’t because of attrition, if they were

still there, we certainly would have applied them first.

Mr. KUCINICH. Let’s say it is a separate contract, but you are cutting people on one hand. You are cutting people who work for you

and, on the other hand, you had to go out and hire people at 6

weeks training to do this VA Retro, but it is all Lockheed Martin.

So what I am saying is this subcommittee has evidence that you

cut your work force at the time you needed employees to perform

VA Retro.

Now the contractor’s proposal assumed that you would cut an already severely reduced work force from 570, that is when the Government did the R&A work in 2000, to 393 in 2005 to 306 in 2007.

This is the report that we are entering into the record.

If so, tell us, please, why did you reduce the work force at the

same time you needed people to perform the VA Retro calculations?

I just have trouble understanding. Help us understand it.

Mr. CIPRIANO. I don’t believe we did, but I will look at the staffing profile.

Mr. KUCINICH. Well, you know we have a staffing profile that

suggests that is exactly what you did, and we have your testimony

that you started ramping up and hiring people at 6 weeks training

to review these cases. How does that happen in a company that is

as storied as Lockheed Martin?

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Mr. CIPRIANO. Are you looking? I don’t know what you are looking at, but you may be looking at the staffing profile that was in

the contract that ACS proposed which may not bear much resemblance to what it is.

Mr. KUCINICH. Mr. Cipriano, I am going to ask Mr. Kleinknecht.

I need you to look into this, if you would, please. Look into this apparent discrepancy of, on one hand, staffing profiles going down

and, on the other hand, requirements to handle VA Retro going up.

Would you, please, delve into that see what the implications are

(A) for the performance of the responsibility that Lockheed Martin

took for VA Retro and (B) for the difference in the profit margins

that would occur for Lockheed Martin, given the fact that they

were hiring these workers with 6 weeks training for X amount,

$540 per day charge to the Government?

We need to have that. Can you look at that level of specificity?

Mr. KLEINKNECHT. Yes, sir. I think the IG has already committed

us to do an audit. So, clearly, we can look at all that as part of

our audit.

Mr. KUCINICH. I would appreciate it.

Now, Mr. Cipriano, did you in fact reduce your R&A work force

as projected in the contractor’s proposal between 2006, 2007?

Mr. CIPRIANO. I don’t have those numbers in front of me.

Mr. KUCINICH. Could you provide that information to us?

Mr. CIPRIANO. I will provide that information.

Mr. KUCINICH. If so, if you did, we also need you to provide us

with the information as to why you reduced the work force at the

same time you needed people to perform the VA Retro calculations.

We are also going to need to make a determination as to whether

you cut work force under the R&A contract which is a fixed-fee contract and hired workers under the VA contract which is a cost-plus

contract. I mean that is what we are getting into, and that is what

we are asking the IG to look at as well.

But I think it would be helpful to get an explanation because if

VA Retro’s cost-plus structure enabled you to mask your severe

understaffing levels in your fixed-price R&A contract, we are looking at a situation here that is not in the service of the public interest. Certainly, a non-privatized function would never have to be

faced with those kinds of internal calculations.

Now, Mr. Gaddy, you directed Federal workers to assume the duties of some number of Lockheed workers in the Lockheed-run retired and annuitant pay call center, didn’t you?

Mr. GADDY. Yes, I did.

Mr. KUCINICH. Was that the only example of using Federal workers to perform duties which were the contractual responsibility of

Lockheed?

Mr. GADDY. We applied, for about a 2-week period, some individuals to do some data base reviews.

Mr. KUCINICH. As you know, Lockheed operates the retired and

annuitant pay call center under a fixed-fee contract. Your intention

in assigning Federal workers to the Lockheed call center was to release a number of Lockheed workers from their contractual obligations for retired and annuitant pay so they could work to process

VA Retro claims, isn’t that right?

Mr. GADDY. That is correct.

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Mr. KUCINICH. Were those Lockheed workers compensated under

the VA Retro cost-plus contract or the R&A fixed-fee contract?

Mr. GADDY. I will have to confirm, but my expectation is they

were paid under the Lockheed Martin fixed fee.

Mr. KUCINICH. Excuse me, one moment. OK, we have five more

minutes. So I want to ask that again.

Were the Lockheed workers compensated under the VA Retro

cost-plus contract or the R&A fixed-fee contract?

Mr. GADDY. I will have to get an answer for the record.

Mr. KUCINICH. Would you do that?

Mr. GADDY. My expectation is they were paid under the fixed fee,

but I don’t know that for sure.

