U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

37–469 2008

U.S. DEPARTMENT OF VETERANS AFFAIRS 

INTERNAL CONTRACTING OVERSIGHT 

DEFICIENCIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON VETERANS’ AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

JUNE 27, 2007 

Serial No. 110–31 

Printed for the use of the Committee on Veterans’ Affairs 

( 

smartinez on PROD1PC64 with HEARING

ii 

COMMITTEE ON VETERANS’ AFFAIRS 

BOB FILNER, California, Chairman 

CORRINE BROWN, Florida 

VIC SNYDER, Arkansas 

MICHAEL H. MICHAUD, Maine 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HARRY E. MITCHELL, Arizona 

JOHN J. HALL, New York 

PHIL HARE, Illinois 

MICHAEL F. DOYLE, Pennsylvania 

SHELLEY BERKLEY, Nevada 

JOHN T. SALAZAR, Colorado 

CIRO D. RODRIGUEZ, Texas 

JOE DONNELLY, Indiana 

JERRY MCNERNEY, California 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

STEVE BUYER, Indiana, Ranking 

CLIFF STEARNS, Florida 

JERRY MORAN, Kansas 

RICHARD H. BAKER, Louisiana 

HENRY E. BROWN, JR., South Carolina 

JEFF MILLER, Florida 

JOHN BOOZMAN, Arkansas 

GINNY BROWN-WAITE, Florida 

MICHAEL R. TURNER, Ohio 

BRIAN P. BILBRAY, California 

DOUG LAMBORN, Colorado 

GUS M. BILIRAKIS, Florida 

VERN BUCHANAN, Florida 

Malcom A. Shorter, Staff Director 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

HARRY E. MITCHELL, Arizona, Chairman 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

CIRO D. RODRIGUEZ, Texas 

GINNY BROWN-WAITE, Florida, Ranking 

CLIFF STEARNS, Florida 

BRIAN P. BILBRAY, California 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Veterans’ Affairs are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

smartinez on PROD1PC64 with HEARING

iii 

C O N T E N T S 

June 27, 2007 

Page 

U.S. Department of Veterans Affairs Internal Contracting Oversight Deficiencies .................................................................................................................. 1 

OPENING STATEMENTS 

Chairman Harry E. Mitchell ................................................................................... 1 

Prepared statement of Chairman Mitchell ..................................................... 27 

Hon. Ginny Brown-Waite, Ranking Republican Member ..................................... 3 

Prepared statement of Congresswoman Brown-Waite .................................. 28 

Hon. Timothy J. Walz .............................................................................................. 4 

WITNESSES 

U.S. Department of Veterans Affairs: 

Belinda J. Finn, Assistant Inspector General for Auditing, Office of Inspector General ........................................................................................................ 5 

Prepared statement of Ms. Finn ..................................................................... 29 

Hon. Robert J. Henke, Assistant Secretary for Management .......................... 12 

Prepared statement of Hon. Henke ................................................................ 31 

MATERIAL SUBMITTED FOR THE RECORD 

Post Hearing Questions and Responses for the Record: 

Hon. Harry E. Mitchell, Chairman, and Hon. Ginny Brown-Waite, Ranking 

Republican Member, Subcommittee on Oversight and Investigations, 

Committee on Veterans’ Affairs, to Hon. George J. Opfer, Inspector General, U.S. Department of Veterans Affairs, letter dated July 16, 2007, 

and response letter dated August 14, 2007 .................................................... 34 

Hon. Harry E. Mitchell, Chairman, and Hon. Ginny Brown-Waite, Ranking 

Republican Member, Subcommittee on Oversight and Investigations, 

Committee on Veterans’ Affairs, to Hon. R. James Nicholson, Secretary, 

U.S. Department of Veterans Affairs, letter dated July 16, 2007, and 

VA responses ..................................................................................................... 37 

smartinez on PROD1PC64 with HEARING

smartinez on PROD1PC64 with HEARING

(1) 

U.S. DEPARTMENT OF VETERANS AFFAIRS 

INTERNAL CONTRACTING OVERSIGHT 

DEFICIENCIES 

WEDNESDAY, JUNE 27, 2007 

U. S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON VETERANS’ AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:12 a.m., in Room 

340, Cannon House Office Building, Hon. Harry E. Mitchell [Chairman of the Subcommittee] presiding. 

Present: Representatives Mitchell, Walz, and Brown-Waite. 

OPENING STATEMENT OF CHAIRMAN MITCHELL 

Mr. MITCHELL. Good morning and welcome to the Subcommittee 

on Oversight and Investigations for the June 27th meeting. The 

hearing this morning will be on the U.S. Department of Veterans 

Affairs’ (VA’s) internal contracting oversight deficiencies. This 

hearing will come to order. And I want to thank everyone for being 

here this morning. 

I am pleased that so many folks could attend this oversight hearing on the VA’s internal contracting oversight deficiencies. This will 

not be the last. We all have work to do. 

We are going to begin today by hearing from the Office of Inspector General (IG) concerning the IG’s recently completed audit of 

contracting practices at the Boston Healthcare System in Veterans 

Integrated Services Network (VISN) 1. The IG’s report is extremely 

disturbing. Senior contracting and fiscal officers at the Boston 

Healthcare System executed contract modifications in excess of $5 

million that were illegal. 

As just one example, in fiscal year 2002, Boston executed a con- tract for $16,000 to repair asphalt roadways. In March of 2004, this 

paving contract was modified to add electrical panel and emergency 

generator projects totaling $900,000. These modifications were 

clearly outside the scope of the original contract and clearly in violation of laws governing the use of expired appropriations. 

These were not just technical violations. Not only did the contract modifications violate some of the most basic precepts of government contracting and appropriations law, they also had the following pernicious effects. First, the modifications were not completed. We have no way of knowing whether the taxpayers’ interests in obtaining a fair price and good service were protected. Secsmartinez on PROD1PC64 with HEARING

2 

ond, the Boston Healthcare System decided to put its own needs 

above all other priorities in VISN–1. 

VA does not have unlimited funds and has a process of 

prioritizing expenditures that Boston evaded. The Inspector General found that VISN–1 deferred renovation of a cardiology unit in 

another VA hospital because of concerns about an insufficient 

budget. The VISN had no opportunity to decide whether the cardiology unit at the other hospital was of higher priority than the 

parking lot in Boston. 

We are not here to assess individual responsibility. There are no 

witnesses from VISN–1 present and we will not be asking the IG 

or VA about individuals. VA is conducting an Administrative Board 

of Investigation and we leave that assessment of individual responsibility to that process. 

We are here to inquire about VA’s internal controls over acquisition, controls that Boston certainly suggests are seriously lacking. 

For example, VA has a policy that all contract modifications in excess of $100,000 must be submitted for legal review. This was not 

done in Boston and the Inspector General indicated in his report 

that the improper contracting might have been prevented if this 

policy had been followed. The obvious question is: why did VA’s internal controls not require verification of legal review prior to disbursement of funds for contract modifications in excess of 

$100,000? Policies are practically worthless if VA has no way of 

knowing if they are being followed. 

In February of this year, the Inspector General told this Subcommittee that the VA does not know what it purchases, who it 

purchases from, who made or approved purchases, whether a purchase was made by contract or on the open market, what was paid, 

and whether the prices were fair and reasonable. And this is not 

a new problem. 

In May of 2001, the Inspector General issued a report evaluating 

VA’s purchasing practices. In July of that year, then-Secretary 

Principi formed a task force to correct the many problems identified by the IG. The task force issued its report in February 2002 

with 62 recommendations for change. We look forward to the VA 

telling us which of these recommendations have been successfully 

implemented and what VA is currently doing to monitor their completion. 

We have little reason to be optimistic about VA’s response. Since 

2002, VA has spent hundreds of millions of dollars on procurement 

and deployment of the Core Financial and Logistics Systems, or 

CoreFLS. CoreFLS has been a complete failure. Congress mandated that VA develop the Patient Financial Services System. 

From 2003 to 2006, VA paid a contractor $30 million for this 

project, received nothing and terminated the contract with the $30 

million of taxpayers’ money wasted. There is a list of Inspector 

General reports recounting similar problems with VA contracting. 

Finally, the Subcommittee cannot help but note that VA’s external auditors have found material weaknesses in VA’s internal controls that were repeat deficiencies from prior years. Those material 

weaknesses include VA’s integrated financial management system 

and its operational oversight. As the Inspector General has said, 

smartinez on PROD1PC64 with HEARING

3 

‘‘The risk of materially misstating financial information remains 

high because of these material weaknesses.’’ We all share the goal of ensuring that the $10 to $12 billion VA 

spends on acquisition each year is well spent. That goal can only 

be met if VA has reliable internal controls. It is a truism in business—if you can’t measure it, you can’t manage it. VA cannot manage its spending without dramatic improvements in its controls. 

I can assure you, we will all be back here in a few months to see 

what progress VA has made. Between now and then, the Subcommittee expects the VA will work closely with the Subcommittee’s staff so that Congress can stay informed about VA’s progress. 

[The prepared statement of Chairman Mitchell appears on p. 27.] 

Mr. MITCHELL. Before I recognize the Ranking Republican Member for her remarks, I would like to swear in our witnesses. Would 

all the witness that are here today please stand and raise their 

right hand? 

[Witnesses were sworn.] 

Mr. MITCHELL. Thank you. Now I would like to recognize Ms. 

Brown-Waite for opening remarks. 

OPENING STATEMENT OF HON. GINNY BROWN-WAITE 

Ms. BROWN-WAITE. I thank the Chairman very much, and I 

thank him for holding this hearing. It is important that we bring 

these concerns about procurement forward for discussion. I have a 

feeling that it has happened before and we are just repeating history. I know that the Chairman and I have no intention of just having history be repeated, that we are going to take some action. Our 

Nation’s veterans are certainly a valuable asset and caring for 

them has to be our first priority. 

Procurement is an area in which we can provide services and 

care to veterans. But it is also an area where if it is not done properly and within the letter of the law, it is subject to abuse and impropriety. According to the VA’s own Office of Acquisitions web 

page updated last on October 14th, 2006, VA states that its annual 

expenditures are more than $5.1 billion for supplies and services, 

including construction. VA is one of the largest procurement and 

supply agencies in the Federal Government. Drugs, medical supplies and equipment, information technology (IT) equipment, services and other critical patient care items must be procured and distributed to VA’s healthcare facilities, mainly because it is the largest healthcare delivery system in the country. 

Supply support is also provided to regional offices, national cemeteries, automation centers and other various VA activities. Yet 

today, VA testifies that the $5.1 billion is now over $10 billion, almost double the amount from last October. VA’s procurement practices are so decentralized with very little oversight. I wonder if VA 

really knows how much is being procured and how efficiently resources are being spent. 

I also believe that an unknown amount, probably a lot, is listed 

under that very benign category of miscellaneous obligations. What 

a great place to put purchases. I hope that we see some clarity to 

these issues during today’s hearing. I understand that we will hear 

from the VA’s IG about the egregious procurement improprieties 

that occurred at the Boston VA Healthcare System. 

smartinez on PROD1PC64 with HEARING

4 

VA can have policies and procedures stacked all the way to the 

ceiling, but if there are no controls in place to ensure compliance 

or noncompliance, what good are these policies. With reports dating 

back as far as April 1997, ten years ago, it appears the IG and the 

VA have recognized the existence of the systemic procedure problems. Yet, little has been done to address them. Oh, yes, we have 

generated reports and recommendations countless times over the 

past years. But when we see the same recommendations over and 

over again, we have got to wonder why no one took these seriously 

and why there has been no effort to punish the perpetrators. 

I have strong concerns that VA has failed to act on what they 

have known has been a problem. These reports speak of professionalizing the VA, optimizing and monitoring the procurement 

process and making the contracting process fair and accessible. 

Yet, cases like those found in the Boston VA Healthcare System 

provide a glaring example of perpetual lack of accountability. 

We owe it to our veterans to address the mismanagement in VA 

procurement once and for all. While we know that there are good 

VA employees working within the current procurement system, we 

need assurances that VA is working to fix a broken system. As of 

today, 19 of the 21 VISNs have taken steps to protect and update 

their procurement process. The other two VISNs must follow suit. 

With backlogged patients not getting the resources they need and 

the VA executives asking for more and more money, we need to 

make sure that funds are going where they need to go and not in 

the hands of procurement employees who spend more than the allotted and legal procurement amounts and methods. The first step 

of all recovery programs is to admit there is a problem. 

So I hope that the facts brought out in today’s hearing and the 

IG’s report, coupled with the incidents at Boston, are indicative of 

a long history of very dysfunctional decentralized acquisition and 

procurement programs with very little oversight. We hope that 

these will be a springboard for change within the VA. 

Thank you, Mr. Chairman, for yielding. It is important to bring 

these concerns about procurement forward for discussion. Our Nation’s veterans are a valuable asset and caring for them should be 

our first priority. Procurement is an area in which we can provide 

services and care to our veterans. But it is also an area where if 

it is not done properly and within the letter of the law can be subject to fraud, abuse and lots of impropriety. 

According to the VA’s own Office of Acquisitions Web site which 

was updated, they said $5 billion. We’re now at $10 billion. We 

hope to uncover today exactly what those problems were. And I appreciate the gentleman for yielding. 

[The prepared statement of Congresswoman Brown-Waite appears on p. 28.] 

Mr. MITCHELL. Thank you. I would like to now recognize Mr. 

Walz. 

OPENING STATEMENT OF HON. TIMOTHY J. WALZ 

Mr. WALZ. Thank you, Mr. Chairman, and thank you, Ms. Ranking Member, for your comments. 

Thank you, each of you, for coming today and we appreciate your 

expertise, your experience and your guidance to help us on this. 

smartinez on PROD1PC64 with HEARING

5 

This hearing is making certain we fulfill our obligation of oversight 

because we are all partners in this and our ultimate goal is to provide the best care possible for our veterans. And our second obligation is to make sure we are good stewards of the public trust. 

So I look forward to having the opportunity to learn from this experience, making sure, as the Ranking Member said, that we do 

more than learn, that we act on those to ensure that the precious 

resources that are allocated for our veterans are having the biggest 

impact. So I see this as an absolute piece of what needs to happen 

in terms of accountability. I see it as an absolute piece of what 

needs to happen to make sure that we increase our effectiveness. 

So I want to thank each and every one of you for coming and 

sharing with us what we can do to make this better. And I yield 

back, Mr. Chairman. 

Mr. MITCHELL. Thank you. We will now proceed to panel one. 

Ms. Belinda Finn is the Assistant Inspector General for Auditing. 

She’s accompanied by Ms. Maureen Regan, the Counselor to the Inspector General and a recognized contracting expert; and Mr. Nick 

Dahl, the Director of the Bedford Audit Operations Division, which 

was responsible for the report on the recent abuses in Boston. We 

look forward to hearing from Ms. Finn and her views on the VA’s 

internal contracting and oversight process and procedures. 

Would you please come forward? Ms. Finn, you will have five 

minutes. 

Ms. FINN. Thank you. 

Mr. MITCHELL. Thank you. 

STATEMENT OF BELINDA FINN, ASSISTANT INSPECTOR GENERAL FOR AUDITING, OFFICE OF INSPECTOR GENERAL, U.S. 

DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY 

MAUREEN T. REGAN, COUNSELOR TO THE INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT 

OF VETERANS AFFAIRS; AND NICHOLAS DAHL, DIRECTOR, 

BEDFORD AUDIT OPERATIONS DIVISION, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS 

Ms. FINN. Mr. Chairman and Members of the Subcommittee, 

thank you for the opportunity to be here today. I will be testifying 

about our report on the audit of alleged mismanagement of government funds at the VA Boston Healthcare System. The issues we reported in our recommendations were specific to VISN–1 and the 

Boston Healthcare System. However, we believe that the Veterans 

Health Administration (VHA) can improve controls to prevent similar incidents elsewhere. 

