Government contractors beware: 2012 may be the year of the government audit.
Financial scrutiny of contractors is expected to rise as the government expands its auditing workforce and the contracting pie shrinks. Agencies are
coming under greater congressional scrutiny, and public pressure is mounting to ensure the taxpayer is getting the best deal.
One indicator came in a Nov.15 directive from Office of Management and Budget Director Jacob J. Lew, who ordered federal agencies to put more resources and emphasis into their suspension and disbarment programs.
Lew referenced a recent Government Accountability Office study which, he said, found that “more than half of the 10 agencies it [GAO] reviewed lacked the characteristics common among active and effective suspension and debarment programs: dedicated staff resources, well-developed internal guidance and processes for referring cases to officials for action.”
Government contractors have always faced an abundance of potential audits. The Defense Contract Audit Agency alone conducts several dozen
different types of audits, including: pre-award reviews; incurred cost examinations; purchasing system reviews; billing system reviews; disclosure statement reviews; and provisional rate reviews.
Moreover, the number of rules and procedures to follow is mind-numbing. The Federal Acquisition Regulation, which is comprised of more than 1,700 pages of rules and regulations, is just one set of federal regulations pertaining to government contracts.
While no two audits are the same, government auditors are likely to place a greater emphasis on internal controls during 2012.
They will review your stated policies and procedures to determine the strength of your control environment, then typically make a random selection of
transactions (for example, vendor invoices, employee time cards, travel vouchers) and scrutinize supporting documentation.
The auditors are looking to determine if the contractor’s policies and procedures were followed, approvals documented and internal controls enforced.
In addition, there are now many prospective government contracts that will be awarded only after rigorous assessments of the adequacy of the contractor’s
business systems and internal controls. Contractors now will simply pass or fail, rather than possibly passing with certain deficiencies. All deficiencies must be addressed successfully before the contractor’s system is deemed adequate, and the contract awarded.
Many companies now are being proactive, seeking a third party to make an initial assessment as to whether their systems can meet Defense Contract Audit
Agency requirements before being notified of a pending agency review. Such a review prior to bidding on a contract can provide the confidence to bid for all
types of government contracts without business system constraints.
By implementing corrective measures that might be identified during the review, contractors can improve overall operations while staying ahead of the
competition and helping ensure they will not be behind the DCAA eight ball.
Having the black mark of a failed government audit is a difficult position from which to recover, and amounts to a “scarlet A” in the world of government
contracting. But the moniker can be avoided with prudent planning and taking proactive measures to shore up your systems in advance.
As we go into 2012 and face whatever budgetary cuts the government may implement, positioning your company to take advantage of every opportunity is
more important than ever.
– Commentary by Michael Tinsley, founder and chief executive of NeoSystems, for The Washington Post – Dec. 25, 2011 at http://www.washingtonpost.com/business/capitalbusiness/a-new-year-of-heightened-scrutiny-for-government-contractors/2011/12/14/gIQAq7IUHP_story.html
In the latest turn of the screw in an ongoing battle between the Department of Veterans Affairs and members of the small business community, a non-profit association sued the agency and its secretary for alleged failure to comply with existing laws that require veteran-owned small businesses to receive priority in all contract awards.
Service Disabled Veteran Owned Small Business Network Inc. in Pleasanton, Calif., filed a Dec. 6 complaint on behalf of its members in a California district court, claiming that the VA violated the 2006 Veterans, Benefits, Health Care and Information Technology Act and the Veterans First Contracting Program, both of which mandate that the agency set aside contract opportunities for veteran-owned small businesses when at least two such businesses are qualified to meet the requirements.
The complaint pointed to the VA’s refusal to comply with recommendations made by the Government Accountability Office in an Oct. 11 protest decision, which stated that the agency violated the law when it failed to set aside two contract solicitations for service-disabled, veteran-owned small businesses. The watchdog agency recommended that the veterans agency cancel and reissue the solicitations as set-aside contracts, a move the VA opted to ignore — claiming the requirement did not apply to acquisitions made under the General Service Administration’s contract schedules.
