07/19/03

Washington - A private company that took over more than 500 federal jobs in Cleveland last year has been fined nearly $500,000 for not meeting performance standards.

Auditors from the Defense Finance and Accounting Service, or DFAS, have repeatedly fined Dallas-based Affiliated Computer Services, known as ACS, for failing to quickly answer phone calls from military retirees whose benefit payments ACS handles and for failing to meet targets for promptly opening new retiree cases and making changes to existing accounts.

The fines were cited in government records that The Plain Dealer obtained under the Freedom of Information Act. The disclosure of the fines follows a Defense Department inspector general report this spring that found that bids for ACS' contract were evaluated incorrectly and that taxpayers would have saved $30 million if government workers had kept the jobs. Local members of Congress have asked DFAS, which handles pay and benefits for the nation's active- duty personnel and contracted with ACS to handle retirees' benefits, to rescind the contract.

The agency has asked the Virginia-based Center for Naval Analyses to evaluate whether ACS should continue to process payments for military retirees and their survivors who collect government annuities, said DFAS spokesman Bryan Hubbard.

Hubbard said the federally funded naval research center will issue its findings in August, which will give DFAS enough time to consider all its options before the contract's renewal deadline. The 10-year contract is subject to renewal each January.

Hubbard said DFAS has been satisfied with ACS' service to its 2.5 million military retirees and their survivors. He said ACS has saved money for the government because the private firm charged almost $5 million less than it projected to do its work in the contract's first year.

But records of government audits show a different assessment of satisfaction. DFAS auditors who scrutinize ACS performance each month determined that the company has never complied with a requirement that its operators answer 80 percent of telephone calls they receive within 20 seconds. Over the contract's first year, auditors found that ACS operators answered a high of 77 percent of calls within 20 seconds in June 2002, and a low of 32 percent in October 2002.

Auditors also found that in the contract's first year, ACS did not meet its target of properly processing account changes 99.2 percent of the time. For five months of the year, ACS didn't open the mandatory percentage of new accounts within the required 30 days, auditors found.

The records also show that the auditors issued reports early in the contract that criticized ACS workers for saying work - like computations to determine whether money was owed to the estate of dead retirees - was complete on unfinished cases.

ACS defends its work

ACS Executive Program Manager Douglas Smith said in a letter to auditors that DFAS itself commonly marked cases "closed" even when the work had not been completed. But Smith promised that ACS would stop closing unfinished cases, and Hubbard said ACS has done so.

DFAS auditors fined ACS $497,752 for the contract violations, withholding the money from its regular payments for the company's work. ACS disputed the criticism and has asked for the fines to be returned.

The company asserts the auditors aren't judging it by stan dards stipulated in its contract. A letter from ACS contract manager Aileene Cottrell insisted that ACS answers calls in a timely fashion because an automatic system picks up all calls to its toll-free number within 10 seconds. She said DFAS based its evaluation on "incorrect call counts and an inaccurate definition of response time."

DFAS Contracting Officer Sandra Kleinknecht acknowledged that the government is considering revising its performance standards but said in a letter to ACS that she expects "these same performance areas will continue to be evaluated in the same general way."

"Long-term failure to meet the standards, with no discernible upward trend, is of concern to DFAS," Kleinknecht said in a letter to ACS on March 17.

Yet despite the government's harsh evaluations and correspondence, Hubbard said in an interview that his agency also didn't meet the standards required of ACS when it handled retiree pay and benefits itself. The Department of Defense demanded higher standards from ACS "to improve services to retirees and annuitants," said Hubbard, adding that DFAS and ACS are still negotiating "meaningful" performance standards to continue improvements.

A customer satisfaction survey conducted by the Office of Personnel Management last Decem ber and January found that retirees thought ACS' services were an improvement over those provided by government workers. Yet survivors of deceased military personnel who are collecting government annuities were less satisfied, the survey found.

The Military Officers Association of America saw an uptick in annuitant pay complaints from members soon after ACS took over, said Bud Schneeweis, a retired Coast Guard captain who serves as a deputy director at the nonprofit group.

Lack of training

He blamed the difficulties on ACS' decision to transfer responsibilities for annuitant pay from workers in Denver who for years had handled the complicated benefits calculation, to workers in Cleveland who had never done it before. He said DFAS and ACS did their best to quickly fix glitches.

"This was kind of a 'swallow the elephant' problem," said Schneeweis, adding that complaints died down after September 2002. He said the retiree transition was smoother because their benefits calculations were simpler, and many of the workers who had handled retiree pay for DFAS in Cleveland went to work for the contractor.

Current and former ACS workers in both Cleveland and Denver said in interviews with The Plain Dealer that their ACS supervisors didn't provide them with enough training on how to handle complicated annuities and seemed obsessed with maximizing the number of calls their operators could handle, not solving callers' problems.

"They were just concerned with the numbers, nothing else," said Rena Beck of Westlake, a former DFAS employee who went to work for ACS but quit after two months. "They were trying to do it with fewer people to save money."

A former ACS worker in Denver who handled annuitant pay before the jobs were switched to Cleveland described a pattern of difficulties when inexperienced workers began processing annuities.

She said one clerk tried to increase a widow's benefits by $45 a month but instead changed her entire monthly check to $45, an error that wasn't corrected for months. She said a rash of direct- deposit payments for annuitants went to the wrong banks and were bounced back.

"Sometimes you had these widows who could be owed over $5,000 for two months, and the money would just sit there because the folks in Cleveland didn't know how to get it released," said the former Denver ACS worker, who asked that her name not be used.

ACS spokeswoman Lesley Pool acknowledged there were transition difficulties when services switched to Cleveland, but she said all problems are resolved.

"Everything we are about is serving the participants of the program we support and our clients for whom we provide these services," said Pool, who denied that operators were told to handle more calls to the detriment of customers. "The only drive is to deliver excellent service to the program participants and the client."

Despite claims of improvement from ACS and DFAS, Cleveland Democratic Rep. Dennis Kucinich, who requested the inspector general's report that found bidding errors, said the ACS contract has been a waste of tax dollars and that government employees should resume the work.

"While costs have gone up, accountability and the quality of services provided have sharply decreased," Kucinich said. "It is because of examples like DFAS that we must end the privatization trend."