We began our review in response to an anonymous hotline complaint that alleged contract irregularities and the misuse of government funds on contract modifications. The original 24 contracts 

were executed between fiscal years 2000 and 2003 at a value of 

$1.3 million. From 2002 to 2006, Boston Healthcare modified the 

original contracts 40 times to perform nonrecurring maintenance 

programs with a combined value of $5.5 million. 

Our review determined that 37 of the 40 contract modifications 

were outside the scope of the original contracts and should have 

been competed as new procurements. As illustrated in Chairman 

smartinez on PROD1PC64 with HEARING

6 

Mitchell’s opening statement, the work required by the modifications had little bearing in connection to the original contract. The 

modifications were worth a total of $5.4 million, all of which was 

paid with expired funds. Because the contract modifications were 

not within the scope of the original contracts, funding the actions 

with expired funds violated Federal appropriations laws. 

Boston Healthcare also failed to comply with Federal acquisition 

regulations. Several of the actions lacked an adequate statement of 

work to describe the work or services being required, and by modifying existing contracts, they also avoided competition requirements and did not perform the analyses that would have allowed 

them to determine if the prices were fair and reasonable. 

As already stated, policies and procedures were in place to prohibit the out-of-scope contract modifications and the improper use 

of expired funds. Controls were not in place to enforce compliance. 

Policies require VA approval to use expired funds, legal reviews of 

the contract modifications over $100,000, and even tracking of the 

nonrecurring maintenance projects at the VISN level. 

Boston Healthcare complied with none of these policies. But neither network nor VHA personnel were aware of the contract modifications, the use of expired funds, or the various nonrecurring 

maintenance projects being performed. 

In closing, the Office of Inspector General (OIG) is committed to 

working with VA and VHA to correct these deficiencies and help 

to prevent similar occurrences in the future. 

Mr. Chairman, thank you again for the opportunity to be here. 

My colleagues and I will be happy to answer any questions from 

you or the other Members of the Subcommittee. 

[The prepared statement of Ms. Finn appears on p. 29.] 

Mr. MITCHELL. Thank you, Ms. Finn. I have a couple questions. 

First of all, what control weaknesses allowed the contracting irregularities and the misuse of funds to occur at the Boston Healthcare 

System? 

Ms. FINN. The control weaknesses basically were to ensure compliance. There were no system controls that would have prevented 

people below the VISN level from charging expired funds. There 

was no control in place to assure or ensure that the legal reviews 

were performed. There was no control to perform a further supervisory check on the contract modifications to determine if they were 

out of scope. 

Mr. MITCHELL. Then comes a follow-up. What corrective actions 

has the VISN–1 Director taken in response to your recommendations and are you satisfied with their actions? 

Ms. FINN. Mr. Dahl is going to address that. 

Mr. MITCHELL. All right. 

Mr. DAHL. In response to recommendations we made to improve 

controls over the execution of contract modifications, the use of expired funds, following the ‘‘nonrecurring maintenance’’ (NRM) approval process, and staying in compliance with the Federal Acquisition Regulation (FAR), the VISN has developed and issued a number of standard operating procedures and guidance to the field facilities within the VISN to improve the management controls over 

those aspects of the process. 

smartinez on PROD1PC64 with HEARING

7 

For example, they have a policy in place that is designed to better ensure that modifications that are funded with prior year funds 

are within the scope of the original contract. They also have a process in place where modifications that are going to be funded with 

prior year funds are approved at a level above the contracting officer. 

We also made recommendations that they take administrative 

action against the Chief of the Fiscal Service in Boston and the 

Chief of the Purchasing and Contracting Section in Boston and we 

also recommended that they conduct an administrative investigation of the facts surrounding the issues we found during our audit. 

In response to that, the VISN Director has charged an administrative board of investigation to conduct an investigation surrounding the facts of the improper modifications and use of expired 

funds. The board is comprised of employees from outside of VISN– 1. They have a short deadline. Their report and conclusions are due 

to the VISN Director by the end of July and based on their findings 

and conclusions, the VISN Director has informed us that she plans 

to take action against any officials for whom it is warranted. 

Now, one other recommendation we made was that they make 

corrective accounting adjustments to properly record the funding of 

these improper contract modifications. The VISN Director has informed us that these modifications were made in accordance with 

instructions provided by headquarters. 

I would like to close this answer by saying we feel these are 

steps in the right direction. But we have not validated the actions 

reported, nor assessed their effectiveness. And I would also like to 

point out that they are specific to VISN–1. They are not specific to 

the entire VHA. 

Mr. MITCHELL. Thank you. And that brings up the last one I 

want to ask. Are there any assurances that these deficiencies and 

problems that have occurred in VISN–1 are not incurring in other 

VISNs? 

Ms. FINN. No. We have no assurance that these actions are not 

occurring in other locations across the network, or across VHA. 

Mr. MITCHELL. Are you looking into others besides just this one? 

I understand you looked at this one because you had a tip. What 

about the other VISNs? 

Ms. FINN. At present, we don’t have any work going on in that 

area. But in the future we could look at that. 

Mr. MITCHELL. Thank you. I yield to Ms. Brown-Waite. 

Ms. BROWN-WAITE. I thank the Chairman for yielding. Ms. Finn, 

you have got to have the most frustrating job in the whole wide 

world, second only to Members of Congress. How many similar reports of lack of controls in this, in the purchasing area? We know 

they go back to 1997. How frequently have they been issued? Do 

you know that? 

Ms. FINN. Ms. Brown-Waite, I am fairly new at VA, so I really 

can’t give you an answer on the number. But I know it has been 

extensive. I did bring help with me and Maureen Regan is the 

Counselor to the IG. She has done a lot of work in contracting. 

Ms. BROWN-WAITE. Perhaps Ms. Regan could answer? 

Ms. REGAN. We have done a series of reports primarily on individual contracting actions. There hasn’t been the broad national 

smartinez on PROD1PC64 with HEARING

8 

type of audit in a number of years on this issue. But various contracts—even in the past year I think we have put out three or four, 

maybe even five reports on various large contracts in which there 

has been problems at all levels in the contracting process. This is 

because there are no controls to make sure that the acquisition is 

properly planned, to make sure that it is properly administered, to 

be sure that the bills are properly paid. There are problems in all 

those various areas. 

So there is a series of reports from 2001 with our purchasing report, our evaluation of sole source contracts at the medical centers, 

to affiliates which came out in 2005 and we put out this year the 

patient financial services system contract, the central incident report center contract, the contract that had to do with hiring the forensic auditors or investigators to look at the data lost last year. 

We have several CAP reports that I know we have worked with 

healthcare inspections on contracting actions at various medical 

centers. I know Dallas is out. We have a couple others coming out 

there. And all of them show similar lack of controls in planning 

and administration of contracts. 

Ms. BROWN-WAITE. The reason why I said it has got to be the 

most frustrating job is because you make recommendations that 

certainly would improve the systems and it appears as if your recommendations are ignored. Would that be a fair statement, Ms. 

Regan? 

Ms. REGAN. A lot of times recommendations end up in policies 

and whether or not those policies are complied with, there is no 

oversight to ensure it. With respect to the purchasing report, 

former Secretary Principi, I think it was mentioned in Mr. Mitchell’s statement, put out a Procurement Reform Task Force Report 

with 62 recommendations. There has been no oversight at all to see 

if they have been implemented. 

In the sole-source to the affiliate, the contract report, VA did put 

out directive 1663. We are not seeing that that has been complied 

with in the work that was ongoing in that area. So there is no—

even if you put out a policy, there is no oversight for compliance. 

Ms. BROWN-WAITE. Ms. Finn, or Mr. Dahl, or Ms. Regan, what 

would lead the Chief of Fiscal Services to suppose that funds were 

available from a prior year appropriation? Is it ‘‘I want to spend 

it, so I do it?’’ Mr. DAHL. We don’t have a—I don’t have a clear answer for you 

on that. I assume that is something similar to that. In the past, 

I think that these medical centers had more, more control over 

their own projects before the VISN concept came into place. If a 

medical center needed work done, they did their own contracting. 

They had their own funding. That has changed with the whole 

VISN structure. 

They found——

Ms. BROWN-WAITE. Well——

Mr. DAHL. They found creative ways to basically hide money in 

Boston so that money would be available to them down the road 

to complete projects that they wanted to have completed. 

Ms. BROWN-WAITE. But it was not legal what they did. And Mr. 

Dahl, you said that actions that are warranted will be taken—that 

you have been told actions that were warranted would be taken. Do 

smartinez on PROD1PC64 with HEARING

9 

you feel—do any of the three of you feel as if anybody really is accountable? Just a simple yes or no. 

Ms. REGAN. In this particular case or in general? 

Ms. BROWN-WAITE. Let’s take the Boston case. 

Mr. DAHL. Yes. 

Ms. FINN. I believe that people are accountable for their actions, 

yes. 

Ms. BROWN-WAITE. No. Do you think that people, the people who 

were involved should be—are accountable and should be held accountable? 

Ms. FINN. Yes. 

Mr. DAHL. Yes. 

Ms. BROWN-WAITE. Do you believe that will take place? 

Mr. DAHL. I have high hopes that that will take place. 

Ms. BROWN-WAITE. Would you define accountable to me? Maybe 

that is where I need to go. 

Mr. DAHL. Well, for instance, already——

Ms. BROWN-WAITE. Should they be demoted? Should we make 

sure they, you know—— Mr. DAHL. The Chief of the Purchasing and Contracting Section, 

we had also made a recommendation to the Deputy Assistant Secretary for Acquisition and Materiel Management that he determine 

whether her contract warrant should be revoked. He has already 

taken action to pull her warrant. I don’t know that that is a final 

action until the Administrative Board has done their work. But 

that would seem to me, in my opinion, to be suitable, that she can 

no longer function as a contracting officer. 

Ms. BROWN-WAITE. Does she have an ugly twin sister who is 

doing it also? I mean maybe that is what the problem is. 

Mr. Chairman, I appreciate—I have gone over my time and I 

yield back to you. 

Mr. MITCHELL. Thank you. Mr. Walz? 

Mr. WALZ. Well, thank you, Mr. Chairman and thank you, Ms. 

Finn, for your testimony, and each of you. And on this I may be— because I know we are talking more on a micro level about this 

Boston incident. But having you here in the Office of Inspector 

General, one of the things that I am concerned about is looking at 

the macro level, if there is anything we can extrapolate from this 

to see if the scope of this extends. 

I know I may be asking you to maybe make a little bit of a reach. 

But one of the things we are trying to get a grasp on in this Committee, this Subcommittee and this Committee as a whole and this 

Congress last week passed some of the most sweeping legislation 

dealing with the VA in terms of resourcing in the 77-year history 

of the VA. There is going to be a massive amount of resourcing and 

my colleagues on these Committees asked what I think were some 

very pertinent questions and some very important questions. 

Resourcing is one piece of it and we all agree that—at least 409 

of us and 2 didn’t agree that that was appropriate use of taxpayer 

money. My question is, do you believe that this experience is the 

tip of an iceberg? Are there systems in place for us to deal with 

expanding some of the coverage, opening up some traumatic brain 

injury centers, making sure we reduce that number of the backlog 

in cases? 

smartinez on PROD1PC64 with HEARING

10 

What this makes me wonder about is, are we setting ourselves 

up to have more of this happen as we get those resources in? So 

I know it is not a pointed or specific question, but the Office of the 

OIG I see as a very, very important tool in the delivery of quality 

services at the best, the best use of resources. So Ms. Finn. 

Ms. FINN. We have reported in our financial statement audit that 

the financial management systems at VA are a material weakness 

for the department. Until we have really an integrated financial 

system with adequate controls through, that will remain a material 

weakness. 

The lack of a financial management system to truly track and 

record our obligations and expenditures will prove a problem as we 

deal with additional resources and requirements. 

Mr. WALZ. And one final question, again, I know I am asking you 

maybe to help us understand this. Again, going back to the OIG 

and it may extend the scope of this or step outside a little bit of 

this hearing. I am intrigued, I guess encouraged by, that this came 

from the use of a hotline, that this system of oversight appears to 

have worked in this case, at least on a very informal manner. 

My question to you is, I guess, do you feel like—being new to this 

and you are stepping into it, does the OIG have the resources to 

be able to follow up on these? And I think that the Chairman and 

the Ranking Member’s question was, and Chairman Mitchell’s 

question was, if we had it in Boston, I think, at least my gut feeling would tell me, perhaps we should look at the other VISNs too. 

But I am wondering if you have the resources or the ability or the 

authority or if you could help me understand that. 

Ms. FINN. We have the ability and the authority. The resources, 

we would be balancing this need against all of the competing priorities that we have to deal with and we have many. Specifically on 

hotline complaints, we receive a lot and we have to judge each one 

of those as to whether we can do a review of that complaint with 

OIG personnel. Many times we do not have the resources and we 

would refer it to management to review. 

In this case, I think I made the comment and my colleagues all 

seem to agree with me, that the one control that did work was the 

OIG hotline. 

Mr. WALZ. Yeah. Okay. Well, very good. I appreciate it and I 

yield back, Mr. Chairman. 

Mr. MITCHELL. I have one final question. Do you believe that the 

VA is in the process of getting an adequate financial management 

system in place? 

Ms. FINN. I know they are in the process of developing a system, 

but we have not done a review specifically of that. So I would like 

to defer really until we have resources and time to take a look at 

that system to give you an honest, complete assessment of that. 

Mr. MITCHELL. Thank you. Do you have any other questions? 

Ms. BROWN-WAITE. First of all, I am glad to know that the hotline is working and whoever reported it has to also feel very good 

that actions, you know, that this was followed up. I know sometimes the constituents out there think the hotlines are useful because nobody ever does anything. And I will be very happy to go 

home and sing your praises because of the follow-up that took place 

here. 

smartinez on PROD1PC64 with HEARING

11 

Any of the three of you can try to answer this question. For these 

egregious acts to have taken place, did the individuals involved 

have multiple opportunities to catch themselves violating procedure 

and circumventing controls, like the hurdles of using expired contracts, modifying contracts outside their scope, obtaining proper 

legal concurrence from the VA regional council, and or the VA expired funds manager, you know, where they saw fit to use prior 

year’s appropriate funds? 

I, at one point in my life before I came to Congress, actually was 

a contracts administrator in a large water management district. 

That is one of the reasons why I find this whole process so out of 

control and, you know, there is a way to stop this. So if you could 

just tell me if they had these multiple opportunities to stop themselves? 

Ms. FINN. Yes. I mean they modified the contracts. They did 40 

modifications over the years. So obviously, everybody involved had 

multiple opportunities to stop. 

Mr. DAHL. And I would add that, you know, contracting officers 

are well trained. They know their responsibilities. Also, people that 

have worked in fiscal service for any amount of time should be well 

aware of appropriation law and the proper use of funds. I really 

don’t think, in my opinion, that these people had an excuse for 

what they did. 

Ms. BROWN-WAITE. Are we on our way to somebody up there seeing the light that Congress has caught on, that they have ignored 

all of these other reports? 

Ms. FINN. Are you talking about the larger procurement issues? 

Ms. BROWN-WAITE. Yes. 

Ms. FINN. Yes, I hope so. But I think time will tell. 

Ms. BROWN-WAITE. Mr. Chairman, I yield back. 

Mr. MITCHELL. Thank you very much. We appreciate you being 

here and answering our questions. Thank you. 

Ms. FINN. Thank you. 

Mr. MITCHELL. I would like to welcome panel two to the witness 

table. Mr. Robert Henke is the Assistant Secretary for Management of the VA and the Department’s Chief Financial Officer 

(CFO). He is accompanied by Mr. Jan Frye, the Deputy Assistant 

Secretary of Acquisition and Materiel Management, and Mr. Frederick Downs, Jr., the Chief Prosthetics and Clinical Logistics Officer for the Veterans Health Administration who oversees contracting and procurement for the VHA. 