“The president of the association has been leading a grass roots movement to challenge the VA’s application of the Veterans First program for over a year,” said Timothy Power, the attorney representing the association, in an email to Washington Business Journal. His firm, Power Law Office in Sonoma, Calif., provides legal services to small business contractors. “Recently she has been raising money to support the filing of a suit in California to enjoin the VA from ignoring the program.”
The lawsuit comes one week after two House subcommittees held a hearing on the topic, questioning VA officials about the decision to ignore the GAO recommendation.
– by Jill R. Aitoro, Senior Staff Reporter, Washington Business Journal, Dcc. 7, 2011 at http://www.bizjournals.com/washington/blog/fedbiz_daily/2011/12/california-association-sues-va-for.html.
Filed under Contracting News · Tagged with Agriculture Dept., Commerce Dept., GAO, Interior Dept., Justice Dept., OSDBU, small business, small business goals, small disadvantaged, SSA, State Dept., Treasury, Treasury Dept.
Four federal agencies were issued subpoenas by the House Small Business Committee on Oct. 20 for not complying with the Small Business Act’s procurement policies, according to a committee staffer.
The departments of Justice, Agriculture, Treasury and State were summoned to appear before the the Small Business subcommittee on contracting and workforce on Nov. 1 to testify why they are in noncompliance.
At issue is the “structure” of these agencies’ Small and Disadvantaged Business Utilization Offices (OSDBU) and “the fact that they are not reporting to the agency head or deputy head,” wrote Darrell Jordon, house committee spokesman, in an e-mail to Washington Technology.
OSDBUs were conceived in 1978 with the purpose of having federal agencies set aside contracts for small and disadvantaged businesses. The Small Business Act also has requirements that agencies report their procurement activities with small and disadvantaged businesses.
Justice, Agriculture, Treasury and State were warned of their missteps and given a chance to remedy the situation after a June Government Accountability Office small business contracting report found seven agencies not in compliance.
Following that report, letters to agencies were sent by subcommittee Chairman Mick Mulvaney (R-SC). As a result, the Interior Department and Social Security Administration are now in compliance, and a third, the Commerce Department, was pardoned due to an administrative issue.
In September, agencies were reminded of their noncompliance by memo and a hearing was held on Sept. 15 by the subcommittee to examine the GAO report and the economic impact of noncompliance.
As part of the subpoena procedure, the four agencies must produce a number of documents, including paperwork relating to their small business procurement programs, attainment of small business goals or challenges to decisions not to restrict competition to small business between Jan. 20, 2009, and Sept. 30, 2011.
Filed under Contracting News · Tagged with Agriculture Dept., Commerce Dept., GAO, Interior Dept., Justice Dept., OSDBU, SBA, small business, Social Security Administration, State Dept., Treasury Dept.
Conflicting interpretations of agency internal reporting requirements in the Small Business Act have prompted a stalemate between four departments and congressional overseers examining the performance of programs designed to assure that small businesses get a fair share of federal contracting.
The Government Accountability Office in a report had found that seven agencies were not complying with the law’s requirement that the Offices of Small and Disadvantaged Business Utilization in every department except Defense must report directly to the agency.
At a hearing Thursday with the House Small Business Subcommittee on Contracting and the Workforce, a GAO specialist reported that the State, Commerce, Treasury and Justice departments recently had declined requests that they comply.
Subcommittee Chairman Mick Mulvaney, R-S.C., told the hearing that a failure to comply presents a clear conflict of interest and is “completely unacceptable . . . President Obama says that ‘small business contracting should always be a high priority in the procurement process,’ but his administration disregards the basic protections for small business contractors,” Mulvaney said. “Instead of just lip service, he should make sure his administration is following the law in regards to small business requirements.”
OSDBUs were created in 1978 to help reserve some federal contracts for for-profit small business concerns in which socially and economically disadvantaged individuals own at least a 51 percent interest and manage and control daily business operations. Concretely, they seek to make sure that the tendency of contracting officers to bundle contracts for larger contractors does not exclude the disadvantaged. Reporting directly to an agency’s leader rather than only to its contracting officers is considered essential to fair consideration of contract awards, and more than half the agencies GAO surveyed said their OSDBUs report only to the agency head.
