Hearings, Reports and Prints of the Senate Committee on Governmental Affairs

Senator CHILES. Today's hearing is a continuation of efforts which were begun in 1978 by the Subcommittee on Federal Spending Practices to determine the state of affairs at the General Services Administration.

We have held more than a dozen hearings in that time and interviewed hundreds of people who either work at the General Services Administration or do business with it. We have looked at hundreds of documents on about everything from paper clip purchases to computer leases.

It seems to many of us on the subcommittee that just about the time we think that we have seen or heard it all, something else pops up. Today's hearing is an example.

Several months ago our investigators began looking at the quality of work by the General Services Administration's auditors and investigators.

The General Services Administration employs nearly 700 investigators and auditors who try to make sure that the taxpayer gets what he pays for from the thousands of contracts the Government enters into each year for goods and services.

Our investigators reviewed in detail 10 General Services Administration multiple award contract audits. Today we are going to examine two of those cases dealing with the multimillion-dollar contracts to two firms, one in Oregon, the other in Massachusetts. In the cases we will discuss, the auditors found significant overcharges. Our investigator's review of their workpapers suggested there possibly could be fraud as well.

The subcommittee is concerned, however, that the system at the General Services Administration is such that the findings of the auditors are often not pursued.

There is a critical need for someone to be in charge. Someone needs to look at all the workpapers and the reports from the auditors, the contracting officers, and the inspectors to get the total picture. They need to determine if the Government should seek recourse when it has been wronged.

The cases we found illustrate three principal points:

One, the General Services Administration auditors are a vital line of defense in detecting deliberate overcharging and fraud. Two, the present relationship between the auditors and investigators make it unlikely that these cases would have ever reached the light of day; and

Three, the General Services Administration's multiple award contracting program is so structured that it is wide open to the kind of abuses we will discuss today.

Wide open is perhaps an understatement, if anything. During 1977 and 1978, the years our inquiry covers, the General Services Administration auditors were only able to audit 11 of the 16,000 multiple award contracts let during that period.

In other words, a contractor's chance of being audited was seven one-hundredths of 1 percent. Those are fine betting odds for a contractor who happens to want to play it a little loose with the Government.

The subcommittee review of audits and the auditing process at the General Services Administration turned up many, many cases of contractors overcharging the Government.

For example, one contractor readily admitted that the Government was being overcharged, and had been for years. The company blamed the problem on a computer malfunction, which is interesting since the company is in the business of manufacturing computers. We cannot help but wonder how long the computer malfunction would have been tolerated if the Government were being undercharged.

Another company was giving private, commercial customers a better deal than the Government, despite the contractual agreement, actually a requirement, to give the Government the best deal they gave anyone else. This involved a system of effective discounting by offering trade-in allowances on old machinery. The Government traded its old machines in; in 11 of the 16 commercial contracts reviewed, the commercial customers did not.

Yet the commercial customers were getting a discount. In another instance, a company involved appears to have engaged in simple, old-fashioned bribery. The General Services Administration officials and company salesmen were awarded prizes if the Government employee could be induced to purchase equipment at a price higher than the General Services Administration contract called

for.

While some of the prizes involved TV sets, cases of beer, and the like, we thought it particularly cynical that U.S. savings bonds were also offered to Government employees as an inducement to pay too much for the goods they purchased. In other cases that we investigated, it appears that substantial sums are due the Government because of overcharges.

The two cases we will look at this morning are audits performed on a General Services Administration multiple-award contract held

by Tektronix Corp., of Beaverton, Oreg., and a contract held by Digital Equipment Corp., of Maynard, Mass. In fiscal years 1977 and 1978, the period covered by the audits, Tektronix enjoyed $72.7 million worth of business with the Government.

Digital Equipment had $35 million in business during the fiscal year 1978. The General Services Administration auditors determined that $1.3 million dollars was due the Government from Tektronix and $3.5 million from Digital.

That portion of the refund which will be discussed today involves apparent overcharges of $1.3 million by Tektronix and $1.2 million by Digital. It is important to note that we are not in conflict with the General Services Administration's determinations as to how much money is due the Government.

The subcommittee staff examined that portion of the money involved where there are apparent indications of actions taken by contractors to conceal information and mislead the General Services Administration contracting officers and auditors.

There are some other areas we will get into today, but before we hear from the witnesses this morning, I would just like to make one observation.

As I said at the beginning, we have been investigating the General Services Administration since 1978 and I have not seen a lot of progress so far as reform goes from the people at the General Services Administration.

I have to admit today that unless we do see some improvement, some concrete results, then the General Services Administration is never going to come out from behind the cloud of suspicion that what started over in the GSA scandal was the biggest money scandal in our Nation's history.

The cases that we are talking about here are very subtle cases. There are no smoking guns, no note in the file saying you will lie to the auditors or anything like that. I don't think that makes them any less real. Based on our inquiry, it appears that there is significant information to indicate mismanagement at the least and at the worst, fraudulent activity on the part of the corporations involved.

The subtle, devious, and misleading nature of the corporations activities suggest that these problems may be widespread and not just isolated instances. The GSA personnel who were involved in these contracts are here today.

I would like to have Ms. Ciccone and Mr. Lynham to come forward, please. They are contracting officers for the Digital contracts during the period covered by the audit.

Would you raise your right hand and be sworn?

Do you swear the testimony you are about to give before the subcommittee will be the truth, the whole truth, and nothing but the truth, so held you God?

Ms. CICCONE. I do.

Mr. LYNHAM. I do.

TESTIMONY OF EDITH CICCONE AND CHARLES LYNHAM, CONTRACTING OFFICERS, GENERAL SERVICES ADMINISTRATION Senator CHILES. Please be seated.

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