We look forward to hearing Assistant Secretary Henke’s testimony and if you could please keep it to five minutes, we would appreciate that. 

smartinez on PROD1PC64 with HEARING

12 

STATEMENT OF HON. ROBERT J. HENKE, ASSISTANT SECRETARY FOR MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY JAN R. FRYE, DEPUTY 

ASSISTANT SECRETARY, OFFICE OF ACQUISITION AND MATERIEL MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND FREDERICK DOWNS, JR., CHIEF PROSTHETICS 

AND CLINICAL LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS 

Mr. HENKE. Yes, sir, Mr. Chairman. Let me do that and just basically cut right to the chase. We recognize—I personally recognize 

that VA’s procurement practices are one of the top five major management challenges that our IG has identified for the Department. 

What I want you to know today is that we understand the challenges and we have many efforts underway to improve our systems 

and our processes. 

Our leadership is engaged from the Secretary down and is committed, and is clearly articulating an expectation that VA must 

work to improve the quality, efficiency and productivity of our acquisition services. 

Mr. Chairman, if I might, I would like to highlight for the Committee some of the things we have accomplished and things we are 

working to accomplish in the area of acquisition, just to put the 

problem, the issue in context. 

We have reduced from over 200 to 31 the number of heads of contracting activities who oversee contracting, and have implemented 

60 of the 62 recommendations in the VA Procurement Reform Task 

Force. We have consolidated the contracting function at 19 of our 

21 healthcare networks and the other two will be done by the end 

of this year. We established contract review boards and required 

their use at three critical points in the acquisition process for contracts valued at $5 million and above. 

We recognize the need for much stronger, more deliberate and 

more rigorous acquisition planning and have launched cross-functional IPT’s or integrated product teams to develop those requirements and assure the contracting process meets the need. We have 

deployed nationally an Electronic Contract Management System 

that automates contract writing, promotes standardization and ensures better accuracy of contracting data. And what this system 

will do is give management better oversight and better reporting 

and analytical tools to track and oversee contracting actions that 

are underway. 

We have hired a new Deputy Assistant Secretary for Acquisition. 

He has 30 years of Army experience in logistics and contracting to 

include senior command positions in Korea, the UK and stateside. 

We hired a new executive as VA’s acquisition lead. He has 20 years 

of experience in industry, the Department of Justice, Department 

of Commerce. 

We designated VHA’s Prosthetics and Clinical Logistics Officer, 

that is Mr. Downs seated to my left. And forgive me, Mr. Frye is 

my Deputy for Acquisition. He is the guy with the Army logistics 

background. 

We have completely reorganized my 440-person acquisition office. 

We separated in the office the functions of operations and execution 

from policy development which over time had grown intertwined 

smartinez on PROD1PC64 with HEARING

13 

and, frankly, a bit confused. I asked for and received two additional 

executive positions and they were approved by the Deputy Secretary to improve that organization. 

We performed the first ever external independent audit of VA’s 

supply fund, the first audit since that fund was established in 

1953. We hired a fantastic young executive to lead our national Acquisition Center in Chicago. That position had been vacant for almost two years and now it is filled. 

I designated a senior executive at VA as my Acquisition Career 

Manager to reflect the importance of getting this acquisition work 

force right and giving them the tools they need to succeed. We have 

completed a total rewrite of VA’s acquisition regulations, the first 

complete rewrite of them since 1984 and we are going to publish 

that final rule here sometime this summer. 

We have defined the acquisition work force at VA and are dedicating resources to educate, train and certify that work force. At 

the IG’s suggestion, we have established a data mining program to 

improve compliance and oversight in our purchase card program. 

In 2004, we established a Business Oversight Office in Texas and 

staffed it with 108 auditors, system experts, financial experts and 

acquisition professionals. 

We have directed—I have directed a comprehensive, third-party 

assessment of VA’s acquisition model and governance. That solicitation is on the streets and I expect to have an award of a nationally reputable firm here in August and they will come back to us 

with their assessment of our governance model for acquisition, and 

whether we are organized properly or not. 

We performed 1,632 acquisition reviews last year in my acquisition resources service. 

We have embarked on the government’s version of SarbanesOxley. We have hired a major national accounting and audit firm 

to test, to rigorously test our internal controls and to give me the 

assurance as the CFO that I can sign off on the integrity of our 

financial statements. 

We are in year two of that process and we have identified the 

11 key business activities we are looking at and we are testing the 

controls in every one of them. This year we are testing controls in, 

among other things, contracting, purchase cards and equipment inventories. And I have established a separate Internal Controls 

Service in Austin and I am staffing it now. 

In summary, Mr. Chairman, we recognize the challenges we 

have. We know that much work remains. We brought in new leadership to tackle the problem. The people at the table and the people behind us are working together to solve the problem. We believe we are moving forward and making strong progress and we 

recognize there is more work to do. 

That concludes my opening statement and I would be pleased to 

take your questions, sir. 

[The statement of Hon. Henke appears on p. 31.] 

Mr. MITCHELL. Thank you, Mr. Henke. The reason we are here 

today is because of a hotline tip. And I assume that if that tip 

hadn’t come in, business would still be going on as usual. Hopefully 

that is not the case, but that sure seems to be the case. 

smartinez on PROD1PC64 with HEARING

14 

Let me ask, could you assure us that the control weaknesses that 

we found in VISN–1 are not occurring and have not occurred in 

any of the other VISNs? 

Mr. HENKE. Sir, I can assure you that I view what occurred in 

Boston as an aberration in the system. Frankly, it is unfortunate 

that it had to get to a hotline inquiry to get it, to bring it to resolution. The hotline is obviously the court of last resort for something. 

We have literally dozens of actions underway and increased oversight to ensure that a Boston doesn’t happen again. 

When I read the report and talk to the people in Boston who are 

involved with this, it is clear to me that the contracting office 

there, the Chief of the Purchasing Section—anyone in contracting 

101 knows you don’t do out-of-scope modifications to contracts. Any 

fiscal officer knows you don’t move around expired funds without 

a very good reason and a under very limited circumstances that get 

to bona fide need in appropriations law. 

I can tell you that we are going to take a number of actions specifically in the VISN–1 area to support them and assist them and 

assure that they come up to compliance with standards. Sir, I do 

want to point out that what occurred in Boston occurred in the 

timeframe of 2000 to 2003, if I recall correctly. That was before we 

had centralized or consolidated the contracting function at 19 of 21 

of our VISNs. 

Since that time, we have established positions at the network 

level to take contracting officers out of the chain of command of the 

facility director and put them in at the network level, meaning 

there is a network contract manager who is an 1102 contracting 

professional. There is a Chief Logistics Officer and a Deputy Network Director at senior levels to oversee the business functions in 

that network. 

Mr. MITCHELL. I understand what you are saying. I think this 

practice went on clear up until about 2006. But in any case, what 

I am asking you again is, can you assure us that the things that 

happened in Boston have not happened in the other VISNs? Have 

you checked them as you are doing it? And Boston is an aberration 

that has not occurred in the others? 

Mr. HENKE. Can I assure you with a hundred percent certainty 

that it is not happening anywhere else? 

Mr. MITCHELL. Yes. Are you looking into the other VISNs or you 

are just looking into Boston? 

Mr. HENKE. We are looking into other VISNs. I can’t assure you 

that it is not happening elsewhere. But I am taking steps to find 

out if it is. 

Mr. MITCHELL. Thank you. Ms. Brown-Waite? 

Ms. BROWN-WAITE. Thank you, Mr. Chairman, for yielding. Mr. 

Henke, this is not the first instance of contracting going awry at 

the VA. Earlier this year, we learned of a problem with the contract with UNISYS where the VA ended up paying $12 million for 

software that now sits on a shelf unfinished and unusable. 

Tell me how you are going to prevent this kind of absolute, total 

complete waste from happening again. 

Mr. HENKE. Yes, ma’am. I am painfully aware of all the IG reports that point out where we have fallen short. What we are doing 

to fix it is—and the core problem in that case was we don’t have 

smartinez on PROD1PC64 with HEARING

15 

a very strong culture of program management, program management expertise partnered with the acquisition community and acquisition work force to develop clear statements of requirements for 

what the contract is supposed to do, to develop that contracting vehicle in a collaborative way with legal in the room, with finance in 

the room, with acquisition and program officials in the room. 

So too often we write vague requirements that then aren’t executed by a contractor. We also need to improve post-award of that 

contract. We need to improve our ability to manage that contract. 

Once the contract is in place, we can’t put it on a shelf and hope 

that things come to fruition. We need to actively manage the contractor to ensure they perform and they deliver. 

Ms. BROWN-WAITE. Sir, are you saying you don’t have contract 

managers? You have been in—VA has been in existence and doing 

these multi-million dollar contracts all these years and you don’t 

have contract managers? 

Mr. HENKE. No, ma’am. We need to professionalize our program 

management work force, not the acquisition people, but the people 

who determine, ‘‘I have a need to acquire something.’’ The program 

management expertise that frankly DoD is very good at, is lacking 

in other agencies and the OMB is directing us to make similar improvements in civilian agencies. 

Ms. BROWN-WAITE. Sir, you brought up the term ‘‘culture’’ and 

I think that is exactly what is wrong with the VA’s whole purchasing debacles, a decade now of debacles. It is the culture there 

of anything goes and just spending the taxpayer dollar. You know, 

the culture of let’s just go ahead and spend with little or no oversight is absolutely an insult to the taxpayers. And I hope that you 

three gentlemen know this and that you take this message back. 

It is a complete insult to the taxpayers who want to do right by 

our veterans. Their tax dollars are paying your salaries and the 

salaries of people who are supposed to be watching over the procurement process and it just doesn’t seem to happen. 

Now, one of the things that was mentioned was that you now 

have contract oversight and you have a person actually in charge 

of this; is this accurate? 

Mr. HENKE. We have, we have staffed up long vacant executive 

positions in my organization with new leadership. We have established formal contract development processes with integrated product teams and formal contract review boards at critical stages in 

the acquisition process to ensure that the contracting officer brings 

their work forward, lays it out for the most senior experienced contracting professionals. Mr. Frye would call them the gray beards in 

the acquisition world. But those contract officers come in and lay 

their work out and say here is my plan to accomplish this objective. 

And they get guidance and direction and oversight from this contract review board with the most senior people. 

Ms. BROWN-WAITE. Do those people actually have oversight? Mr. 

Downs, first of all, thank you very much for your very distinguished military career. But do you actually have oversight? I see 

your title is Chief Prosthetics and Clinical Logistical Officer. Do 

you actually have real oversight that ensures tax dollars are spent 

appropriately? 

smartinez on PROD1PC64 with HEARING

16 

Mr. DOWNS. The issues before us in oversight means being able 

to know what is going on out there. And what I—we have done a 

lot of activities within VHA to begin to conduct the kind of oversight that all of us want to do. So the oversight that we have in 

VHA is the instruments that we are developing—we have put together in response to the IG for instance, we have put together a 

crosswalk. When I came into this job I asked what is happening 

with all these IG reviews. 

So what we did is put together a crosswalk and I think it is important to understand that this office in VHA is new. I am the first 

Chief Officer of Logistics in VHA. There was no office at all. So 

there was no one to implement national policy at the field level 

that was developed at the national level. So I think it is important 

to help put this in perspective, because one of the thing that we 

now need to do is work as a team with now the national policy developers and first of all, what is going wrong. 

And so we built this crosswalk and then we put together, there 

were 26 groups that I put together. We addressed the OIG cap reviews for 2004 and 2006. We built a crosswalk of what old things 

have been found. It is embarrassing and the Veterans Health Administration wanted to get it fixed. So I have put this together. We 

have presented it to our chain of command in VHA. 

And Mr. Feeley is the one who has direct line authority over the 

field. So my authority to accomplish things in the field comes from 

the chain of command. I provide information to him. And the key 

to this are compliance reports. So as you said earlier, we can pass 

policy until the cows come home, but if we can’t find out what they 

are really doing, then it sort of is not productive. 

So getting back, we developed these work groups and they are 

addressing each one of these IG recommendations. We have addressed—and now follow-up is important. The key to this also is 

the development of a data system so that we can electronically, objectively find out what exactly is happening. And this ties in with 

lots of other issues that perhaps come forward in this hearing 

today. So yes, in compliance I feel confident that we are developing 

the process to conduct the compliance we need. 

Now, another thing that goes along with this compliance is the 

fact that we have this centralization within the VISN, taking the 

contracting officers away from the facility directors, centralizing 

under a network contract manager. Now, this was a major change 

that occurred. It didn’t happen perhaps as fast as we would have 

liked to have had it happen at first, but it has happened. And we 

have two, as you said, two VISNs that yet have to accomplish this, 

but they will have it done by October. All 21 VISNs then will have 

a centralized contracting office. All contracting officers will answer 

to that individual who then answers to the Chief Logistics Officer 

and the Network Director. 

That is one of the major accomplishments we have made in assuring that we are going to be able to force compliance on contracting within that VISN, because the network contract manager 

has responsibilities which we have and are in the process of developing instruments, electronic instruments to verify what is being 

done. 

smartinez on PROD1PC64 with HEARING

17 

Ms. BROWN-WAITE. Mr. Chairman, I know my time has expired, 

but I do have some additional questions. And would it be your preference that I yield back or continue? 

Mr. MITCHELL. No, go ahead. 

Ms. BROWN-WAITE. Who actually—so at the VISN level you have 

network, a network contract manager? 

Mr. DOWNS. Yes, ma’am. 

Ms. BROWN-WAITE. Does that person have staff——

Mr. DOWNS. Until recently——

Ms. BROWN-WAITE [continuing]. In each of the VISNs? 

Mr. DOWNS. All the VISNs except one have various numbers of 

staff. VISN–1 did not have staff, but VISN–1 has rectified that in 

May. The Boston leadership in VISN–1 approved a number of 

changes. The VA hospital in Brockton will become the primary location in the consolidating contracting activity for all of New England and the CLO, which is the Chief Logistics Officer, the Network Contract Manager and the entire Boston contracting staff 

which is currently located in Jamaica Plain, will all immediately 

move to that Brockton facility. 

Now, in addition, all positions approve and they have approved 

10 new additional staff which will be hired in this consolidation for 

a total of 16 staff that will be located at Brockton to support that 

consolidated contracting group and that is——

Ms. BROWN-WAITE. Okay. Who looks at the contracts at the 152 

hospitals? 

Mr. DOWNS. Excuse me? 

Ms. BROWN-WAITE. Who looks at the contracts for the 152 hospitals? 

Mr. DOWNS. Each one of the NC—each one of the network contract managers is responsible for reviewing the contracts within 

their VISN that are being written by the contracting officers who 

now report to them. And there is something new that has been 

added too. The contracts are now required to be entered into the 

new electronic management writing system that Mr. Frye has 

brought into our agency and this will allow electronic overview of 

contracts at the national level into the VISN level. 

Now, this is going to enable us to, us being anyone actually, even 

the IG, to look at specific contracts anytime they wish, to review 

those contracts. Now, the contracts that are written over a certain 

dollar amount of course have to come back to legal and technical 

review and the business clearance review through Mr. Frye’s shop. 

Ms. BROWN-WAITE. One last question, Mr. Chairman, and Mr. 

Henke, you may want to answer this. Have you looked at and 

found one VISN that has what would you consider best management practices, BMP’s, on procurement and said they are doing it 

right, let’s clone that process? 

Mr. HENKE. Ma’am, that is what we, that is what we want to 

find and identify is a collection of practices, if they are not all in 

one VISN, they are across VISNs, but share those practices and get 

them all to adopt the same standards. I would be happy to get back 

to you on the record for which VISN we think has it most right, 

or if Mr. Downs could address who has made the most progress in 

terms of centralizing and improving. 

smartinez on PROD1PC64 with HEARING

18 

But I—we have made, we have centralized consolidated 19 of 21. 

The next two are going to get onboard by the end of this year. 