On Sept. 9, Small Business Administrator Karen Mills sent a memo to all agency heads asking them to comply. “Open and direct communication between the OSDBU director and the secretary, deputy secretary or their equivalent is paramount to ensure that small businesses receive the maximum practicable opportunity to compete for and win federal contracts that allow them to grow their businesses and create jobs,” she wrote.
GAO’s June report said seven noncomplying agencies also were out of compliance in 2003. They include Agriculture, Commerce, Interior, Justice, State, Treasury and the Social Security Administration. In August, Mulvaney sent letters to the noncomplying agencies asking them to respond by Aug. 31 about how they “intend to rectify the reporting relationship.”
William Shear, director of financial markets and community investments at GAO, explained at the hearing that Commerce and Justice disagreed that they’re not in compliance, while State and Treasury made a legal argument that they are free to delegate the authority for how OSDBUs report.
Shear told Government Executive that Agriculture didn’t reply, Interior sent a letter saying it will comply, and SSA promised to comply but hasn’t followed up with documentation.
Claims by Commerce and Justice that they are in compliance, Shear said at the hearing, “don’t fit the fact pattern” obtained when auditors interviewed the OSDBUs about interaction with agency heads. He said GAO found evidence of tension and frustration at OSDBUs in agencies that were not complying because contracting offices are not always fulfilling their needs. “But some tension is healthy,” Shear said. He noted that there are no sanctions for noncomplying agencies.
Ranking member Judy Chu, D-Calif., agreed with the call for compliance at the hearing, which also dealt with mentor-protégé programs and SBA’s performance on data on its procurement center representatives. “Failure to comply with this requirement not only shows a callous disregard for the law, but also shortchanges small businesses that end up suffering the consequences of OSDBU’s diminished agency standing,” she said.
A spokesman for Commerce, Kevin Griffis, told Government Executive that “the department is in compliance with the law, and both its record and the progress being made to continue to improve its performance speak for themselves. In 2010, the Small Business Administration, in its Small Business procurement score card, awarded the department a grade of ‘A’ for its procurement practices — up from the previous year’s ‘C.’
Justice spokeswoman Gina Talamona said in an email that the department “fully supports the mission of the Office of Small and Disadvantaged Business Utilization. Consistent with the Small Business Act, department regulations provide that the director report directly to the deputy attorney general. Although OSDBU is located within the department’s Justice management division for administrative purposes, the director still reports to the deputy attorney general on substantive matters.”
Mulvaney said he plans to hold another hearing on OSDBUs and invite agency heads or senior officials from noncomplying agencies, adding, “They won’t enjoy it.”
– by Charles S. Clark - Government Executive – September 16, 2011 at http://www.govexec.com/story_page.cfm?articleid=48818&dcn=e_gvet
The Small Business Administration will expand the reach of it mentor-protégé programs it was announced during testimony on Sept. 15 during the House Small Business Committee Subcommittee on Contracting and Workforce.
At a hearing titled “Helping Small Businesses Compete: Challenges Within Programs Designed to Assist Small Contractors,” Joseph Jordan, SBA’s associate administrator for government contracting and business development, testified that the Small Business Jobs Act of 2010 gave the SBA authority to implement additional mentor-protégé programs for HUBZone, women-owned, and service-disabled veteran-owned small businesses.
In the past the SBA’s program was only open to disadvantaged businesses that participated in the 8(a) business development program.
“We are in process of implementing these new programs,” Jordan said at the hearing. “We conducted robust public outreach via a 13-city Small Business Jobs Act Tour and have held several meetings with various agency and public stakeholders to collect input and feedback on the implementation of these programs.”
SBA is now drafting proposed regulations for public comment.
The mentor-protégé programs arranges relationships between experienced contractors and inexperienced small businesses to provide them business development assistance. The program provides incentives for mentor participation, such as credit toward subcontracting goals.
This hearing reviewed three recent Government Accountability Office reports including one that criticized the mentor-protégé programs for not tracking the results of the mentor-protégé relationships after they are formed.
The Office of Management and Budget is looking to clarify last week’s memorandum instructing federal agencies to submit fiscal 2013 budget requests that are between 5 percent and 10 percent lower than current discretionary funding levels.