Mr. KUCINICH. It would be important for this subcommittee to

get that information, so we know under what circumstances they

were paid and who paid them.

Mr. GADDY. Right.

Mr. KUCINICH. Or was there a relationship of a reduction by

Lockheed Martin in the amount of money they were making from

the contract. We need to know that.

Could you tell us what measures DFAS takes to make sure or

would take to make sure that Lockheed did not receive compensation under its fixed-fee contract for work that Federal employees

were doing in a call center? Would you be able to do that?

Mr. GADDY. We will be able to provide it for the record also.

Mr. KUCINICH. That would be great.

Those Federal workers were taken off other duties at DFAS,

were they not?

Mr. GADDY. The call center people continued doing their call center work and handled the influx of calls for R&A as well.

Mr. KUCINICH. Did you have to pay them overtime?

Mr. GADDY. I don’t believe we did.

Mr. KUCINICH. So they were handling both, but were they handling like 6 hours a day they do this and another 2 hours a day

they do the Retro? How did that work?

Mr. GADDY. No. It was just commingled with the calls coming

into the call center. It could be an R&A call. It could be a military

call.

Mr. KUCINICH. But they were taken off other work they were

doing?

Mr. GADDY. Yes, they combined.

Mr. KUCINICH. That you needed them to do.

Mr. GADDY. Right.

Mr. KUCINICH. That they were hired to do.

Mr. GADDY. Right.

Mr. KUCINICH. So the record of correspondence in DFAS reveals

that there were concerns raised by DFAS project managers that

their areas would suffer if personnel were moved around. Have you

assessed any effect on DFAS’s other areas of responsibility caused

by this decision to assign Federal workers to the Lockheed call center?

Mr. GADDY. For the ones that we picked up the calls for, there

was no degradation of military pay call service.

Mr. KUCINICH. Now you estimated the cost of using Federal

workers is about a half a million dollars as of May 2008.

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Mr. GADDY. Correct.

Mr. KUCINICH. And you are going to get us a better estimate?

Mr. GADDY. Yes. Yes, I will.

Mr. KUCINICH. Is it DFAS’s intention to charge the U.S. taxpayer

for the cost of those Federal workers or will you have a contractual

charge to Lockheed?

Mr. GADDY. The payments to those individuals were they are

Government workers. So whether they work on R&A work or mil

pay work, their salaries didn’t change. There was no incremental

cost of them doing this work.

Mr. KUCINICH. But they are working for a private contractor who

is under contract for the very work that the contractor’s employees

should be doing.

Now, Mr. Kleinknecht, you have listened to responses. Do you

think this is a subtle issue? Are there some unanswered questions?

Can you look into whether or not the taxpayer has been doublebilled?

Mr. KLEINKNECHT. Clearly, the audit would cover all of those

issues. I mean we would focus. These are things we would focus on.

Mr. KUCINICH. I think it is important that we look at the question of whether there have been any double billings. Certainly, if

there has been, it can worked out between Lockheed Martin and

the Federal Government. But, given the fact that you are scrambling here somewhat, it appears to be an appropriate question to

ask and corrective action to be taken.

I would appreciate it if you look into that.

Gentlemen, you have been here for a few hours. I want to thank

you for your participation.

This subcommittee is going to retain jurisdiction over this matter. We will have a followup hearing at the request of Mr. Issa. We

will be in touch with you with further questions.

I think that overall what this is about is making sure these veterans get their money. If this subcommittee can, in some way, help

to expedite that, then the purpose of this hearing is well taken.

I think that, again, there are decisions of privatization that are

made above the pay grades of the people at the table. I am going

to assume that each one of you is doing the best you can with the

situation that you have.

But I also am letting you know that as long as there are disabled

veterans out there who are not getting the money that is due them

under the laws that Congress passed, that this subcommittee is

going to be relentless in its work to examine this process and to

call to the attention of the rest of the Congress and to push for

remedies.

So I want to thank you, Mr. Gaddy, for agreeing to look at the

no pay due profiles and to make sure that those are inspected, each

and every case. It is very important for people to know that.

I want to thank the IG’s Office for its willingness to get into this

a little bit further.

This committee isn’t in the business of ‘‘gotcha.’’ What we want

to is make something happen here that will work out for those veterans.

I want to thank you, Mr. Gaddy, for your service to our country.

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Mr. Cipriano, thank you for seeing if there is a way to make this

contract work, and for the IG finding a way to help facilitate that.

Mr. Sprey, thank you for your advocacy on behalf of veterans

who often, on these matters, don’t have the kind of help that they

need. You know after serving their country, they need to be served

too.

This committee stands adjourned.

[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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