GSA CONTRACT FRAUD INVESTIGATION

FRIDAY, JUNE 23, 1978

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL SPENDING

PRACTICES AND OPEN GOVERNMENT,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, D.C.,

The subcommittee was convened, pursuant to recess, at 10:12 a.m. in room 3302, Dirksen Office Building, Senator Lawton Chiles (chairman of the subcommittee) presiding.

Present: Senators Chiles, Nunn, and Roth.

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

OPENING REMARKS OF SENATOR CHILES

Senator CHILES. We will convene our hearing.

Ever since we announced plans to hold hearings on GSA's problems with contract frauds, we've been asked, "what do major systems acquisition policies have to do with larceny?"

I think the answer is simple. You can't have a degree of corruption and waste outlined by GSA's new Inspector General yesterday, where, according to that testimony, we're talking about at least 500 people, a half battalion of crooks, who are stealing millions of dollars, without having a lot of problems with the management of the agency.

Where an agency lacks the discipline required to keep its employees in compliance with the agency's work routines and regulations, and where managers lack the discipline to enforce the agency's collective will to comply with existing rules then you have trouble that extends beyond the activities of lower level employees. And while we will hear about a series of major errors today, we would take note that there are two pervasive patterns.

First, errors are pointed out, they are acknowledged by management, corrective action is promised and then, finally, nothing happens. Second, most of the errors and foulups which we have noted stem from one root cause. Many GSA managers, as well as lower level employees are simply not following orders They are lacking a sense of good order and discipline within the management structures. It should come as no surprise that a sense of cynicism should permeate the lower ranks.

Similarly, it appears that GSA is not following orders when it comes to a major system acquisition policy. The Commission on Government Procurement, in its final report, recommended a new way of going about procuring major systems for the Government agencies.

Simply stated, it recommended some thoughful planning at an early stage before we rush and spend money.

It involved an intellectual discipline which required us to address formally at the front before we started spending money such basic questions as: Do we need this at all? Are we just buying it or gearing up out of habit? If we do, and we determine that we do need something, what are the alternatives? Are there different ways of going about satisying the same requirement that we have? Is there a clever way to satisfy what it is that we have to do at a less burden to the taxpayer? Eventually this whole system of disciplines was incorporated into an Office of Management and Budget Circular No. A-109 that requires that management would have to go through the exercise of determining "do you need it"? If we need something, how many different ways are there of trying to do the same things that we think we need? What would be the cheapest, the most innovative way of trying to do that? What are the alternatives? Then, they make the decision, rather than saying, "We're always done it this way so, we'll continue to do it that way."

A-109 is a regulation that governs all major system procurements in the Government now, civilian or military. It is the way the Government is supposed to go about buying a major system. ČSA managers must abide by the precepts of A-109 just as the contractor must abide by procurement regulations.

Today, we will look at some of the problems that GSA has suffered, but, more importantly, discuss the ways we can introduce objective analysis into the management system. We must teach and learn ways to make GSA and all of its employees proud to fulfill the role as the Governments' efficient, effective and honest business manager.

It is a tall order, but it has to be done. Yesterday, we heard the first reform efforts, as GSA's Acting Inspector General discussed the ways. and means of introducing an oversight structure to monitor GSA operations, and to instill a sense of discipline to the agency.

I hope today to hear from GSA's Administrator, Mr. Jay Solomon about his efforts to make GSA into a model agency of the Government. Our first panel of witnesses will be Mr. James B. Shea, Jr., Commissioner, Public Buildings Service; Mr. David Dibner, Assistant Commissioner, Public Buildings Service; Mr. Frank J. Carr, Commissioner of Automatic Data Teleprocessing Service; Mr. J. H. Bolton, Deputy Commissioner of Federal Supply Service, and Mr. Ronald Royal, Assistant Director for Civilian Crisis Preparedness. Gentlemen, would you raise your right hands so I can swear you in? [Whereupon, Messrs. Shea, Dibner, Carr, Bolton, and Royal, were duly sworn.]