The guidance is aimed at providing options for deficit reduction in light of the recently enacted Budget Control Act, said OMB Director Jack Lew in an Aug. 18 blog post. “This does not mean that we will institute either a 5 percent or a 10 percent cut in an individual agency’s budget or in all agency budgets,” Lew wrote.
He emphasized that the Obama administration does not want agencies to make across-the-board cuts, but rather to focus on eliminating waste and putting resources into cost-effective programs. “Thus, some agency budgets will decrease (and some more than others), some will stay flat, and some may increase (and, again, some more than others) — and the same goes for programs within agencies,” Lew said.
OMB did not return a request for comment on what, if any, feedback agencies have provided on the memo.
The Obama administration sent an Aug. 17 memo to agencies asking them to outline two budget-cutting scenarios when they devise their 2013 requests, which are due next month. The guidance instructed agencies to plan a 2013 budget that is at least 5 percent below their 2011 spending levels. Agencies also should identify additional savings that would bring their 2013 budget requests to at least 10 percent below their current enacted appropriations, the memo stated.
Such guidance from OMB is not unusual. In a June 2010 memo, then-OMB Director Peter Orszag directed nonsecurity agencies to submit a fiscal 2012 budget request 5 percent below the discretionary total provided for them in the fiscal 2011 budget.
When looking for places to cut, federal managers must step back and consider all the factors driving program and operation costs, including people, real estate and technology, said Janet Hale, a director at Deloitte Consulting LLP. Hale, who worked in government for nearly two decades — most recently as the first undersecretary for management at the Homeland Security Department — said various agencies have found significant cost savings over the years, whether through scaling back on long-term technology projects or consolidating redundant programs.
“This is a journey,” said Hale, of effectively managing federal budgets and spending. “There are lots of steps along the way. So the actions they [agencies] take in 2011 and ’12 are going to set the stage for how well they face the budget pressures of ’13, ’14 and ’15,” she said.
Hale said the executive branch and Capitol Hill have to work together to identify savings in federal programs and the most efficient ways to deliver services to American taxpayers. “Agencies are trying to do what’s right,” but often get caught in the middle of tussles between the administration and Congress, she said.
– by Kellie Lunney-Government Executive – August 22, 2011 – http://www.govexec.com/story_page.cfm?articleid=48590&dcn=e_gvet
Senior executives at several Cabinet-level departments received letters Aug. 5 that asked why their small-business advocacy offices have not been given the authority the law dictates.
Rep. Mick Mulvaney (R-S.C.), chairman of the Small Business Committee’s Contracting and Workforce Subcommittee, wants to know why departments’ office of small and disadvantaged business utilization (OSDBU) officials don’t have access to top officials to deal with small-business problems, such as contract bundling and paying firms promptly.
The Small Business Act requires that heads of a department’s OSDBU should “be responsible only to, or report directly to, the head of such agency or to the deputy of such head.”
It’s not happening, according to a Government Accountability Office report from June.
Only nine of the 16 federal agencies that GAO reviewed were in compliance with that part of the Small Business Act. The remaining seven agencies failed to comply with the law. Those agencies’ OSDBU directors reported to lower-level officials or had delegated OSDBU responsibilities to officials who did not meet the reporting requirement, GAO wrote.
Further, these agencies were not in compliance when GAO last examined them in 2003.
In GAO’s latest review, Social Security Administration officials said they fixed the problem. Officials at the Interior Department agreed to re-evaluate their reporting structure.
On the other hand, the Commerce, Justice, State and Treasury departments disagreed with GAO, saying they were in compliance. The Agriculture Department also got a letter because officials delegated the OSDBU director’s authority in a way that was contrary to the law.
Mulvaney wants to know more details about each agencies’ OSDBU, including the assigned functions and budget. He also asked when the OSDBU will actually have access to top officials, in addition to a copy of the new organizational chart. He expects responses by Aug. 31.
The subcommittee is planning a hearing in September to look further into this situation.
Fraud pervades the Veterans Affairs Department’s contracting program for veteran-owned small businesses, a July 28 House panel was told.