What we need to do better is find and propagate who does it right 

in the system to ensure these things don’t happen again. 

But Mr. Downs, do you have—— Mr. DOWNS. I can recommend that you can go to VISN–6, for instance. They have a superb supplies contracting facility. VISN–12, 

VISN–22, those are some of our VISNs around the area and we 

have more centralized contracting facility, or systems that have 

been set up within the VISN. All of the VISNs are moving in that 

direction. But VISN–6 is close by, certainly easier for you to get to 

and I think you will see a superb operation down there. 

Ms. BROWN-WAITE. I yield back the balance of my time. Good 

luck in changing the course of that VA cultureship, wide birth. 

Mr. MITCHELL. Thank you. Mr. Walz? 

Mr. WALZ. Thank you also, Mr. Henke. Thank you also for coming and of course thank you for your service. We really appreciate 

your commitment to our veterans. And Mr. Downs, this is a place 

where your Combat Infantry Badge (CIB) will always get the respect that it so rightfully deserves. And so I thank you for your 

commitment on this. 

As I said, and again, I can’t stress this enough, the commitment 

of this Congress is unwavering, not just in word, but in deed. And 

we really need to get the part of it, the accountability part right, 

because we risk undermining the public support for this and nothing can be more important in making sure we provide these services. 

I would also at this point say that, I would argue some of the 

issues, especially with the OIG, which I think has been vastly, 

maybe draconically short-changed in the past and as the VA being 

the system that it is and the government system that it is, is a key 

component of this, yet we see some of the largest ratios of IG’s to 

the amount of ground they have to cover of anywhere in the Federal Government. So it seems to me that we were setting up a selffulfilling prophecy that they were going to not be able to do what 

needed to happen. 

And I would like to comment on a couple things. And also, with 

you, Mr. Henke, I really appreciate—I know, I believe you were at 

GE before; is that correct, so you’ve come from the private sector? 

Mr. HENKE. Yes, sir. 

Mr. WALZ. And you were over at DoD, so you bring knowledge 

of this from the private sector, from a different governmental agency that is very well known for procurement and then coming into 

the VA. So I hope you can help me with this. Again, I am going 

to be a little bit macro on this in trying to have you help me figure 

out what we can do on this and what we can do to get this right, 

because I think that—I think Ms. Brown-Waite is well-founded in 

being concerned that as we look at this, how widespread is this, 

how many problems are we going to have, especially at a time 

when we are ready to inject huge amounts of resources to get a lot 

of this right. 

So you mentioned, and I am not sure if I have the terminology 

right on this. I think in your testimony you said 1,632 audits. Are 

these like spot audits or——

smartinez on PROD1PC64 with HEARING

19 

Mr. HENKE. They are contract reviews——

Mr. WALZ. Okay. 

Mr. HENKE [continuing]. Above certain thresholds, contracts receive both legal and technical review. 

Mr. WALZ. Okay. Of those, what percentage met the standards 

or were done correctly, if you happen to know that? 

Mr. HENKE. I don’t have that, but I am happy to get it to you 

for the record, sir. 

Mr. WALZ. That would be great. I mean is it something that 

stood out to you that there were an inordinate amount of inaccuracies? And I don’t know if I would—improper use of fundings or 

whatever they might be. Does it stand out in your mind or is it 

something you would rather wait and get the numbers for? 

Mr. HENKE. I would rather wait and get the——

Mr. WALZ. Very good. 

Mr. HENKE [continuing]. Nnumber right, sir. What I do know, 

the IG report on Boston makes it clear that those reviews were required but not sought. So that is the weak link we have in that 

system——

Mr. WALZ. Okay. 

Mr. HENKE [continuing]. That policy requires reviews, but the 

compliance with those reviews is the challenge. 

[The following was subsequently received:] 

The legal/technical review process allows for changes and corrections to be 

made as the project moves forward. Some corrections are minor, others are 

more significant, but the goal of the review is to bring the procurement up 

to standard without unnecessarily delaying the project. This is not always 

possible. Some findings are so significant that the submission is rejected 

and returned for revision and resubmission before it is allowed to continue 

forward. Of the 1,632 solicitations that were reviewed, approximately 5 percent were rejected and had to be resubmitted. 

Mr. WALZ. And I am interested, as you bring in and I know you 

will be, bringing in the private sector of system analysis, gap analysis, whatever you are going to use to find problems in this. I bring 

a perspective where I worked as full-time as a lowly technician in 

a national Guard Armory and it was like moving a mountain to get 

a gallon of paint through the procurement process. 

And so it seemed like there were an incredible amount of checks 

and balances over me, almost to the point of excess for getting 

things done I needed to get done. Do you believe it is maybe just 

the nature of an organization as it grows and gets to the size it is 

that it becomes more unruly at the top? Maybe either one of you 

can comment on that. 

Mr. HENKE. I take your point, sir, about the difficulty experienced at a working level where work gets done in terms of their 

challenges to procure items. One of the things that the Federal 

Government has done as a Federal-wide initiative is said below certain thresholds, micro purchases which they are called, which are 

$3,000.00 and below, we now have a purchase card program. So if 

someone needs a case of office copier paper or something they can, 

they need to procure quickly, they have the same ability I do to get 

online or get on the 1–800 office supplies and get those supplies 

very quickly, not having to go through the contracting formality 

and process to buy an item that is a low dollar value. 

smartinez on PROD1PC64 with HEARING

20 

Obviously, there are control risks and tradeoffs in that, too. At 

VA we have got a great credit card, purchase card program. We 

have worked to improve that much over time and we think we have 

got it about right. So there are smart things you can do, frankly, 

to take work off of the field so they can work on more important, 

more focused things. And that is the mantra that I try to repeat 

with the good folks who are in my office. If there is a better way 

to fix the process and do it so it takes work off the field and relieves them and helps them get it right, that is what we want to 

do. 

Mr. WALZ. Do you believe—just the last question. I see my time 

is about running out. And again, I am asking you to maybe just 

kind of speculate a little bit for me. Is the system more prone in 

your mind to maybe inefficiencies or is there a possibility for fraud 

in this? Because I am concerned and I know I can’t, I am not going 

to get at the specifics of the Boston thing. But I wonder how necessary those repairs were. It is not going to justify that it was 

right, that it was, violated the procedure. But I am wondering if 

this system fraught with the fear that it could be steering contracts 

for favors, that type of thing, I mean in your opinion, or do you 

think it is just more unwieldy or they are just not executing properly? 

Mr. HENKE. I don’t think I would say, sir—I would not say that 

the system is fraught with that opportunity. Whenever you get, as 

in the Boston case, you get people who should have known better, 

probably did know better—this is my opinion—and they knew what 

controls were in place, but they found a way to do what they needed to get done, what were perhaps valid facility improvement 

projects, but they did it the wrong way. 

Mr. WALZ. Yeah. 

Mr. HENKE. So I give them credit for pursuing their mission, but 

obviously they missed, they overstepped a number of rules and 

policies. 

Mr. WALZ. Very well. Thank you so much. I yield back, Mr. 

Chairman. 

Mr. MITCHELL. Thank you. But that is also the real weakness in 

the VA because they did that and it was not caught for six years. 

It should have been caught. They should have known obviously 

that it was wrong and they shouldn’t have done it. But it shouldn’t 

have gone on that long and it should not take a hotline call catch 

something like this. 

Let me just ask another question and it is kind of along the lines 

of Ms. Brown-Waite’s in terms of your procurement. The Inspector 

General has identified procurement as one of the VA’s major management challenges. This past February the IG testified before this 

Subcommittee that the most significant problem facing deficiencies 

in the procurement process is VA’s decentralized organizational 

structure for acquisition. 

As a result, the VA does not know what is purchased, who it is 

purchased from, who made or approved the purchases, whether it 

was a contract or open market, what was paid and whether the 

price was fair or reasonable. First of all, do you agree with that 

statement from the IG and second, if not, why is the IG wrong? 

smartinez on PROD1PC64 with HEARING

21 

Mr. HENKE. Sir, what I would say about that is, I am not convinced that the complete consolidation or centralized model is necessarily the right way to pursue it. We have, as the Procurement 

Reform Task Force (PRTF) identified, we have moved in that direction by consolidating contracting functions at not 156 or more locations, but 21 locations. So that will improve our span of control and 

our oversight. 

We have, as I said, sir, we have asked for a think tank or a contractor to come in and take a look at our governance model, our 

acquisition structure in VA. We had a contractor come in and look 

at Mr. Frye’s organization and we have taken steps to fix that because that is important. The next step is the broader look at how 

we are organized for battle in VA acquisition. What kinds of models 

are out there in forward-leading Federal agencies for how they 

have structured their acquisition authority, the acquisition authority that at the end of the day I am responsible for in the Chief Acquisition Officer’s Act of 2003. 

Mr. MITCHELL. Would you agree or disagree and tell us if it is 

your opinion. I want to again quote from the IG: ‘‘The VA does not 

know what is purchased, who it is purchased from, who made or 

approved the purchases, whether it was a contract or open market, 

what was paid or whether the prices were fair or reasonable.’’

Mr. HENKE. If the statement is VA did not know in all those 

cases, I don’t agree with that statement, sir. I think that is an excessive characterization. 

Mr. MITCHELL. The vast majority of the contracting the VA does 

is done by VHA. The VHA fiscal and contracting personnel report 

up through the Under Secretary for Health and not through the Office of the Assistant Secretary for Management. This question is for 

Mr. Frye. At what level of oversight do you, as the senior procurement executive, have over VHA contracting activities, in particular, 

those at the VISN and medical center levels? 

Mr. FRYE. The level of oversight that we have, Mr. Chairman, is 

essentially we are a decentralized organization by design. My office 

develops the policy, the national broad policy, if you will. That policy is promulgated in the field and we rely on the VHA to execute 

that policy. 

Now, we also provide oversight in effect because for procurements over certain dollar amounts, we also require VHA to send 

the requirement back to us for review, a technical review and legal 

review. At the same time, I am the individual that signs the warrants for VHA contracting officers so they can execute their contracts. 

But on a day-to-day basis, my office does not have purview over 

those contracts by design. 

Mr. MITCHELL. Well, let me ask—it seems like then, that you 

have responsibility but no real authority. 

Mr. FRYE. I have responsibility. 

Mr. MITCHELL. And no real authority, and to go on from that, 

how can the VA expect to solve its serious internal control deficiencies if the senior executive, that is you, for procurement does 

not even have the direct line of authority over VHA’s contracting 

officers? 

smartinez on PROD1PC64 with HEARING

22 

Mr. FRYE. Well, I think the real key there is to work very, very 

closely with the VHA and we are doing that now. Mr. Fred Downs 

and I are working more closely now than two VA counterparts 

probably ever have. I meet with him and his staff once a week. I 

recently, within the last three weeks, went to visit one of the VA 

hospitals down in Hampton, Virginia. So Mr. Downs and other 

members of his staff and my staff are working probably more closely together. I think I would leave it to Mr. Downs to characterize 

that. But we are working more closely together than the two staffs 

ever have to make sure that there is the proper oversight and that 

we are in compliance with the Federal Acquisition Regulation and 

other rules and regulations. 

Mr. MITCHELL. I have to excuse myself. I have to go to a markup 

and I would like to turn the gavel over to Mr. Walz. But just before 

I leave, I would like to mention something I said at the very beginning in my opening statement. We all share the goals of ensuring 

that the $10 to $12 billion the VA spends on acquisition each year 

is well spent. That goal can only be met if VA has reliable internal 

controls. It is a truism in business, if you can’t measure it, you 

can’t manage it. 

VA cannot manage its spending without dramatic improvements 

in its controls. I assure you we will all be back here in a few 

months to see what progress the VA has made. Between now and 

then, the Subcommittee expects the VA will work closely with the 

Subcommittee staff so that Congress can stay informed about the 

VA’s progress. It is obvious that there are no more laws that need 

to be made, or there are no more procedures or any of those. We 

have got all those in place. 

The fact is that we need people to enforce them. And I think the 

responsibility of this Committee is one of oversight. So you will see 

us again. Thank you. 

Mr. HENKE. Sir, thank you very much and I agree with your 

statements. 

Mr. WALZ. Thank you, Mr. Chairman. Ms. Brown-Waite? 

Ms. BROWN-WAITE. I thank the Chairman very much. I have 

here a copy of a request for information (RFQ) that was issued 

June 15th and it is to solicit GSA schedule contract holders for this 

procurement. The object is: (1) to analyze, to examine and analyze 

VA’s current acquisition organization, (2) to recommend a business 

model that provides three viable solutions with one recommendation path. 

However, when you open this up, inside I think is probably even 

more revealing. It says, ‘‘This request for quote has not received 

the mandatory advisory and assistance approval from the Office of 

the Secretary. It is, therefore, subject to change or cancelation as 

a result of the Secretary’s decision.’’

The timing of this RFQ I would have to say is somewhat suspect. 

Was this put out because you knew this hearing was going——

Mr. HENKE. No, ma’am. 

Ms. BROWN-WAITE [continuing]. To be this week? 

Mr. HENKE. No, ma’am, it was not. That has been in the works 

for a number of weeks, if not months. 

smartinez on PROD1PC64 with HEARING

23 

Ms. BROWN-WAITE. Well, if it was in the works for a number of 

months, do you think you might have run it by the Office of the 

Secretary and received approval? 

Mr. HENKE. Ma’am, what that reflects is, I have changed the approval process for A&A, advisory and assistance contracts to bring 

that down to an appropriate level. Every A&A action was going up 

to the Secretary or the Deputy. That was too cumbersome and 

frankly was just a burden on people. So that action, I don’t recall 

the expected costs of it, but it would be either at my level or Mr. 

Frye’s level to approve. That reflects no change in our commitment 

to go ahead and do this study and take it onboard. 

Ms. BROWN-WAITE. Have you set aside a sufficient amount of 

money in the budget for this outside study? 

Mr. HENKE. Yes, ma’am, we have. We have the resources to do 

that, to perform that study. We found the resources to perform the 

study for Mr. Frye’s organization and we had Logistics Management Institute (LMI) come in and give us their best ideas, best 

brains on that. And we are going to find a similar contractor or a 

think tank to do this here. We have those resources. 

Ms. BROWN-WAITE. Mr. Henke, I know you have only been with 

the agency a little over a year; is that correct? 

Mr. HENKE. Yes, ma’am, 18 months. It might seem like longer 

some days. 

Ms. BROWN-WAITE. I know exactly what you mean. I am sure 

that there are many new procedures that can be implemented. But 

again, we get to the question of oversight. Harry Truman had a 

wonderful plaque on his desk and it said, ‘‘The buck stops here.’’

Now, certainly, some would say that the buck stops at the Secretary’s office, but I can just tell you that the way I run my organization is, if my district director, which would be comparable to a 

VISN Director or perhaps a hospital administrator, if my District 

Office Director messes up or misappropriates or spends money that 

she was not authorized to do, she would be my former District Office Director. 

That doesn’t seem to be happening in the VA. I can mention 

within the VISN that I am in where people don’t get demoted, they 

get moved on. And no one seems to be being held accountable. If 

I were to say probably the biggest frustration of having—this is my 

fifth year of serving on this Committee and other Committees also 

with oversight. That is the biggest frustration. Does anybody ever 

get fired for mismanagement, for spending unauthorized funds, expired funds? I think the taxpayers deserve an answer and I would 

appreciate any one of your answering that question. 

Mr. HENKE. Yes, ma’am. If people break rules, break laws, there 

are—first, there are personnel processes in place. The VISN Director has one, if not two, investigation boards underway. People 

should be held accountable for their actions. I am not going to 

opine about actions that should be taken in this case, because that 

would be inappropriate. 