Senator CHILES. Gentlemen, we have a couple of reports here, one of which has been in the paper and one which hasn't. The one in the paper says that you were in violation of the Antideficiency Act by $6 million. The other says it is $12 million. Whether or not you are in actual deficiency is a technical question with lots of valid arguments on both sides, and the questions for academic debate.

But what upsets me are the statements about how deficient contracts were written; that the contracts were awarded without any bidding on a sole source basis; that you took the contractor's estimate

that you didn't specify what work you wanted done and what cases; that you just signed a contract to give someone some money.

That money happened to come out of my Appropriation Subcommittee, and I was hoping that it was going to be used wisely and well for building and repairing things that needed building and repairing. I didn't mean that it should be given away.

Now, what have we done to make sure that this doesn't happen again.

TESTIMONY OF JAMES B. SHEA, JR., COMMISSIONER, PUBLIC BUILDINGS SERVICE; DAVID DIBNER, ASSISTANT COMMISSIONER, PUBLIC BUILDINGS SERVICE; FRANK J. CARR, COMMISSIONER OF AUTOMATIC DATA TELEPROCESSING SERVICE; J. H. BOLTON, DEPUTY COMMISSIONER OF FEDERAL SUPPLY SERVICE, AND RONALD ROYAL, ASSISTANT DIRECTOR FOR CIVILIAN CRISIS PREPAREDNESS

Mr. SHEA. Senator, we've taken a number of actions in this regard, some of which were touched on by Mr. Alto yesterday. If you would allow, I would like to put to rest, from my standpoint at least, the allegation that PBS, in particular since my time aboard, which is just abour a year now, had this huge spending binge at the insistence of the Central Office.

I don't do business that way. I never have done business that way. I became concerned about a month after I came into my office about the fact that we were getting wide-spread complaints on service. The people who pay standard level user charges had justifiable complaints. My message to PBS was get the job done, but above all-and I could submit to the record my communication in this regard-I cautioned the regions to take whatever actions were necessary to preclude the practice of heavy year-end activity in an effort to close the year with a minimum of unobligated funds.

I don't have to tell you, sir, that we are funded out of the Federal Building Fund. If these funds are not expended, they are returned to the Fund for further appropriation by the Congress. Therefore, there wasn't a need to shovel money out the door.

Now, in reference to the improprieties of the service, I think there is considerable merit in that. I think there is considerable substance to the allegation that we have very sloppy management practices. We have all the rules; we have all the regulations; we have the law to live with. Unfortunately, our people

Chairman CHILES. You have got everything but the will.

Mr. SHEA. I think, sir, that the will is there, but it has been overcome by a mind set for the last 30 years of service to get the job done. I insist, as a manager, that we get the job done, but that we do it within regulations.

To that end, we have taken a number of actions: audits, increased directives and regulations, independent inspection teams in the regions and out of Central Office to see that what the Government gets is what the Government pays. We are further implementing that with the transitional Contract Assurance Division that was initiated just last week, which will take over the duties of those inspection teams.

What GSA lacks is adequate inspection, in addition to validation of vendors and the like. At times we don't even inspect what we pay for. Our move at this point, and as it develops over the next 90 days, is to see that we do have inspection; that the inspection is adequate, and that where warranted or on a random basis, we have reinspection. If you will, checking the checkers. It is the top priority of my office. Senator CHILES. Yes.

Well, you know, nothing is more upsetting to the public than the idea that you've got to spend it all, or you won't get it next year. And when those stories go out, I think that bothers the public just as much as criminal activity, just as much as stealing, because it is just the idea that you just have to spend it, and that is where their taxpayers' dollar is going. So, I certainly hope you are cognizant of that, all of you, and that you are building in the checks because certainly there is a backlog of work to be done out there as far as repairs, and I have an idea that I know what that backlog is.

I know that if it was done on an orderly basis, it wouldn't be a question of your not having enough money to spend. We are going to give you some, but we never give you enough to take care of what that backlog of work is. But certainly it should be done on an orderly basis. If you don't get it in, in the first, second, or third quarter, you shouldn't put out contracts in which there are no specifications in which there are no checks. In other words, it is just going to be dumped out there, and that is what totally frustrates the public. I think they have every right to be totally frustrated because that is poor, poor management.