The VA Office of Inspector General and the Government Accountability Office have found the program so rife with deceit that one lawmaker suggested the entire program be scrapped.
“I think if the American people really paid attention…[they] would blow this whole program up and start from scratch again. It is that bad,” Rep. Phil Roe (R-Tenn.) told the House Veterans Affairs’ subcommittee on oversight and investigations.
“Hopefully it will get better, ’cause it can’t get much worse.”
Seventy-six percent of the businesses reviewed by the VA Office of Inspector General in a recent audit were ineligible for either the program and/or the specific veteran-owned small businesses or service-disabled veteran-owned small businesses contract award, said Belinda Finn, assistant inspector general for audits and evaluations at the VA OIG. This could total $2.5 billion in contract awards to ineligible businesses over the next five years, Finn estimated.
“Thirty-eight percent of the reviewed businesses were not owned or controlled by a veteran and over half did not meet federal incurred cost and subcontracting thresholds. In many cases ineligible businesses passed through the majority of the contracts’ work requirements and funds to non-veteran-owned businesses,” added Finn.
Ineligible businesses received awards because VA’s office of small and disadvantaged business utilization was not thoroughly reviewing business documentation and performing site visits to verify the veteran-owned status, said Finn. The OIG also found that contracting officers did not always check VA’s enterprise veterans database, business size classification codes, or properly assess subcontracting and partnering agreements.
“This program is highly-vulnerable to fraud and abuse,” said Gregory Kutz, director of forensic audits and investigative service at GAO, who added that while the veteran business verification program has made some progress, it “has a ways to go.”
“We recommend that the Congress consider providing VA with the additional authority and resources necessary to expand the verification program governmentwide. Only 30 percent of service disabled veteran contracts are with the Department of Veteran Affairs. Thus, for the other 70 percent we continue to have a self certification program,” suggested Kutz.
Finn said VA’s verification system provides strong controls, but it also needs to strengthen it’s contracting practices, she said.
“I wouldn’t give up on it yet,” said Finn.
– by Molly Bernhart Walker – Fierce Government – Aug. 2, 2011 at: http://www.fiercegovernment.com/story/veteran-preferred-contracting-programs-rife-fraud-say-va-oig-gao/2011-08-02
The Government Accountability Office has recommended pulling a $25 million task order the Defense Information Systems Agency awarded Booz Allen Hamilton to enable the transmission of data between secure Defense Department computer networks.
The major defense and technology contractor fudged the likely cost of its employees’ workspace, artificially lowering its bid when competing for the work, according to an April 6 decision by GAO that was released in a redacted form Friday.
The contract to help DISA develop and manage its secure data transmissions was initially awarded in September to the smaller technology contractor Solers Inc., located in Arlington, Va., GAO said.
But the agency agreed to pull back the contract after Booz Allen asserted that contracting officials hadn’t sufficiently reviewed all the bids, the decision said.
The Defense agency then looked at revised bids and awarded the contract to Booz Allen in December 2010. The Solers bid was still technically superior, the agency said, but not worth a price hike of about 12 percent.
The Solers bid was about $27.4 million compared with the Booz Allen bid of about $24.6 million.
Solers objected to the Booz Allen award, saying the larger company hadn’t abided by a contract provision requiring a stable, fixed-price bid.
Booz Allen said in its bid that it was presuming more of its engineers would be able to use government workspace than the agency’s request for proposal had indicated.
Using government workspace would save money for both the contractor and the government, Booz Allen said. But the contractor noted that, if the agency declined to give the engineers government workspace, that would likely raise the contract price.
Booz Allen and DISA both claimed this quibble didn’t violate the contract’s fixed-price provision. It merely indicated Booz Allen might request an adjustment to its fixed price in the future, they said.
GAO disagreed, saying the “collective effect” of Booz Allen’s statements about government workspace added up to its offered price being “conditional, not firm.”
GAO also upheld Solers’ claims that the contracting officer hadn’t sufficiently evaluated the feasibility of Booz Allen’s proposal or looked closely enough at its past performance.
GAO recommended that DISA reevaluate bids for the project or reopen the bidding entirely. It also recommended that the agency reimburse Solers for the cost of its protest.