But obviously, the IG report has some fairly, in my view, some 

fairly scathing things in it and the VISN Director has taken action 

to investigate and mete out whatever administrative or disciplinary 

action they deem is appropriate and warranted. 

smartinez on PROD1PC64 with HEARING

24 

Ma’am, I get your point. I understand that I am accountable at 

the end of the day for the VA acquisition system. I am here today 

and your oversight, frankly, is helpful to us to help us get, make 

progress and to move forward. So this is a part of the process as 

difficult as it is to talk about a report like Boston, but the buck 

stops here with me as the Chief Acquisition Officer and I hope you 

understand that we are taking literally dozens of steps to improve 

and to fix this problem. 

Ms. BROWN-WAITE. This report making the recommendations for 

seeking an outside organization to come in and make recommendations was dated 2002 and I know you weren’t at the agency then. 

Mr. HENKE. Right. 

Ms. BROWN-WAITE. Why has it taken so long to actually do something? This is 2007. The recommendation to go for some outside 

consulting and to take the problems serious, the Procurement Reform Task Force (PRTF) Report made pretty much the same recommendations that seem to finally now be being implemented in 

this RFQ. Is it because you brought new eyes to the agency? What 

took almost as long as I have been in Congress? 

Mr. HENKE. Ma’am, the PRTF, that report you have there, did 

not call for a complete look at VA’s acquisition governance. So we 

are taking this, the PRTF recommendations, goal four, improve VA 

procurement organization effectiveness, and I could walk down the 

list there and cite the recommendations 4.1, 4.2, 4.3 to 4.9, many 

of them are done or are completed and ongoing. 

What this outside independent look will do is allow us to take 

it to the next level and identify the governance approach we need, 

centralized, decentralized, whatever it is in that continuum and 

move out to implement that and give us ideas and courses of action. 

Ms. BROWN-WAITE. Sir, in this report, goal three, for example, 

was to obtain and improve comprehensive VA procurement information and goal four was improve VA procurement organization effectiveness. So these recommendations, these goals for the agency 

have been out there for five years. And, you know, it has virtually 

been ignored. 

Mr. HENKE. Ma’am, I would not be able to agree with the characterization that it has been ignored. We implemented—our own IG 

has said we have implemented 60 of the 65 items in the PRTF. 

Many of them are ongoing actions. The fifth recommendation is to 

improve, ensure a talented and sufficient VA acquisition work 

force. That is a never-ending challenge. The labor market for qualified 1102 contracting officers is very difficult. It has been acknowledged as a national challenge among Federal agencies. So that goal 

is absolutely ongoing. 

So I would not characterize this report as being ignored. We have 

taken action and we are going to take further action to keep moving the ball down the field. 

Ms. BROWN-WAITE. Sometimes I get the opinion that, or the impression that you implement them, but there is no oversight, and 

you know, it is one more sheet of paper in one more book that gets 

put up on the bookshelf in an office and there doesn’t seem to be 

the oversight when something is implemented. 

smartinez on PROD1PC64 with HEARING

25 

And I think that is exactly what has happened with the whole 

procurement debacle that is taking place. And I would, I would just 

encourage you to make sure that whatever the results of this recommendation are, if they are implemented, they have to have oversight. You can’t just implement them and tell people to go forward 

and do it and not ensure that they are doing it, or you might as 

well just save your money, save the taxpayers the money for the 

study, if there isn’t the accompanying oversight. 

Mr. HENKE. Yes, ma’am. You are absolutely right. One point of 

example, if I may. The study we did last year that we solicited on 

the open market and we had a, just a fantastic group come in, the 

Logistics Management Institute. They came in with a complete look 

at organizing my and Jan’s Office of Acquisition and Logistics. Are 

we organized right? Are we structured right? Do we have a strategic plan? We do now. Do we have score cards and metrics in 

place? We do now. 

That organizational plan went from concept last year, development, and it was approved by the Secretary on May 16th. He bottom-lined the implementation of that and the organization of Jan’s 

team so he can bring to fruition the changes that VA knows we 

need to bring forward. 

So this one, the one we did last year is being implemented and 

we have briefed your staff a number of times on that LMI study. 

We got it approved and we are in the execution and implementation phase and I am very serious about seeing that through. 

Ms. BROWN-WAITE. Well, apparently the LMI study is for headquarters, not for VHA; is that correct? 

Mr. HENKE. That was—yes, ma’am, that was by design in the intent—it was to look at Jan’s organization inside those lifelines, 

those 450 people at seven or eight locations around the country and 

say, is this team set up right, organized right, structured right to 

do good things. The next step is taking a broader look at the VA 

acquisition system in totality and that is the study that you cited 

with the solicitation on the street. 

Ms. BROWN-WAITE. I yield back the balance of my time. 

Mr. WALZ. Thank you to the Ranking Member. Just a couple of 

follow-up questions before we adjourn, Mr. Henke. And once again, 

I get back to this because I know you bring a lot of experience to 

this and especially your DoD experience. Do you have the ability 

or do we have the ability to import any of those best practices from 

DoD, because it does seem to me and I am not sure if this is anecdotal or if we can back it up, the DoD is doing a better job of this. 

Is there something you can bring in? 

And as you answer that, I am wondering with our Ranking Member’s characterization, is there something in the VA culture that 

makes that more difficult to do? And I want to know how that all 

fits, if you could. 

Mr. HENKE. Sir, your first question, can we implement, can we 

bring in best practices from other agencies? Absolutely. Do we do 

enough of it? My opinion is no, we don’t. And that is one of the reasons we are doing this larger study is to have an organization go 

out and find how other agencies are organized, how they are structured, the processes they have set up and bring that into VA. So 

we are reaching out to go get that. 

smartinez on PROD1PC64 with HEARING

26 

And sir, I am sorry, your second question, I——

Mr. WALZ. Well, I am just—the Ranking Member and many of 

us are concerned about this and I am a believer that there is something to be said about the culture of any organization, as you well 

know. You have come from others. Is there anything in the VA, 

that inertia that stops someone like yourself coming in with a vast 

amount of knowledge from other organizations, both private sector 

and government, from implementing some of these, or do you feel 

that it is just like any other organization? 

Mr. HENKE. Sir, it is like any other large organization. VA’s culture is unique from DoD, as it is unique from, I am sure, Treasury 

and Commerce. The culture in VA fundamentally is one of service 

and performance, and a mission to serve the veteran. And that is 

the thing that we take most critically, is performing the clinical 

visits, the benefits delivery and the memorial affairs that are our 

three business lines. 

I have not found the culture too difficult. Sure, there are things 

we can improve. But at the end of the day, it is the ability to sit 

down with professionals like Jan and Fred here and work toward 

a common solution. I don’t find the culture to be an inhibitor. I 

think you have to find ways to build coalitions of people that want 

to get the same thing done. At the end of the day, my goal is the 

same as Mr. Downs’ goal and Mr. Frye’s goal and that is to improve the place so we can better deliver services to the vets. At the 

end of the day, sir, that, as you said, that is the bottom line. So 

we have the same goal and we are trying to get aligned to do that. 

Mr. WALZ. Well, I appreciate that and I think your comment of 

talking about how this hearing of oversight is helpful to you, I applaud you for embracing that. I applaud you for embracing the IG 

as team members in this and all of us working together, because 

the ultimate goal and as our Ranking Member so clearly pointed 

out, and is absolutely correct, that the effectiveness in actual implementation and an improvement in delivery to our veterans as 

well as accountability of our taxpayer dollars is the ultimate goal 

here. And that is what we need to keep striving for. 

So knowing the Chairman of this Committee and the Ranking 

Member, a long tradition of being a watchdog of our veterans and 

our resources and that we are just getting started on this, I would 

ask you to see us as a resource, to see the Congress and Members 

of this Committee as someone you can come to, someone you can 

work through, because our goal, rest assured, is exactly what yours 

is. We just need to figure out how best to get there. 

Mr. HENKE. Sir, I appreciate that and if there are legislative 

ideas that we need to advance and need your help, we will come 

forward and bring those to you. I got your point, sir. Thank you. 

Mr. WALZ. We appreciate it. Ms. Ranking Member, anything 

else? 

Ms. BROWN-WAITE. No. 

Mr. WALZ. With no further questions, this Subcommittee on 

Oversight and Investigations is adjourned. 

[Whereupon, at 11:37 a.m., the Subcommittee was adjourned.] 

smartinez on PROD1PC64 with HEARING

(27) 

A P P E N D I X 

Prepared Statement of Hon. Harry E. Mitchell, 

Chairman, Subcommittee on Oversight and Investigations 

This hearing will come to order. 

Thank you all for coming today. I am pleased that so many folks could attend this 

oversight hearing on VA Internal Contracting Oversight Deficiencies. This will not 

be the last—we all have a lot of work to do. We are going to begin today by hearing 

from the Office of the Inspector General concerning the IG’s recently completed 

audit of contracting practices in the Boston Healthcare System in Veterans Integrated Service Network, or VISN, number 1. The IG’s report is extremely disturbing. Senior contracting and fiscal officers at the Boston Healthcare System executed contract modifications in excess of $5 million that were illegal. As just one 

example, in fiscal 2002 Boston executed a contract for $16,000 to repair asphalt 

roadways. In March of 2004, this paving contract was modified to add electrical 

panel and emergency generator projects totaling $900,000. These modifications were 

clearly outside the scope of the original contract and clearly in violation of laws governing the use of expired appropriations. 

These were not just technical violations. Not only did the contract modifications 

violate some of the most basic precepts of government contracting and appropriations law, they also had the following pernicious effects. First, the modifications 

were not competed. We have no way of knowing whether the taxpayers’ interests 

in obtaining a fair price and good service were protected. Second, the Boston 

Healthcare System decided to put its own needs above all other priorities in VISN–

1. VA does not have unlimited funds and has a process for prioritizing expenditures 

that Boston evaded. The Inspector General found that VISN–1 deferred renovation 

of a cardiology unit in another VA hospital because of concern about an insufficient 

budget. The VISN had no opportunity to decide whether the cardiology unit at the 

other hospital was of higher priority than the parking lot in Boston. 

We are not here to assess individual responsibility. There are no witnesses from 

VISN–1 present and we will not be asking the IG or VA about individuals. VA is 

conducting an Administrative Board of Investigation and we leave the assessment 

of individual responsibility to that process. 

What we are here for is to inquire into VA’s internal controls over acquisition, 

controls that Boston certainly suggests are seriously lacking. For example, VA has 

a policy that all contract modifications in excess of $100,000 must be submitted for 

legal review. This was not done in Boston and the Inspector General indicated in 

his report that the improper contracting might have been prevented if this policy 

had been followed. The obvious question is: why did VA’s internal controls not require verification of legal review prior to disbursement of funds for contract modifications in excess of $100,000? Policies are practically worthless if VA has no way 

of knowing if they are being followed. 

In February of this year, the Inspector General told this Subcommittee that VA 

does not know what it purchases, who it purchases from, who made or approved 

purchases, whether a purchase was by contract or on the open market, what was 

paid, and whether the prices were fair and reasonable. And this is not a new problem. In May 2001 the Inspector General issued a report evaluating VA’s purchasing 

practices. In July of that year, then-Secretary Principi formed a task force to correct 

the many problems identified by the IG. The task force issued its report in February 

2002 with 62 recommendations for change. We look forward to VA telling us which 

of those recommendations have been successfully implemented and what VA is currently doing to monitor their completion. We have little reason to be optimistic 

about VA’s response. Since 2002 VA has spent hundreds of millions of dollars on 

procurement and deployment of the Core Financial and Logistics System, or 

CoreFLS. CoreFLS has been a complete failure. Congress mandated that VA develop the Patient Financial Services System. From 2003 to 2006 VA paid a contractor $30 million for this project, received nothing, and terminated the contract 

smartinez on PROD1PC64 with HEARING

28 

with the $30 million of taxpayers’ money wasted. There is a list of Inspector General 

reports recounting similar problems with VA’s contracting. 

Finally, the Subcommittee cannot help but note that VA’s external auditors have 

found material weaknesses in VA’s internal controls that are repeat deficiencies 

from prior years. Those material weaknesses include VA’s integrated financial management system and its operational oversight. As the Inspector General has said: 

‘‘The risk of materially misstating financial information remains high because of 

these material weaknesses.’’ We all share the goal of ensuring that the 10 to 12 billion dollars VA spends on 

acquisition each year is well spent. That goal can only be met if VA has reliable 

internal controls. It is a truism in business—if you can’t measure it, you can’t manage it. VA cannot manage its spending without dramatic improvements in its controls. 

I can assure you, we will all be back here in a few months to see what progress 

VA has made. Between now and then, the Subcommittee expects that VA will work 

closely with the Subcommittee’s staff so that Congress can stay informed about VA’s 

progress. 

f 

Prepared Statement of Hon. Ginny Brown-Waite, 

Ranking Republican Member, 

Subcommittee on Oversight and Investigations 

Thank you, Mr. Chairman for yielding. It is important to bring these concerns 

about procurement forward for discussion. Our nation’s veterans are a valuable 

asset, and caring for them should be our first priority. Procurement is an area in 

which we can provide services and care to our veterans, but it is also an area where, 

if not done properly and within the letter of the law, can be subject to abuse and 

impropriety. 

According to VA’s own Office of Acquisitions’ web page, last updated October 14, 

2006, VA states that its annual expenditures are more than $5.1 billion for supplies 

and services, including construction. VA is one of the largest procurement and supply agencies in the Federal government. Drugs, medical supplies and equipment, IT 

equipment and services, and other critical patient care items must be procured and 

distributed to VA’s healthcare facilities to what is the largest healthcare delivery 

system in this country. Supply support is also provided to regional offices, national 

cemeteries, automation centers, and other various VA activities. 

Yet today, VA testifies that the $5.1 billion is now over $10 billion! . . . Almost 

doubled since last October. VA’s procurement practices are so decentralized with 

very little oversight, I wonder if VA really knows how much is being procured and 

how efficiently resources are spent? 

I also believe that an unknown amount . . . maybe a lot . . . is listed under that 

benign category of ‘‘miscellaneous obligations’’. I hope we see some clarity to these 

issues in today’s hearing. 

I understand we will hear from the VA’s IG about the egregious procurement improprieties that occurred at the Boston VA Healthcare System. VA can have policies 

and procedures stacked to the ceiling, but if there are no controls in place to ensure 

compliance or non compliance, what good are these policies? With reports dated as 

far back as April 1997, it appears the Inspector General and VA have recognized 

the existence of the systematic procurement problems, yet little has been done to 

address them. 

Yes, reports have been generated and recommendations have been made countless 

times over the years, but when we see the same recommendations over and over 

again, one must wonder why no serious actions have been taken to correct the problems and punish the perpetrators. I have strong concerns that VA has failed to act 

on what they know is a problem. These reports speak of professionalizing the VA, 

optimizing and monitoring the procurement process, and making the contracting 

process fair and accessible, yet cases like those found in the Boston VA Healthcare 

System provide a glaring example of a perpetual lack of accountability. 

We owe it to our veterans to address the mismanagement in VA procurement once 

and for all. While we know that there are good VA employees working within the 

current procurement system, we need assurance that VA is working to fix a broken 

system. As of today, 19 of the 21 VISNs have taken steps to protect and update 

their procurement processes. The other two VISNs must take steps to protect the 

financial resources they are responsible for maintaining. 

With backlogged patients not getting the resources they need and VA executives 

asking for more and more money, we need to make sure the funds are being used 

smartinez on PROD1PC64 with HEARING

29 

where they need to go, not into the hands of procurement employees who spend 

more than allotted and use illegal and illegitimate procurement methods. 