Mr. SHEA. Senator, I'll say this as a personal observation, and then I'm going to take the time, if you will, to tell you what we are doing this year.

Coming from a private sector, real estate and development operation, nothing gave me greater pleasure or the expectation of a certain amount of respect than to be able to tell my board chairman or president at the end of the year that I came up with a surplus and I still got the job done, and it happened. It's a good feeling.

But, in order to continue to monitor and control this situation this year, we have had continuous discussions with our regional administrators and regional commissioners to the effect that all expenditures must be bona fide. I'm coming out the 1st of July, again, with another repeat instruction to "Get your services, get your obligations taken care of, but, again, prudently and within reason." I've asked the Office of Finance to examine all our procurements very, very closely during the latter months of this fiscal year, and, finally, at the end of the third quarter, I'm going to reach out into the regions and I am going to withdraw those funds remaining that I feel cannot be reasonably expended by the end of the year, so that there will be a definite control. Senator CHILES. Well, I hope you know that as long as I have the Subcommittee on Appropriations that deals with that budget, you can come to me and say, "Look, we didn't spend all the money this year because we couldn't spend it or put it out in a wise and prudent way, but that doesn't mean our needs have decreased." You should realize that that isn't going to mean that necessarily you are going to be cut down if you can show legitimate needs of keeping all of the Government's buildings in repair, and the other requirements of the

But, secondly, I think you could put out all the directives in the world, but unless someone knows that that directive is going to be checked, and that if they don't comply with it, they are going to be called to task

Mr. SHEA. Yes.

Senator CHILES [continuing]. They're going to be held responsible. Then you can show me your file and it will be full of all of the directives, but nothing will change. I think that has been the problem in the past, as you said.

Mr. SHEA. Yes, indeed, sir, the history or the prevalence of people being caught in inappropriate actions or just flatout illegal actions and then receiving little or no discipline, astonishes me. We are not going to live that way.

Senator CHILES. Well, I think that is one reason that we see the shocking number of people that have been participating in something wrong that we heard yesterday. Over the years, I think if you continue to see someone get away with something, or even when it is brought to light and nothing happens to them, after awhile I'm sure that it kind of gets in there. "Well, if everybody is doing it, you know, maybe I just ought to participate also." That is part of the rules of the game. Mr. SHEA. Yes, sir. And management sure isn't doing its job.

Senator CHILES. Mr. Dibner, I understand you told your division chiefs in a meeting on May 3 of this year that you want the repair and alterations money spent on time. I'd like to have your assurance that it is going to not only be spent on time, but it is going to be spent prudently and for useful purposes.

Mr. DIBNER. Senator, at that meeting I also told them that the spending of the money was not the most important thing, it was the development of the program. We are in the business of the design and construction of Federal buildings and the repair and alterations of those buildings. And I have repeatedly told both my staff at meetings similar to what you just said, but also through conference calls, personal visits to the region, et cetera, and the record will show that they are only to accomplish the program in accordance with the rules and regulations that have been set up. Accomplishment is not the only thing; it must be done in accordance with those rules and regulations.

And the spending of money really is just a method of accounting for the accomplishment. And it is the program that we are interested in doing, and if we, as Mr. Shea said, "arrive at the end of the year with money unspent," to me, and to, I believe, the Public Building Service that is secondary to getting it done right.

I also come from the private sector and am very new in Government, only 7 months in Government, and it has been my life long requirement to the people that I manage, that we do it right and get it done.

Senator CHILES. I'm going to be following you on that, Mr. Dibner. Mr. DIBNER. Yes, sir, I wish you would. And I'll be proud of our accomplishment.

Senator CHILES. Part of these have past, but I want to know how our controls are going to do something to see that they don't happen in the future.

We have a courthouse in Honolulu. I understand the building site was flooded, and according to GAO, it was flooded for years because of