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Having done procurement benchmarking for over a decade, including public sector organizations, I don’t typically get surprised by seeing procurement under-performance. You’d be amazed at how bad some firms are—and I even know a few well-known retail brand names that don’t even really have procurement departments. However, when I read this article at the Washington Post, I really had to raise my eyebrows and shake my head.  And then, as a taxpayer, and as someone knowledgeable in the topic, I got really angry. Let me net it out for you…

Basically, the deputy assistant secretary for acquisition and logistics for the Department of Veterans Affairs (‘the VA’), a retired Army Colonel and 30-year veteran in federal acquisitions named Jan Frye, wrote a 35-page paper to the VA secretary that points out poor acquisition performance at an unprecedented scale. As he says, “The VA has and continues to waste millions of dollars by paying excessive prices for goods and services due to breaches of Federal laws.” I won’t re-hash the complete story, but let me cite the 9 takeaways highlighted in the companion piece here that highlights the alleged culture of “lawlessness and chaos” at the VA:

  1. Veterans are at risk if the government does not have contracts for private medical care and something goes wrong. When you buy off-contract, you don’t use a contract that protects you and your stakeholders. In this case, the stakeholders are 8.7 million veterans using many medical products and services acquired without proper protections.

  1. VA is spending billions of dollars a year on medical care and supplies without contracts, but the public has no way to see how taxpayers’ money is being spent.  Frye says that although the department reported official spending of $19 billion for FY2015, there’s an estimated additional $6–$10 billion not accounted for. This is not just a jaw-dropping number, but a jaw-dropping range where the number is not even known. Forget procurement, where are the financial controllers and payables leaders to even report how much cash is being sent out the door!

  1. Top VA officials are ignoring the large discrepancy between authorized spending on medical care and supplies and spending that is done improperly. At most firms, Finance gets annoyed when supplier spend analysis doesn’t tie to the books 100%.  But with $6-$10 billion unaccounted for, as Frye says, “It doesn’t take a genius nor an auditor to recognize VA internal records are not in equilibrium” due to a “significant defect in our strategic governance system.”

  1. VA has failed to hold anyone accountable for the improprieties he cites, or put contracts in place once officials realized they weren’t negotiated properly. Frye says simply “No persons were held accountable for these violations of law.” It’s amazing that in the private sector, procurement begs for a mandate. In the public sector, that policy is in fact law, and even with laws (and no enforcement), there’s minimal compliance.

  1. Frye says senior VA leaders must be held accountable for the problems with purchase cards he cites. P-card limits were supposed to have had $3,000 limits, but somehow, $1.2 billion of p-card spend got racked up just on prosthetics alone.

  1. Frye says he analyzed purchase card data from the Veterans Health Administration and found improprieties. P-cards are certainly convenient, but they also provide a convenient way to buy off-contract (which in this case is illegal). It’s amazing the lack of p-card controls being put in place, but the card-issuing bank certainly didn’t mind (e.g., 2.99% of $1.2B is $36M in card fees). If I were an auditor, I’d certainly be checking the suppliers being paid and where any rebates might be going.

  1. The purchase card program lacks oversight, Frye says. If you do root cause analysis, this is a case study in weak governance. Whether the acquisitions officers used p-cards to take the path of least resistance, or whether there were more nefarious reasons, there was a lack of controls. As Frye stated: “Neither the VA Office of Management, nor its subordinate Office of Business Oversight, police these transactions to ensure contracts have been put in place for each procurement above the micro-purchase threshold.”

  1. Frye says he has learned from the National Acquisition Center that employees at the Veterans Health Administration are buying thousands of medical supplies in off-the-shelf transactions, without competition. There are some similar issues in the private sector that occur when items can be purchased on the open market for cheaper than the pre-negotiated rates, and while the government recognizes this problem in federal contracts and has been looking to update policies and even create new tools, it’s just one of many challenges.

  1. VA will be challenging unless basic contracting problems are addressed.  More specifically and poignantly, Colonel Frye cites the VA’s “I CARE” value principles of Integrity, Commitment, Advocacy, Respect, and Excellence, and points out that integrity is most foundational. He also says that “These footings must reach all the way to bedrock to ensure structural integrity of VA’s foundation. These footings are currently defective.” Keep in mind that this is coming from an insider –not an external auditor.

As a taxpayer who wants to see maximum value extracted from every precious tax dollar—especially in the case of the VA—I’m deeply troubled by this level of under-performance. It certainly seems to be a tale of horrible controls, apathy by process participants, and even potential malfeasance and corruption.

But is there more to it? Are the acquisition actors bad actors—or were they trying to run the operation in the face of daunting bureaucracy? Were the existing contracts good enough to get the vets what they needed? Were new acquisitions and bidding even possible at the speed needed—especially in light of the program growth and veteran care needs juxtaposed against the current process? Is the FAR, and the existing processes and capabilities to implement it, able to handle these real world needs? Are there too many lower-dollar localized needs that just can’t be satisfied with current processes and resources?  Are there enough resources? Why aren’t the acquisition resources looking to third parties to help them if they can’t do it themselves? And most importantly, how do we unwind, re-write, and properly implement the patchwork of policies that have outlived their usefulness (or new ones that may even create more confusion)?

I don’t know the answers to these questions, but it’s critical to engage in a meaningful conversation with the people who can effect the needed change to upskill our federal acquisitions capabilities to make sure that we’re unleashing US ingenuity and translating effective private sector practices for the benefit of all. It’s a tall order, but inaction is obviously working too well right now. 

Image Courtesy of 401(K) 2012

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