GSA Contract Fraud Investigation

GSA CONTRACT FRAUD INVESTIGATION

TUESDAY, SEPTEMBER 19, 1978

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL SPENDING

PRACTICES AND OPEN GOVERNMENT,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m., 1202 Dirksen Senate Office Building, Senator Lawton Chiles (chairman of the subcommittee) presiding.

Present: Senators Chiles, Nunn, Heinz, and Roth.

Staff members present: Ronald Chiodo, chief counsel and staff director; and Peter Roman, professional staff member.

Senator CHILES. This morning we will continue our hearing on fraud, corruption, and mismanagement within the General Services Administration.

Yesterday the committee heard from the Department of Justice, and we learned that Justice intends to take a positive position in leading the effort to prosecute criminality in the current investigation of the General Services Administration.

The subcommittee also heard from Comptroller General Elmer Staats. Mr. Staats reported several points that the American people are already aware of. I think the GAO report is a bestseller. It may not make all the established lists, but it certainly should be on the list of every Member of Congress.

The fact that GAO recognizes that fraud and corruption is not limited to GSA or any one agency presents us with a tremendous task. The American Government must prove itself equal to the task to continue to have the respect of the American people.

Today, we begin with a panel of witnesses from GSA: Mr. Alto, Mr. Clinkscales, and Mr. Davia. Please step forward to be sworn.

Gentlemen, we're still in our investigative part of our hearing, so if you would raise your right hand and be sworn.

[Whereupon, Vincent Alto, William Clinkscales, and Howard Davia were called as witnesses after having been first duly sworn.]

Senator CHILES. Three months ago, we began our hearings by talking with a panel of the General Services Administration senior law enforcement officials. Mr. Vincent Alto, who carries the title of Special Counsel to Administrator J. Solomon, and who is, for all intents and purposes, the Inspector General; Mr. Bill Clinkscales, the then Chief of Criminal Investigation Division and now promoted to Chief of the Office of Investigation; and Mr. Howard Davia, then and now Chief of the Division of Audits.

Gentlemen, since these are investigative hearings, we already have sworn you. Before we begin, let me explain to those present that GSA

officers here are bound by the Federal Rules of Criminal Procedure; rule 6 deals with protection of material which is before a grand jury.

While to my knowledge this subcommittee has no information at all which would contravene rule 6 and no intention of asking you any questions which might raise a rule 6 problem, I want you to feel free at any time to raise that issue if any question that we ask would, in your opinion, tend to put us into that kind of situation.

I would like to take this opportunity to thank each of you for your efforts in helping to cleanse GSA of its many problems. While I think that what you present today will speak for itself in terms of how hard you are working, I think that the bags that are under each of your eyes sort of testify to the many hours which you all have been putting in. I certainly appreciate that effort and I think the American people do.

Let's begin with the case of Art Metal, since it seems to be the subject of a great deal of controversy.

Mr. Davia, who is Art Metal, and how long has the Government been dealing with them?

TESTIMONY OF VINCENT ALTO, SPECIAL COUNSEL TO ADMINISTRATOR; WILLIAM CLINKSCALES, CHIEF OF THE OFFICE OF INVESTIGATIONS; AND HOWARD R. DAVIA, CHIEF OF THE DIVISION OF AUDITS

Mr. DAVIA. Art Metal is a metal office furniture manufacturer located in Newark, N.J. It's been in business something like 20 years. The Government has done some $360 million worth of business with them in the last 10 years.

Senator CHILES. Mr. Clinkscales, I understand that over that period of time there have been some complaints about the quality of Art Metal's products. What can you tell us about that?

Mr. CLINKSCALES. Yes, sir. It is my understanding that there are many complaints about the products. They frequently arrive rusty and in a damaged condition which can generally be described as shoddy.

Senator CHILES. Mr. Davia, can you add anything; or, based on your own opinion, what would that be and the information that you have developed?

Mr. DAVIA. I would say that is correct. There are many complaints not only from our Government customers but also from the GSA inspection teams. In fact, it is interesting you ask at this time. Yesterday morning at about 8:30 as we were preparing to come up here, one of our staff members slashed his finger on a piece of furniture which had a sharp edge on it, and was bleeding profusely.

Senator CHILES. I'm having a little difficulty hearing you. Can you pull that mike around and speak up a little bit.

Mr. DAVIA. Would you like me to repeat that?

Senator CHILES. Yes; if you would.

Mr. DAVIA. Yesterday morning at approximately 8:30, as we were preparing to come up here for the hearings, one of our audit staff members walked by me with his finger bleeding profusely from a slash he had obtained on a sharp edge of one of the cabinets.

We, as a customer of Art Metal Products, took inventory of the

desks had a leg that had not been bolted at the factory. We have doors that don't line up. The lateral file cabinets we find to be quite flimsy when compared to a prior manufacturer's product, and as I think I indicated, had sharp edges on the corners. They are generally hazardous to clothing, in my opinion, and to the person using them. Senator CHILES. Let me say at the outset that Mr. Kearns and his counsel, Mr. Arthur Lowe from Art Metal, have asked this morning to testify, and we will call them and give Mr. Kearns an opportunity to testify during this morning's hearings.

Isn't there any mechanism in GSA to insure quality control standards?

Mr. DAVIA. Yes; there is, sir. Basically, GSA has three systems to assure quality control. In the first-the most rigid system-we actually place an inspector in the manufacturer's plant to observe the production processes and inspect the completed products before delivery.

The second level of quality control, if you will

Senator CHILES. So you have an in-plant inspector, to start with? Mr. DAVIA. That's the most rigid quality control process; yes. And up to about a year ago, Art Metal had such an inspector in the plant.

The second level of quality control is one in which the manufacturer, when he's about to deliver his product, calls in a Government inspector who makes a quality assurance inspection.

The least rigid quality control process is one we call by an acronym, QAMP system. Under this system, which is usually applied to manufacturers whom we have found to produce a high-quality product, we only spot-check from time to time at the Government's discretion. Senator CHILES. Which systems were used with Art Metal? Mr. DAVIA. Approximately a year or two ago, they were put on the latter where the Government only inspects at its discretion.

Senator CHILES. Well, that would indicate as of a year ago there were not many complaints with Art Metal, would it not?

Mr. DAVIA. It would appear that way. That would be justification for placing them in that inspection category; yes, sir.

Senator CHILES. Well, was that, in fact, correct or not?

Mr. DAVIA. Not in my opinion, sir, not based on the complaints that we have been receiving.

Senator CHILES. Mr. Clinkscales, why would that happen? How did that happen, do you know?

Mr. CLINKSCALES. I don't think we know the answer to that, sir, but I concur with Mr. Davia's assessment. In our opinion, we question the validity of putting them on QAMP.

Senator CHILES. Well, now, if there are legitimate complaints, then there had to be some failure in this inplant inspection that was done up until a year ago. Who was responsible for that?

Mr. CLINKSCALES. As I understand it, sir, there have been complaints for years about the in-plant inspectors; that, in substance, no one really knew for sure what they did, because in spite of their presence in the plant, it did nothing to improve the quality of the merchandise the Government received.

Senator CHILES. So we were paying some in-plant inspectors but they never did any good and no one followed up on that to determine why they didn't?

officers here are bound by the Federal Rules of Criminal Procedure; rule 6 deals with protection of material which is before a grand jury. While to my knowledge this subcommittee has no information at all which would contravene rule 6 and no intention of asking you any questions which might raise a rule 6 problem, I want you to feel free at any time to raise that issue if any question that we ask would, in your opinion, tend to put us into that kind of situation.