The first step of all recovery programs is to admit there is a problem, so I hope 

that the facts brought out in today’s hearing, coupled with the incidences at Boston 

which are indicative of a long history of very dysfunctional, decentralized acquisition 

and procurement programs with very little oversight, will be a spring board for 

change within the VA. 

f 

Prepared Statement of Belinda J. Finn, 

Assistant Inspector General for Auditing, 

Office of the Inspector General, U.S. Department of Veterans Affairs 

INTRODUCTION 

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity 

to testify on facts surrounding the Office of Inspector General’s (OIG’s) report on 

the Audit of Alleged Mismanagement of Government Funds at the VA Boston 

Healthcare System, which was issued on May 31, 2007. I am accompanied by 

Maureen Regan, Counselor to the Inspector General, and Nicholas Dahl, Director 

of the Bedford Audit Operations Division, who directed the team responsible for the 

audit. We performed the audit in response to an anonymous hotline call concerning 

contract irregularities and the misuse of government funds. The issues we reported 

are specific to the VA Boston Healthcare System, which is one of eight facilities in 

Veterans Integrated Service Network (VISN) 1; however, I will highlight areas 

where I believe VHA management can improve controls to help prevent similar incidents from occurring elsewhere in VHA. 

BACKGROUND 

The complainant listed 24 contracts that allegedly had improper contract modifications associated with them. These 24 contracts were originally executed between 

fiscal years 2000 through 2003 and had a combined value of $1.3 million. During 

fiscal years 2002 through 2006, the Boston Healthcare System executed 40 contract 

modifications against these contracts with a combined value of $5.5 million. All 40 

modifications involved non-recurring maintenance (NRM) work for the VA Boston 

Healthcare System. 

CONTRACT MODIFICATIONS 

A contract can be modified to add additional work only if the work is within the 

scope of the original contract documents. If the work is outside the original scope 

of work, a new contract must be awarded using procedures prescribed in Federal 

Acquisition Regulations, including competitive procedures. Modifications that are 

outside scope are prohibited cardinal changes to the contract. It is the responsibility 

of the contracting officer to determine whether a modification is appropriate and for 

ensuring that all modifications are appropriate. Contracting officials also violated 

Federal Acquisition Regulations by issuing modifications to contracts that had expired. 

APPROPRIATIONS LAW 

Appropriations are available to pay for expenses incurred during the years the appropriations are available. If an agency does not obligate funds prior to the expiration of the appropriation, the funds are not available to pay for new obligations. The 

only exception is if the expenditure meets the ‘‘bona fide needs’’ test set forth in 

Title 31, U.S.C. Section 1502. Under this test, expired funds can be obligated to pay 

expenses incurred properly during the life of the appropriation or to complete contracts properly made during this time period. 

VALIDATION OF COMPLAINT 

We determined that 37 of the 40 contract modifications were outside the scope of 

the original contracts and that payment with expired appropriations violated Federal appropriations laws. The Chief of the Purchasing and Contracting Section executed 26 of the 37 contract modifications and 4 other contracting officers executed 

the remaining 11 modifications. The total value of the 37 modifications was $5.4 

million, all paid from expired funds. We concluded that the VA Boston Healthcare 

System’s Chiefs of the Purchasing and Contracting Section and Fiscal Service, along 

with Engineering Service personnel, collaborated to circumvent internal controls. 

The collaboration began when the Chief of Fiscal Service reportedly informed the 

Chief of Engineering Service that funds were available from prior year appropriations. Engineering Service maintained a list of NRM work needing completion and 

smartinez on PROD1PC64 with HEARING

30 

provided the names of vendors who had performed work during the appropriation 

years of the expired funds and the relevant purchase order numbers to the Chief 

of the Purchasing and Contracting Section. Contracting officers used that information to execute 37 contract modifications that were outside the scope of the original 

contracts. 

For example, the VA Boston Healthcare System executed an original contract in fiscal year 2002 to repair roadways for $16,000 at the West Roxbury campus of the 

VA Boston Healthcare System. The first modification, executed in fiscal year 2003, 

provided $102,367 to repair parking lot lights. Another modification, executed in fiscal year 2004, provided $487,000 to replace emergency electrical panels. A third and 

final modification, executed in fiscal year 2004, provided $408,500 to replace an 

emergency generator. The three modifications had a total value of $997,867, all paid 

with expired funds. 

Personnel within all three services did not follow established procedures and circumvented controls. The Chief of the Purchasing and Contracting Section, and four 

other contracting officers, exceeded their authority by executing contract modifications against expired contracts and were outside the scope of the original contracts. 

The contracting officers also did not obtain the required legal concurrence from VA 

Regional Counsel to execute modifications exceeding $100,000. In addition, the Chief 

of Fiscal Service allowed the obligations and did not obtain approval from the VA 

Expired Funds Manager to use $5.4 million in expired funds. Finally, Engineering 

Service personnel did not input non-recurring maintenance project submissions into 

the VISN Support Service Center Capital Asset Database, which is used to track 

NRM projects. The effect of these omissions was to reduce the chance that anyone 

at the VISN or VHA would question and oversee these projects. 

In addition, the VA Boston Healthcare System did not comply with other Federal 

Acquisition Regulations in awarding the contracts. For example, in several cases, 

they did not develop statements of work (SOW) that adequately described the work 

to be performed or the services to be rendered. The SOW is in itself a control mechanism that provides an objective measure for the completion of work. By executing 

modifications to existing contracts, the VA Boston Healthcare System also avoided 

competition requirements and had no assurance that the prices paid were fair and 

reasonable. 

CONTROL WEAKNESSES 

Our review identified policies and procedures were in place to prohibit the improper use of expired funds. However, no controls were in place to ensure compliance or detect noncompliance with prescribed policies and procedures. VA Boston 

Healthcare System employees’ ability to circumvent these procedures puts the effectiveness of these policies and procedures into question. 

Although the procedures required the approval of the VISN Chief Financial Officer before obligating expired funds, the Chief of Fiscal Service was able to use expired funds without receiving the required approval and without the VISN or VHA 

knowing about the obligations of the expired funds. System controls could prevent 

personnel below the VISN level from obligating expired funds. A more cost effective 

control would be reports designed to flag obligations of prior year funds. 

In addition, the VA Boston Healthcare System was able to execute improper contract modifications without the awareness of VISN or VHA officials. VA acquisition 

regulations require contracting officers to request legal reviews from the VA Regional Counsel prior to executing modifications greater than $100,000. When submitting a request for legal review, contracting officers are required to submit a 

statement as to whether the modification is within the scope of the original contract. 

VA Boston Healthcare System ignored this procedure and executed 17 modifications 

over $100,000, valued at $4.4 million, without requesting the legal reviews. No controls are in place to identify contracts or modifications that have not had the required legal or technical reviews. 

Contracting officers are responsible for safeguarding the interest of the government in contractual agreements. Contract modifications should not be executed to 

expedite the contracting process or in response to pressure from requesting services. 

It was ultimately the responsibility of the Chief of the Purchasing and Contracting 

Section to make the correct determination that modifications were outside the scope 

of the original contracts and that Fiscal Service could not obligate additional funding to pay for these modifications. We saw no procedures in place at the time that 

would have alerted the VISN or VHA to the improper modifications. The results of 

our review suggest that oversight over contracting officials’ activities should be increased to improve the accountability of their actions. 

We reported the issues identified at the VA Boston Healthcare System to the 

auditors who are responsible for the annual consolidated financial statement audit. 

smartinez on PROD1PC64 with HEARING

31 

Standards require that auditors design a financial statement audit to provide reasonable assurance of detecting material misstatements, whether caused by error, 

fraud, or illegal acts. Although the violations of law cited in the Boston report did 

not result in material misstatements, the auditors must consider the risk of similar 

acts occurring elsewhere that could be a material weakness. Our auditors have considered the Boston report in designing their audit procedures for this year. The 

audit is still underway, with the report due in November. 

RECOMMENDATIONS 

We made seven recommendations to the VISN–1 Director. Four of the recommendations concerned the improvement of controls over the execution of contract 

modifications, the use of expired funds, the NRM reporting and approval process, 

and compliance with the Federal Acquisition Regulations. We also recommended 

that the VISN–1 Director take administrative actions against the Chiefs of the Purchasing and Contracting Section and Fiscal Service; initiate an administrative investigation; and take actions, if warranted, against other VA Boston Healthcare System employees involved with the issues identified during our audit. Finally, we recommended the necessary accounting adjustments to correctly record the funding of 

the improper contract modifications. 

In addition, we recommended the Deputy Assistant Secretary for Acquisition and 

Materiel Management determine whether the warrant authority for the Chief of the 

Purchasing and Contracting Section should be revoked. The Deputy Assistant Secretary subsequently revoked the Chief of the Purchasing and Contracting Section’s 

warrant authority. 

VISN ACTION PLAN 

In response to our recommendations, the VISN developed and issued standard operating procedures and policy guidance to help improve management controls over 

the execution of contract modifications, use of expired funds, and the approval of 

NRM projects. With guidance from VHA accounting officials, VA Boston Healthcare 

System accounting staff made the necessary accounting adjustments to correctly 

record the funding of the improper contract modifications. 

The VISN–1 Director appointed an Administrative Board of Investigation to conduct an assessment of the facts surrounding the improper contract modifications 

and use of expired funds. The VISN–1 Director instructed the Board to inquire into 

all aspects related to the issues, and to obtain testimony under oath or affirmation 

without a pledge of confidentiality. A final report is due by July 15, 2007. 

CLOSING 

The OIG will continue to work with VA to improve the oversight of contracting 

and fiscal activities to prevent similar occurrences in the future. 

Mr. Chairman, thank you again for the opportunity to testify. I would be pleased 

to answer any questions that you or other Members of the Subcommittee may have. 

f 

Prepared Statement of Hon. Robert J. Henke, 

Assistant Secretary for Management, U.S. Department of Veterans Affairs 

Mr. Chairman and members of the Subcommittee, I am pleased to have the opportunity to testify on the Department of Veterans Affairs’ acquisition system. VA 

spends over $10 billion per year through widely dispersed acquisition activities for 

pharmaceuticals, medical/surgical supplies and equipment, prosthetic devices, information technology, construction, and other acquisition services. 

VA procurement practices have been identified by VA’s Inspector General as one 

of the five major management challenges facing the Department. I assure you that 

VA understands our challenges and is dedicated to improvement. Our leadership is 

engaged, committed, and is clearly articulating the expectation that VA will work 

to improve the quality and efficiency of acquisition services. We have many improvement initiatives underway, new people on board, and additional policy and guidance 

to improve performance. 

As VA’s Chief Acquisition Officer (CAO), I am responsible for monitoring the performance of acquisition activities and acquisition programs across the agency, as 

well as advising on appropriate business strategies to achieve VA’s mission. My duties also entail managing the direction of acquisition policy and ensuring that VA’s 

acquisition work force is trained and capable of providing the highest level of support to our mission-focused programs. 

I would like to cover five of my top responsibilities and initiatives as CAO: 

smartinez on PROD1PC64 with HEARING

32 

1. Advising on proper business strategies to achieve agency mission and monitor 

the performance of acquisition activities 

VA’s acquisition system is very large, complex, and decentralized. To determine 

whether VA acquisition is organized correctly and has the right quantity and types 

of acquisition professionals, I have directed that a comprehensive study be conducted by an independent third party contractor with extensive knowledge of the 

acquisition work force and challenges. The contractor will benchmark our procurement system against other government agencies and provide courses of action for 

improving VA’s acquisition infrastructure and accountability. 

We have made very important policy changes within VA to improve our acquisition processes. Contract requirements must be clear, well written and understandable to reduce our risks. To that end we have implemented a collaborative approach 

to contract requirements definition. For some major acquisitions over $5 million, we 

now use cross-functional Integrated Product Teams (IPTs) to develop our requirements. Key program, contracting, legal and finance officials work collaboratively to 

write acquisition plans, performance work statements and other critical acquisition 

documents. This approach significantly decreases the risks of developing a poorly 

defined requirement. 

To help ensure that contracting officers develop effective contracts, we have implemented the use of Contract Review Boards (CRBs). CRBs are composed of the most 

knowledgeable and senior acquisition professionals. As with IPTs, CRBs use a collaborative and structured approach to ensure that good contracts are awarded. Although contracting officers have traditionally had their work reviewed by their 

peers and legal counsel, they are now required to have their major acquisitions reviewed at three critical junctures by the CRB: prior to issuance of the solicitation, 

prior to negotiations and prior to award. This simple, common-sense approach to acquisition management is vastly improving our contract award process. 

Contract administration is critical to ensuring that the government gets what it 

pays for. We are currently developing a comprehensive plan that will improve contract administration at VA. Our goal is to create a culture where contracting and 

program officials work collaboratively to manage contracts throughout their life 

cycle. 

In February 2004, VA consolidated oversight and review of VA’s acquisition activities under one office, the Office of Business Oversight (OBO), which reports to me 

as the VA Chief Financial Officer and CAO. OBO is VA’s primary internal quality 

assurance organization for financial management activities and operations, including acquisition activities. OBO’s main focus is to review acquisition activities at decentralized locations for compliance with Federal, Department, and Administration 

policies and procedures and to provide local management with recommendations to 

improve their acquisition activities. The consolidation of acquisition oversight within 

OBO has resulted in a standardization of acquisition review processes and oversight 

reporting, and has created opportunities to highlight best practices in the field. 

The OBO acquisition review team is staffed with a combination of procurement 

specialists and professional auditors trained in conducting acquisition compliance 

reviews. The team conducts contract inspections at a number of Veterans Integrated 

Service Networks each year, reviewing up to 450 contract files at as many as 25 

locations. The team also conducts special-topic acquisition audits as needed. OBO 

began acquisition reviews in the second half of FY 2005 and since that time has 

issued 11 acquisition reports containing 76 recommendations to improve field station compliance with policies and procedures and to enhance the effectiveness of acquisition operations. This consolidated acquisition oversight team has improved my 

ability to monitor the performance of acquisition activities across the Department. 

We conduct pre- and post-award audits of VA Federal Supply Schedule contracts 

for medical products and services. We assure that these vendors are charging Federal customers the most favorable customer prices and in FY 2006 identified over 

$20 million that could be recovered. The 25 auditors dedicated to perform these 

services work in the Office of Inspector General and are under a reimbursable 

agreement paid for by VA’s Supply Fund. 

Additionally, we have implemented a robust strategic sourcing program. I chair 

VA’s Strategic Sourcing Council, supported by Assistant Secretaries, senior executives, and stakeholders from VA’s three administrations. In fiscal year 2006, VA 

continued to build on its strategic successes. We benchmarked other government 

agencies, private firms, and current VA suppliers to continually improve our program. We are actively involved in Federal Strategic Sourcing Initiatives for common 

commodities, including express/ground delivery services, office supplies, wireless 

communication services, and copiers. Ever mindful of our commitments to small 

business, particularly those owned by veterans and service-disabled veterans, one of 

smartinez on PROD1PC64 with HEARING

33 

our goals this fiscal year is to identify strategic sourcing opportunities for these socioeconomic groups. 

2. Increasing appropriate use of performance-based contracting and performance 

specifications 

The Office of Federal Procurement Policy has mandated that this year agencies 

will award 40% of eligible service dollars as Performance-Based Service Acquisitions 

(PBSA). To that end we targeted two of VA’s largest mission-critical services as 

PBSA: ‘‘Project HERO’’ (Health Effectiveness through Resource Optimization) for 

the Veterans Health Administration (VHA), and Vocational Rehabilitation and Employment Services (VR&E) for the Veterans Benefits Administration. Project HERO 

is a pilot program that will improve delivery of healthcare services under VA’s feebasis program, the intent of which is to consolidate like services under fewer contract providers. In support of the VR&E program, we are implementing a national 

contract strategy that will further consolidate VR&E services under fewer providers. 

Both actions are currently in progress. We will also be providing PBSA training to 

acquisition and program officials during their certification process. 

3. Making acquisition decisions consistent with applicable laws and establish 

clear lines of authority, accountability, and responsibility for acquisition decision making. 

I have designated the Deputy Assistant Secretary (DAS) for Acquisition and Logistics as VA’s Senior Procurement Executive. In that capacity the DAS will serve 

as my principal advisor in all acquisition matters. 

