VA Spent $5 billion-plus on Improper Medical Supply Purchases

Veterans Affairs Department employees using purchase cards improperly spent at least $5 billion on medical supplies, including prosthetics, a senior VA official told lawmakers on Thursday.

Deputy Assistant Secretary for Acquisition and Logistics Jan Frye said he was a reluctant whistleblower, but was compelled to go to Congress after warnings and concerns to VA Secretary Bob McDonald failed to garner any kind of response.

For years VA officials have not been entirely truthful to Congress, but provide incomplete answers or misdirect lawmakers, he said.

"In short, obfuscation is our game. I will no longer be a party to these VA games," he told the House Veterans Affairs Subcommittee on Oversight and Investigations.

In his 35-page letter to McDonald, which was leaked to The Washington Post and reported on before Thursday's hearing, Frye alleged that employees improperly used VA purchase cards to buy billions of dollars in medical supplies without contracts in recent years.

That figure includes $1.2 billion worth of prosthetics purchased in 2013 by employees who were buying them from suppliers for whom there were no VA contracts. The cards used, intended for micro-purchases, carry a $3,000 limit per purchase.

Military.com first reported on abuses of VA purchase cards for prosthetics in August 2012. Then, Military.com revealed that the VA improperly defined biologics as prosthetics, exempting the biological medicines from federal contracting rules and allowing their acquisition via purchasing cards.

Sources told Military.com then that using purchase cards caused the VA to overspend between $40 million to $50 million annually.

A month later the VA backpedaled on its policy and told Congress it would follow federal purchasing rules.

Among the most significant abuses to purchase cards revealed to lawmakers on Thursday involved outright fraud.

Quentin G. Aucoin, VA Deputy Assistant Inspector General for Investigations, testified that a senior official with the VA's New Jersey Health Care System who defrauded the department VA of more than $6 million by using purchase cards with $25,000 limits on construction related projects.

After improperly awarding construction projects to companies owned by a friend he authorized use of the purchase cards to pay the companies about $3.4 million. But he tried to conceal the purchases by keeping the spending on each transaction to just below the $25,000 threshold that would have required additional approvals from higher ups and a bidding process.

The VA official, in return, got back about $1.25 million in kickbacks, VA Assistant IG Linda Halliday testified.

Both men were convicted and are awaiting sentencing.

Rep. Mike Coffman, R-Colorado, who chairs the oversight panel, accused the VA of attempting to keep Frye from meeting with lawmakers.

Coffman said that after the panel specifically asked to hear from Frye as its principal witness, "VA pushed back, stating it would not send [him]."

The VA instead wanted to send Gregory Giddens, who has been in the job as principal executive director for VA acquisition, logistics and construction for just over a month, Coffman said.

Though officially Frye's superior, Coffman said it "strikes me as strange the VA decide it would be better to send an individual who has been at the helm of VA contacting office for just over a month to discuss matters that have been affecting the VA for years."

Coffman said Frye has been the VA's chief contracting officer for about eight years.

Edward J. Murray, the VA's acting assistant secretary for management and interim chief financial officer, told lawmakers that the VA had reviewed the IG's report on purchase card abuses and acted on the recommendations intended to fix the problems.

He said the IG's report recommended VA's Office of Management review the 2012-2013 purchase card transactions exceeding $3,000. He said that office found some 16,686 transactions, totaling $221 million, as potentially unauthorized, but recommended those findings be reviewed by its Heads of Contracting Activity to determine compliance.

That office ultimately concluded that only 680 transactions that totaled $10.7 million were unauthorized.

"VA continues to review these transactions for appropriate action," Murray testified.

-- Bryant Jordan can be reached at bryant.jordan@military.com