– By Joseph Marks – NextGov.com – 04/29/2011 – at http://www.nextgov.com/nextgov/ng_20110429_8693.php?oref=rss?zone=NGtoday
In an about-face, the Army has suspended all of its ongoing insourcing activities, potentially savings thousands of private sector positions.
In a Feb. 1 memorandum, Army Secretary John McHugh announced he was halting the service’s insourcing initiative immediately in favor of a scaled-back approach in which his office would have to directly approve projects.
“In an era of significantly constrained resources, the Army must approach the insourcing of functions currently performed by contract in a well-reasoned, analytically based and systemic manner, consistent with law and prevailing presidential and Department of Defense guidance,” McHugh wrote in the memo, released on Thursday by the Professional Services Council, an industry group that has opposed plans to bring contractor jobs back in-house.
The memo suspends all ongoing insourcing transitions, but does not reverse efforts that already have been completed.
Army spokeswoman Anne Edgecomb said the memo is not intended to stop insourcing altogether but to ensure that the process is conducted responsibly and deliberately. “We are trying to make sure we do everything we can to be fiscally responsible,” Edgecomb said. “We see the writing on the wall.”
Edgecomb did not have figures immediately available on the number of contractor positions the policy change would effect.
The Defense Department’s insourcing program leader said on Thursday that the Pentagon did not direct Army to change its policy.
“The department is committed to meeting its statutory obligations under Title 10 to annually review its contracted services, identifying those that are inappropriately being performed by the private sector and should be insourced to government performance,” said Thomas Hessel, a senior manpower analyst in the Office of the Undersecretary of Defense for Personnel and Readiness, in a statement to Government Executive. “This includes services that are inherently governmental or closely associated with inherently governmental in nature; provide unauthorized personal services; or may otherwise be exempted from private sector performance … While some contracted services may be identified for insourcing, some services determined to be no longer required or of low priority may be eliminated or reduced in scope while others will continue to be provided by the private sector.”
All future insourcing proposals, McHugh wrote, must include “at minimum, a manpower requirements determination, an analysis of all potential alternatives to the establishment of permanent civilian authorizations to perform the contracted work, certification of fund availability and a comprehensive legal review.”
Thomas Lamont, assistant secretary of the Army for manpower and reserve affairs, along with Mary Sally Matiella, assistant secretary of the Army for financial management and comptroller, will be responsible for developing criteria to evaluate the efficiencies generated from the policy change, McHugh said.
Contractor groups, which have long criticized the Defense Department’s insourcing plans as driven by quotas and lacking any verifiable cost savings, applauded the development.
“Secretary McHugh is taking the right approach to insourcing,” PSC President Stan Soloway said. “We have said all along that all sourcing decisions for clearly commercial work — whether insourcing or outsourcing — must be done strategically with the best interests of the government mission and American taxpayer in mind.”
John Palatiello, president of the Business Coalition for Fair Competition, a group formed to challenge the Obama administration’s insourcing plans, said the memo is proof the initiative has been poorly executed.
“BCFC renews its call for a governmentwide moratorium on insourcing until common-sense standards and metrics for assuring that any insourcing is in the taxpayers’ interests, does not increase unemployment, and is focused on statutorily defined inherently governmental activities, not commercial activities,” Palatiello said.
The memo comes only a few weeks after the Government Accountability Office reported the Army had identified more than 4,200 full-time jobs in which contractors are performing either inherently governmental or unauthorized personal services. In both the inherently governmental and the unauthorized personal services contracts, the Army typically would be required to bring those functions back in-house.
Defense Secretary Robert Gates announced in August 2010 that the Pentagon was implementing a fiscal 2011 billet freeze and halting its insourcing plans because of a lack of cost savings. But, the plan affected only civilian agencies and offices. The military services were exempt from the freeze, allowing them to continue with their insourcing plans.
Soloway called on the other military services to follow the Army’s approach. “Through such a process the Army, DoD and the taxpayer will gain vital insight into the total life-cycle costs associated with these decisions, the degree to which they address the Army’s workforce needs, and more,” he said. “We hope, as they say, the Army leads the way.”
– by Robert Brodsky - GovExec.com - February 3, 2011