VA currently has 33 Heads of Contracting Activities (HCA) with 413 contracting 

officers warranted at the $100,000 and above threshold. These contracting officers 

are located in VA medical centers, national cemetery offices, and several VA support 

locations throughout the nation. Each HCA and the 413 contracting officers are delegated contracting authority from the DAS for Acquisition and Logistics who reports 

directly to me. VA has an established warranting program to ensure contracting officers have the requisite education and experience needed to meet the VA mission. 

VHA consolidated its contracting organizations into ‘‘Network Contracting Centers.’’ To date, 19 of the 21 networks have been consolidated. Each network has 

hired Chief Logistics Officers and Contract Managers to provide guidance on and 

oversight of the acquisition activities. 

4. Managing the direction of acquisition policy for VA including implementation 

of the unique acquisition policies, regulations and standards for VA 

I am pleased to inform you that VA published a proposed rule in the Federal Register that is its first rewrite of the VA Acquisition Regulation (VAAR) since 1984. 

The new VAAR will be easier to understand and consolidates changes and modifications that have occurred in the last 23 years. The new VAAR parallels the Federal 

Acquisition Regulation and eliminates redundant and outdated information. 

On December 22, 2006, President Bush signed Public Law (P.L.) 109–461, the 

Veterans Benefits, Healthcare, and Information Technology Act of 2006. Included in 

this Act is a unique ‘‘Veterans First’’ approach specific to VA contracting that became effective June 20, 2007. This approach changes the preferences for contracting 

within VA, placing Service-Disabled Veteran-Owned Small Business (SDVOSB) and 

Veteran-Owned Small Business (VOSB) first and second, respectively, in satisfying 

VA’s acquisition requirements designed to meet established VA contracting goals. 

Certain conditions must be met, however, including the need to achieve a fair and 

reasonable price. We issued Information Letter (IL) 049–07–08 on June 19, 2007, 

which provides guidance until a change to the VAAR is published in the Federal 

Register. 

The Secretary recently approved a reorganization of the newly named Office of Acquisitions and Logistics (OAL). The reorganization positions OAL to better provide 

the needed leadership to VA’s acquisition and logistics community. It separates the 

policy and operation functions from the purview of a single Associate Deputy Assistant Secretary (ADAS) for Acquisitions into two distinct functions. As a result, operational contracting components will now be separated from the policy development 

component. This will enable us to provide a greater concentration of effort in both 

areas, and is designed to improve our overall performance. Acquisition policy will 

come to the forefront, under the direction of a newly approved Associate Deputy Assistant Secretary for Acquisition and Logistics Programs and Policy. This same senior executive will be responsible for career management of the acquisition work 

force, to include development of policies and plans for improvement. 

Additionally, VA is well represented in the Chief Acquisition Officer Council 

(CAOC) and the Civilian Agency Acquisition Council (CAAC). Our participation ensmartinez on PROD1PC64 with HEARING

34 

sures that VA’s needs are appropriately considered prior to promulgating government-wide acquisition policy. 

5. Acquisition Work force and Career Management 

Perhaps the most daunting challenge currently facing VA, as well as all Federal 

agencies, is our ability to attract, develop and retain a competent, professional contracting work force. The dollars obligated by VA have more than doubled since 2000, 

yet our contracting work force has remained relatively the same size during this period. The agency-wide acquisition study that I mentioned is designed to include data 

to assess the size and capability of our services. 

Wide-spread problems in our central office contracting organization, the Office of 

Acquisition and Logistics, led me to direct that a study be done to determine if we 

were organized properly to perform our mission. That study, which was completed 

last February, resulted in a major reorganization of the Office of Acquisition and 

Logistics. 

Another result of this study includes formation of a new Center for Acquisition 

Innovation (CAI), which will be located outside the DC area. This new organization 

focuses on quality, innovation and customer service. The CAI will provide a full 

complement of cost-efficient acquisition solutions and enterprise ‘‘best practices’’ to 

support our VA customers. It will become the catalyst for change within VA, transforming VA’s acquisition process from a tactical and reactive function to a strategically driven function that ensures maximum value for every acquisition dollar spent. 

The CAI will provide a wide range of specialized acquisition and logistics services 

to VA customers. The CAI will be organized into two operating activities, Operations 

and the Acquisition Leadership Academy. 

The operation activity will focus on three business lines: major acquisitions with 

VA-wide implications, strategic sourcing, and emergency response and recovery acquisitions. 

The Acquisition Leadership Academy will implement training and certification 

programs authorized by the Office of Federal Procurement Policy. It will emphasize 

three areas: contracting certification (FAC–C); program/project management certification (FAC–P/PM); and acquisition internship. The contracting and program/project 

management certification programs are designed to be first-rate training venues, 

and it is our intent to provide the type of training that will put us in a governmentwide leadership position. The acquisition intern program is our long-term solution 

to building a professional contracting workforce. Again, this will be a robust, secondto-none effort, which will train interns for deployment to VA contracting organizations across the United States. 

Summary 

VA has taken meaningful steps to resolve the current challenges concerning our 

acquisition programs and practices. VA remains committed to improving its processes and we are confident that our challenges can be overcome for the benefit of 

both the veterans that we serve and the taxpayers. 

This concludes my statement. I would be pleased to answer any questions members of the Subcommittee may have. 

f 

POST HEARING QUESTIONS AND RESPONSES FOR THE RECORD 

Committee on Veterans’ Affairs 

Subcommittee on Oversight and Investigations 

Washington, DC 

July 16, 2007 

Honorable George J. Opfer 

Inspector General 

U.S. Department of Veterans Affairs 

810 Vermont Avenue, NW 

Washington, DC 20420 

Dear Mr. Opfer: 

On Wednesday, June 27, 2007, the Subcommittee on Oversight and Investigations 

of the House Committee on Veterans’ Affairs held a hearing on VA’s Internal Contracting Oversight Deficiencies. 

During the hearing, the Subcommittee heard testimony from Ms. Belinda Finn, 

the Assistant Inspector General for Auditing. She was accompanied by Ms. Maureen 

Regan, the Counselor to the Inspector General, and Mr. Nick Dahl, the Director of 

smartinez on PROD1PC64 with HEARING

35 

the Bedford Office of Audit. As a follow-up to that hearing, the Subcommittee is requesting that the following questions be answered for the record: 

1. What internal controls does the OIG suggest be used to ensure compliance or 

detect noncompliance with prescribed policies and procedures concerning contracting other than more procedural checks? 

2. Following your investigation, VISN–1 implemented changes to require approval 

by the VISN–1 CFO of some of the types of expenditures at issue in your investigation. In your judgment, is this change sufficient to ensure that the types 

of improper activities disclosed in your investigation do not recur? Do you have 

any information about whether this change has, in fact, achieved its stated 

goal? 

3. Following your investigation, VISN–1 instituted a new Standard Operating 

Procedure concerning the use of Estimated Miscellaneous Obligation (VAF 

1358). In your judgment, is this Standard Operating Procedure sufficient to 

prevent the future misuse of VAF 1358 expenditures like those your investigation uncovered? Do you have information that would lead you to believe whether VA has controls in the other VISNs that would prevent similar misuse of 

VAF 1358 expenditures? 

We request you provide responses to the Subcommittee no later than close of business, Friday, August 10, 2007, to Ms. Caitlin Ostomel. 

If you have any questions concerning these questions, please contact Subcommittee on Oversight and Investigations Staff Director, Geoffrey Bestor, Esq., at 

(202) 225–3569 or the Subcommittee Republican Staff Director, Arthur Wu, at (202) 

225–3527. 

Sincerely, 

Harry E. Mitchell 

Chairman 

Ginny Brown-Waite 

f 

Ranking Republican Member 

U.S. Department of Veterans Affairs 

Washington, DC. 

August 14, 2007 

The Honorable Harry E. Mitchell 

Chairman 

The Honorable Ginny Brown-Waite 

Ranking Republican Member 

Subcommittee on Oversight and Investigations 

Committee on Veterans’ Affairs 

U.S. House of Representatives 

Washington, DC 20515 

Dear Mr. Chairman: 

Enclosed are responses to follow-up questions from the June 27, 2007, hearing before the Subcommittee that were included in a letter from you and the Ranking Republican Member. A similar letter is being sent to the Ranking Republican Member 

of the Subcommittee. 

Thank you for your interest in the Department of Veterans Affairs. 

Sincerely, 

George J. Opfer 

Inspector General 

Enclosure 

f 

smartinez on PROD1PC64 with HEARING

36 

VA Office of Inspector General Responses to 

Follow-Up Questions from June 27, 2007, Hearing 

Before the Subcommittee on Oversight and Investigations 

Committee on Veterans’ Affairs, U.S. House of Representatives 

Question 1: What internal controls does the OIG suggest be used to ensure compliance or detect noncompliance with prescribed policies and procedures concerning 

contracting other than more procedural checks? 

Answer: The inappropriate contracting and fiscal actions in the VA Boston 

Healthcare System (VABHS) were the result of collaboration between the fiscal and 

contracting activities at high levels at the medical facility, making existing paperbased checks and balances ineffective. If the contracting entity complied with existing policy that required a legal review for modifications over $100,000, the deficiencies we found may have been identified and prevented. As the Department 

moves to a system of electronic procurements, we believe VA should establish checks 

and balances within the system that may better ensure compliance by preventing 

the completion of an award or modification that does not comply with statutory, regulatory, and other policy requirements. Using the VABHS situation as an example, 

if an electronic system required documentation of a legal review before allowing the 

modifications to proceed, the problems may have been prevented. Also, if an electronic system required input of information relating to scope, price, date of last payment, and a review of this information at a level above the contracting officer, contracting officers may have been prevented from completing actions that were outside 

scope or were to be funded with expired appropriations. However, the success of any 

system of checks and balances is dependent on the integrity of the information entered into the system and the people who enter the information in the system. 

Question 2: Following your investigation, VISN–1 implemented changes to require approval by the VISN–1 CFO of some of the types of expenditures at issue 

in your investigation. In your judgment, is this change sufficient to ensure that the 

types of improper activities disclosed in your investigation do not recur? Do you 

have any information about whether this change has, in fact, achieved its stated 

goal? 

Answer: It is not a new requirement for the Veterans Integrated Service Network 

(VISN) CFO to approve contract modifications that will be funded with prior year 

money. The requirement to obtain VISN CFO approval prior to using expired funds 

for non-recurring maintenance projects was in effect within VHA during the time 

the improper activities occurred at the VABHS. However, facility managers chose 

to disregard the approval process and there was no system control in place to alert 

VISN officials that expired funds were used illegally. Subsequent to our review, the 

VISN–1 Financial Quality Assurance Manager started monitoring general ledger account 4650, which accounts for the use of expired funds. If this account is adequately monitored, it will provide greater assurance that expired funds are being 

spent in accordance with appropriations law. 

Question 3: Following your investigation, VISN–1 instituted a new Standard Operating Procedure (SOP) concerning the use of Estimated Miscellaneous Obligation 

(VAF 1358). In your judgment, is this SOP sufficient to prevent the future misuse 

of VAF 1358 expenditures like those your investigation uncovered? Do you have information that would lead you to believe whether VA has controls in the other 

VISNs that would prevent similar misuse of VAF 1358 expenditures? 

Answer: VISN–1 SOP 2006–02, Use of Estimated Miscellaneous Obligation (VAF 

1358), prescribes policy and circumstances governing the use of the 1358 method of 

obligating funds, and its issuance helps standardize practices throughout VISN–1. 

The SOP describes the proper use of 1358s, necessary approvals, and potential personal liability. The SOP only prescribes policy; it does not include corresponding system controls in the information technology systems in which these transactions are 

processed. Therefore, the VISN must rely on people to follow the policy in order for 

it to be effective. 

Our review focused on specific allegations pertaining to VISN–1. We are not 

aware of any VA controls in other VISNs that would have prevented similar misuse 

of 1358 expenditures. 

f 

smartinez on PROD1PC64 with HEARING

37 

Committee on Veterans’ Affairs 

Washington, DC 

July 16, 2007 

Honorable R. James Nicholson 

Secretary 

U.S. Department of Veterans Affairs 

810 Vermont Avenue, NW 

Washington, DC 20420 

Dear Secretary Nicholson: 

On Wednesday, June 27, 2007, the Subcommittee on Oversight and Investigations 

of the House Committee on Veterans’ Affairs held a hearing on VA’s Internal Contracting Oversight Deficiencies. 

During the hearing, the Subcommittee heard testimony from the Honorable Robert J. Henke, the Assistant Secretary for Management. He was accompanied by Mr. 

Jan Frye, the Deputy Assistant Secretary for Acquisition and Material Management, and Mr. Frederick Downs, Jr., the Chief Prosthetics and Clinical Logistics Officer. As a follow-up to that hearing, the Subcommittee is requesting that the following questions be answered for the record: 

1. Following your investigation, VISN–1 instituted new Standard Operating Procedures (‘‘SOP’’) to address the problems identified in the Inspector General’s 

investigation of the Boston Healthcare System. Is it standard operating procedure for individual VISNs to have their own SOPs concerning matters such 

as contracting and expenditure of government funds? Were VISN–1’s new 

SOPs reviewed by anyone in VA central office before being implemented? 

2. Following your investigation, VISN–1 implemented a new Standard Operating 

Procedure concerning the use of Estimated Miscellaneous Obligation (VAF 

1358). What assurance do you have that the misuse of VAF 1358 expenditures 

identified in the IG’s investigation is not occurring at other VISNs? 

3. Following the IG’s investigation, VISN–1 implemented changes to increase 

the authority and responsibilities of the VISN–1 Chief Financial Officer (CFO) 

in order to prevent future occurrence of the abuse identified by the IG. Have 

these changes been implemented? How many staff does the VISN–1 CFO 

have? Does the VISN–1 CFO receive sufficient support to meet his/her new 

responsibilities? Does the CFO in place at the time of the hearing believe 

there is enough support to meet these responsibilities? 

4. As part of the organizational analysis outlined in the GAO Report dated October 2005, titled ‘‘Status of Seven Key Recommendations’’ relating to the development of a long-term improvement plan, what were the recommendations 

made by LMI? 

5. Of the 1632 audits mentioned in Mr. Henke’s testimony, how many of the audits found that things were being done correctly, and how many of the audits 

found improprieties? 

6. In reference to Mr. Henke’s testimony, why was it determined that contractreview board process procedures would apply primarily to acquisitions above 

$5 million, and has this been done? 

7. What is the status of the Electronic Commerce Management System (eCMS) 

meant to improve efficiency and transparency in the contracting process? 

8. As addressed by the VA’s goal of improved customer relations, what are the 

required ‘‘extraordinary efforts’’ that are needed by the entire acquisition 

chain of command? Have they been made? 

9. As referenced in the Procurement Reform Task Force Report of May 2002, 

how many non-Federal Supply Schedules have been contracted? How many 

were requested? How many were approved? 

10. How many joint pharmacy contracts between the DoD and VA have been negotiated, and how much has been saved? How much has been purchased jointly over the past 3 years? 

11. How many national medical-surgical prime vendors have been contracted? 

12. What was identified by the 60 new work groups that were formed to standardize 140 new product lines? 

smartinez on PROD1PC64 with HEARING

38 

13. Have all civilian departments met certification requirements with regards to 

education, training, and experience for acquisition duties, as stipulated by 

OFPP Policy Letter No. 05–01? 

14. Does the Office of Business Oversight itself act as the arbitrator for various 

contracts, or does it solely perform an oversight function? 

15. Concerning the audits conducted before and after contracts referred to in Mr. 

Henke’s testimony, and the $20 million that could be recovered, have those 

funds been recovered and why were those funds unaccounted for until investigating the contract afterward? 

16. In the cases of Project HERO and the Vocational Rehabilitation and Employment Services program, how is the consolidation of fewer providers stimulating more competition in prices and service capabilities? 

17. Why has the contracting workforce remained relatively the same size as the 

budget has more than doubled? 

