Veterans Affairs Secretary Robert McDonald has directed the department's inspector general to investigate a whistle-blower's claims that the VA spends some $5 billion a year on prosthetics and other supplies without contracts.
The issues were raised in a 35-page memo (PDF) sent March 19 to McDonald from Jan Frye, deputy assistant VA secretary for acquisition and logistics, who was the star witness at a subcommittee hearing Thursday on waste, fraud and abuse of the VA purchase-card program.
“Today I find myself in a position I never envisioned myself to be in,” Frye said in his opening remarks. “I am testifying as a whistle-blower. Before I go further, I want to assure you I do not enjoy being a whistle-blower. I am not a disgruntled VA senior executive. I am definitely not seeking attention or celebrity.”
Frye declared that he would no longer be a party to violations in the procurement of drugs and medical devices without contracts that provide legal protection and safety and efficacy mandates.
McDonald said in a statement that “serious allegations have been made regarding VA's purchase authorities and we are working diligently to review them.” He added that “the vast majority” of transactions cited in Frye's memo paid for veterans' care.
Rep. Mike Coffman (R-Colo.), chairman of the Oversight and Investigations Subcommittee of the House Veterans' Affairs Committee said Thursday during the hearing on the allegations that the department may have spent as much as $6.22 billion on “improper and unauthorized procurement expenditures” in fiscal 2014.
“This is truly a staggering amount,” Coffman said. Without contracts, he said, patient-safety provisions such as Food and Drug Administration certification are not required—leaving the VA with little recourse if a veteran is harmed by a faulty product.
"Among other things, purchase card abuse invites cronyism and the directing of business to favored vendors, including those who may employ former VA officials," Coffman said.
The VA's purchase-card program includes 25,515 card accounts that paid for $3.7 billion in purchases through 6.1 million transactions in fiscal 2014, according to Edward Murray, acting assistant VA secretary for management and interim chief financial officer. The Veterans Health Administration's 11,000 cardholders accounted for more than 98% of those purchases.
A May 2014 audit by the VA's inspector general's office (PDF) concluded that one cardholder spent $4.6 million with 18 unauthorized purchases, according to Linda Halliday, an assistant inspector general for audits and evaluations, who testified at the hearing.
According to Frye's memo, one cardholder disguised a purchase of more than $50 million by spreading it across “hundreds” of payments. He calculated that as much as $1.2 billion worth of prosthetics were purchased without a contract in violation of federal law during fiscal 2013 and the first six months of fiscal 2014.
The VA could save as much as 20% on medical and surgical acquisition costs if it properly leveraged its spending costs using tiered pricing to get lower prices for higher volume, Frye wrote. "It's a no brainer."
According to Murray's written testimony, the department reviewed 57,577 potentially high-risk transactions totaling $586.5 million in 2014 and determined that 16,686 transactions totaling $221 million might be unauthorized. Further review revealed that 680 transactions totaling $10.7 million were unauthorized, and the VA is considering what action to take.
Murray said two VA staffers have been removed from their jobs as a result of card misuse.
Frye testified that the problem with the cards is that they are intended to be used for payment, not procurement. “To pay on a contract, you must have a contract—that is the issue in question here,” Frye said at the hearing. “That's where, primarily, we have very, very much abused the system.”
Frye added that VA leaders have lacked the will to fix an identified problem, noting that the VA has a very complex procurement system to purchase simple “off-the-shelf” products.
Halliday said that the VA had, in fact, put sufficient controls in place in response to the inspector general's findings—but those controls were not being enforced. “This is the area, I think, that the VA really struggles with,” she said.
The ranking Democrat on the committee, Rep. Beto O'Rourke of El Paso, Texas, asked Frye and Halliday if they knew of any examples of serious patient harm or death as a result of these purchases. They said they didn't.
Rep. Tim Walz (D-Minn.) said Congress is becoming increasingly frustrated with the series of controversies involving the VA. The newest allegations follow the department's scandal over excessive waits for appointments at VA health centers and growing frustration with construction projects running dramatically over budget.
“Someone will fix this for you,” Walz said. “While we may have our issues, politically, this is an issue that has unified us in a way that I have not witnessed.”