18. In Mr. Henke’s statement, he mentioned that he had issued an Information 

Letter (IL) 049–07–08 on June 19, 2007, which provides guidance on changes 

to the VAAR stemming from Public Law 109–461 for Veteran Owned Small 

Businesses, and Service-Disabled Veteran Owned Small Businesses. Please 

provide a copy of this letter for the official record, so that we can see the 

changes that are being implemented based on that law? 

19. When do you anticipate the final regulations on the VAAR will be published 

in the Federal Register? 

20. What role is A&MM playing in the implementation of the veteran and disabled veteran-owned small business provisions in Title 5 of PL 109–461? 

We request you provide responses to the Subcommittee no later than close of business, Friday, August 10, 2007 to Ms. Caitlin Ostomel. 

If you have any questions concerning these questions, please contact Subcommittee on Oversight and Investigations Staff Director, Geoffrey Bestor, Esq., at 

(202) 225–3569 or the Subcommittee Republican Staff Director, Arthur Wu, at (202) 

225–3527. 

Sincerely, 

Harry E. Mitchell 

Chairman 

Ginny Brown-Waite 

f 

Ranking Republican Member 

Question for the Record 

Hon. Harry E. Mitchell, Chairman 

Hon. Ginny Brown-Waite, Ranking Republican Member 

Subcommittee on Oversight and Investigations 

House Committee on Veterans’ Affairs 

June 27, 2007 

Hearing on VA’s Internal Contracting Oversight Deficiencies 

Question 1: Following your investigation, VISN–1 instituted new Standard Operating Procedures (‘‘SOP’’) to address the problems identified in the Inspector General’s investigation of the Boston Healthcare System. 

Question 1(a): Is it standard operating procedure for individual VISNs to have 

their own SOPs concerning matters such as contracting and expenditure of government finds? 

Response: Each veterans integrated service network (VISN) is expected to develop local standard operating procedures based on national policy, directives and 

handbooks that are to be followed by its facilities. 

Question 1(b): Were VISN–1’s new SOPs reviewed by anyone in VA central) office before being implemented? 

Response: VISN–1’s new standard operating procedures were reviewed after implementation. 

smartinez on PROD1PC64 with HEARING

39 

Question 2: Following your investigation, VISN–1 implemented a new Standard 

Operating Procedure concerning the use of Estimated Miscellaneous Obligation 

(VAF 1358). What assurance do you have that the misuse of VAF 1358 expenditures 

identified in the IG’s investigation is not occurring at other VISNs? 

Response: At the end of every fiscal year beginning with 2006 procurement history, the Department of Veterans Affairs (VA) has reviewed open Estimated Miscellaneous Obligations (VA form 1358), notified facilities with open 13585, request 

information on the status of the order and justification for it to remain in open status. Monthly spot checks are being conducted to ensure actions were taken to close 

out open 1358s. 

Question 3: Following the IG’s investigation, VISN–1 implemented changes to increase the authority and responsibilities of the VISN–1 Chief Financial Officer 

(CFO) in order to prevent future occurrence of the abuse identified by the IG. 

Question 3(a): Have these changes been implemented? 

Response: VISN–1 has implemented changes to increase authority and responsibilities of the VISN–1’s chief financial officer (CFO). The procedures that will be 

used for commitment, transfer, and obligation of funds will directly involve VISN–

1’s CFO. VISN–1’s CFO will forward to the requiring activity or program office responsible for the procurement a statement certifying that funds have been committed. This certification will be forwarded to the assigned contracting officer as 

part of the procurement request (PR) package. 

The standard operating procedure (SOP) has been implemented. The SOP requires that all modifications to be executed with prior year funds (regardless of dollar amount) be approved at one level above the contracting officer responsible for 

the action. The contract file shall contain a written justification that the modification is within the scope of the original contract and therefore constitutes a bona fide 

need of the prior fiscal year. In addition, all modifications to be executed with prior 

year funding shall be approved by VISN–1’s CFO. 

Question 3(b): How many staff does the VISN–1 CFO have? 

Response: No staff report directly to the VISN–1 CFO; however, the VISN–1 

CFO works closely with the VISN’s financial quality audit manager (FQAM) and 

CFOs at the medical centers. 

Question 3(c): Does the VISN–1 CFO receive sufficient support to meet his/her 

new responsibilities? 

Response: The current staffing meets the needs of the CFO requirements; however, a workload analysis completed by VISN–1’s chief logistics officer (CLO) and 

network contract manager (NCM) identified the need for the following changes to 

include additional staff and co-location of staff: 

• The VA Hospital in Brockton, MA will become the primary location for the consolidated contracting activity (CCA) New England acquisition staff. The CLO, 

NCM and entire VA Boston contracting staff (currently located in Jamaica 

Plain) will all immediately move to the Brockton facility. In addition, all positions approved as a result of this workload analysis will be staffed in Brockton. 

• By the Fall of 2007, 10 new staff will be hired. The 10 new staff combined with 

the existing six staff at Boston will be consolidated to the Brockton campus for 

a total of 16 staff. The Brockton group will perform all of VA Boston’s work and 

take on the overflow from all other facilities. Facility chiefs of procurement and 

contracting will continue to assign work locally. All consolidated contracts will 

be completed in Brockton. A core team will continue at the facility, however, 

as vacancies arise in the network those vacancies will be filled at the Brockton 

campus. Each facility will be left with a limited amount of staff to maintain a 

presence at that facility. 

• The Brockton staff will be organized into three specialty contracting teams (construction, medical services, and commodities). There will be a team leader located in Brockton for each of the three contracting teams, who will be responsible for assigning, reviewing, monitoring and supervising all work performed 

within that group. The team leader will be responsible for managing the entire 

workload within the team. 

Question 3(d): Does the CFO in place at the time of the hearing believe there 

is enough support to meet these responsibilities? 

Response: At the time of the hearing, preliminary discussions were being held 

on the need for a staffing plan to assist the VISN CFO. There have been several 

smartinez on PROD1PC64 with HEARING

40 

changes to processes and procedures in addition to increased workloads that justify 

the need to obtain more staff. Plans are now in place to develop a viable staffing 

plan to assist the CFO to effectively carry out their financial responsibilities. 

Question 4: As part of the organizational analysis outlined in the GAO Report 

dated October 2005, titled ‘‘Status of Seven Key Recommendations’’ relating to the 

development of a long-term improvement plan, what were the recommendations 

made by LMI? 

Response: The Logistics Management Institute (LMI) recommended the establishment of a center for acquisition innovation which would have a headquarters 

and field components devoted to providing innovative contracting solutions in support of major VA procurements, strategic sourcing initiatives, and emergency response and recovery operations. LMf is assisting the Office of Acquisition and Logistics with the implementation of its strategic plan and balanced scorecard of performance measures, which include initiatives to address the key recommendations in the 

areas of customer service, communications, recruitment, and retention of a quality 

work force and the award and administration of contracts. 

Question 5: Of the 1632 audits mentioned in Mr. Henke’s testimony, how many 

of the audits found that things were being done correctly, and how many of the audits found improprieties? 

Response: The legal/technical review (audit) process allows for changes and corrections to be made as the contract action moves forward. Some corrections are 

minor and others are more significant, but the goal of the review is to bring the 

procurement up to standard without unnecessarily delaying the acquisition. Some 

findings are so significant that the submission is rejected and returned for revision 

and resubmission before it is allowed to continue. Of the 1,632 solicitations that 

were reviewed, approximately 5 percent were rejected and had to be resubmitted. 

Question 6: In reference to Mr. Henke’s testimony, why was it determined that 

contact review board process procedures would apply primarily to acquisitions above 

$5 million, and has this been done? 

Response: The contract review board (CRB) process is being implemented in VA 

as a replacement for the business clearance review (BCR) process. The CRB process 

adopted the same dollar thresholds used by the BCR process. Both the CRB and 

BCR processes are thorough and, therefore, very labor intensive. The $5 million 

threshold was established in an effort to balance the importance and dollar level of 

the procurement with the level of effort needed for review. Contracts below $5 million are reviewed using the legal and technical review process discussed in question 

5. The CRB process has been implemented for about two-thirds of VA’s qualifying 

procurements, with the BCR process used for the remaining one-third. The BCR 

process will be phased out completely over the next year in favor of the CRB process. 

Question 7: What is the status of the Electronic Commerce Management System 

(eCMS) meant to improve efficiency and transparency in the contracting process? 

Response: The electronic commerce management system (eCMS) has been deployed VA-wide with the contracting officers (1102 job series) having been trained 

through a phased approach starting in fiscal year (FY) 2006. As of August 2007, 

over 55,000 acquisition actions have been entered into eCMS covering the full procurement cycle from acquisition plan through modification. There are currently over 

1,000 users of the system. Plans are underway to train 400 purchasing agents and 

prosthetics purchasing staff in FY 2008, In October, an interface to the General 

Services Administration e-Buy system will be implemented to facilitate the use of 

its electronic solicitation mechanism. 

Question 8: As addressed by the VA’s goal of improved customer relations, what 

are the required ‘‘extraordinary efforts’’ that are needed by the entire acquisition 

chain of command? Have they been made? 

Response: VA is proceeding with a competitive solicitation for an acquisition 

study that will provide an analysis of VA’s current acquisition structure, delegated 

lines of authority, and options for new/revised acquisition organizational structures 

for consideration. The solicitation should be awarded prior to the end of FY 2007. 

As part of the reorganization of the Office of Acquisition and Materiel Management, 

we are establishing a new associate deputy assistant secretary (ADAS) for acquisition and logistics programs and policy who will be responsible for the policy and 

oversight of VA’s acquisition program. This newly established position will be resmartinez on PROD1PC64 with HEARING

41 

sponsible for developing operational and program management performance measures for VA’s acquisition program. 

Question 9: As referenced in the Procurement Reform Task Force Report of May 

2002, how many non-Federal Supply Schedules have been contracted? How many 

were requested? How many were approved? 

Response: At the National Acquisition Center, approximately 322 contracts, 

which include national contracts, national blanket purchase agreements (BPAs), and 

national blanket ordering agreements, have been awarded and are in place. These 

contract vehicles leverage requirements from VA and/or Department of Defense 

(DoD) and other government agencies to achieve better pricing, terms, and conditions. All requests that contained complete requirements were accepted and processed. 

Question 10: How many joint pharmacy contracts between the DoD and VA have 

been negotiated, and how much has been saved? How much has been purchased 

jointly over the past 3 years? 

Response: We currently have 67 joint contracts and 6 joint BPAs, i.e., incentive 

agreements, in place. From FY 2004 to FY 2006 (the last full 3-year period), VA 

has saved a total of $1.75 billion and spent a total of $1.12 billion under VA/DoD 

joint pharmaceutical contracts. VA does not have DoD spend and cost savings data. 

Question 11: How many national medical-surgical prime vendors have been contracted? 

Response: Seven medical-surgical prime vendor contracts have been awarded. 

They are awarded by region. Two are to large businesses, and five are to small businesses. 

Question 12: What was identified by the 60 new work groups that were formed 

to standardize 140 new product lines? 

Response: After the release of the procurement reform task force report of May 

2002, the Veterans Health Administration (VHA) revamped the standardization program, and created 60 integrated product teams (IPT) to identify and award standardization contracts. As of August 2007, 92 national blanket purchase agreements, 

88 national contracts, and 23 basic ordering agreements have been awarded under 

the standardization program. In addition, the current 29 of the 60 IPTs are reviewing and working on awards of an additional 125 products. The standardization program is an on-going project and products are identified for standardization as the 

requirement is identified. 

The following documents are attachments to response: 

A. Active National Medical Surgical Standardization Contract Awards 

B. Current Medical Surgical Standardization Projects 

C. Active Prosthetics Standardization Contract Awards 

D. Current Prosthetics Standardization Projects 

Question 13: Have all civilian departments met certification requirements with 

regards to education, training, and experience for acquisition duties, as stipulated 

by OFPP Policy Letter No. 05–01? 

Response: VA does not have information on progress of other departments/agencies in implementing Office of Federal Procurement Policy (OFPP) policy letter No 

05–01. The Office of Management and Budget (OMB), tracks and maintains this information. VA has begun the certification process mandated by OMB. As of September 5, 2007, 105 contract specialists (1102s) have been certified in accordance 

with the Federal Acquisition in Contracting (FAC–C) certification process. The VA 

Center for Acquisition Innovation will include an acquisition leadership academy 

that will have schools with curricula devoted to contracting and program and project 

management certification. 

Question 14: Does the Office of Business Oversight itself act as the arbitrator 

for various contracts, or does it solely perform an oversight function? 

Response: The Office of Business Oversight performs oversight of VA acquisition 

operations. One of the primary reasons for the creation of the office was to separate 

the policy and operations functions from the oversight of compliance with those policies and operations. Accordingly, the Office of Business Oversight conducts contract 

inspections and contract audits of VA acquisition activities and does not act as the 

arbitrator for contracts. 

smartinez on PROD1PC64 with HEARING

42 

Question 15: Concerning the audits conducted before and after contracts referred 

to in Mr. Henke’s testimony, and the $20 million that could be recovered, have those 

funds been recovered and why were those funds unaccounted for until investigating 

the contract afterward? 

Response: Under the audit review process for Federal supply schedules, pre- and 

post-award audits are performed. Pre-award audits assist the contracting staff in 

ensuring that information provided by the contractor is accurate, complete, and current. Depending on the findings of the pre-award review, discrepancies found during 

contract administration, voluntary disclosures by the contractor, or other circumstances which arise during the administrative execution of the contract, a postaward audit may also be needed or desired. Once a post-award audit is completed, 

negotiations are held with the company to substantiate findings and to reach a settlement. In some cases, these findings are litigated. The whole process can take 6 

months to 2 years before settlement or audit recovery can be reached, depending 

on the circumstances and recourse taken by the contractor. The $20 million in postaward audit recoveries were collected during FY 2006. 

Question 16: In the cases of Project HERO and the Vocational Rehabilitation and 

Employment Services program, how is the consolidation of fewer providers stimulating more competition in prices and service capabilities? 

Response: The procurement process for these two projects has not been completed yet, therefore, VA cannot fully respond to the question at the present time. 

Question 17: Why has the contracting workforce remained relatively the same 

size as the budget has more than doubled? 

Response: Greater efficiencies in our work force have been achieved in recent 

years. Some efficiencies have been made possible because of improvements in the 

procurement process resulting from the Federal Acquisition Streamlining Act 

(FASA) 1995 and the Federal Acquisition Reform Act (FARA) 1996. Other efficiencies are due to consolidations of VA medical center contracting activities and improved work process management. The other reality is that VA and other government agencies have had difficulty in recruiting qualified 1102 contracting officers. 

We recognize that our current contracting work force needs to be reevaluated to 

meet future challenges. This reevaluation will be accomplished within the context 

of the proposed VAt-wide acquisition study to be conducted in FY 2008. 

Question 18: In Mr. Henke’s statement, he mentioned that he had issued an Information Letter (IL) 049–07–08 on June 19, 2007, which provides guidance on 

changes to the VAAR stemming from Public Law 109–461 for Veteran Owned Small 

Businesses, and Service-Disabled Veteran Owned Small Businesses. Please provide 

a copy of this letter for the official record, so that we can see the changes that are 

being implemented based on that law? 

Response: A copy of Information Letter (IL) 049–07–08 is attached. 

Question 19: When do you anticipate the final regulations on the VAAR will be 

published in the Federal Register? 

Response: The target date for publication in the Federal Register is December 

14, 2007. 

Question 20: What role is A&MM playing in the implementation of the veteran 

and disabled veteran-owned small business provisions in Title 5 of PL 109–461? 

Response: Interim guidance to VA contracting officers was provided in IL 049–

07–08 issued on June 19, 2007. A formal change to the VA Acquisition Regulation 

to codify VA’s implementation of the public law is being finalized and is expected 

to be published in the Federal Register by December 14. 

Æ 

smartinez on PROD1PC64 with HEARING