Office of Inspector General (OIG) Understanding the Auditor’s Role in the MAS Procurement Process James M. Corcoran, CPA Deputy Assistant Inspector General for Contract Audits General Services Administration May 6, 2010

Presentation Topics The OIG’s Organizational Structure Types of OIG Audits The Auditor’s Role in Conducting MAS Contract Examinations The Preaward MAS Audit Process Common MAS Audit Findings

OIG Offices and Functions Office of Audits The Office of Audits, an evaluative unit staffed with auditors and analysts who provide comprehensive coverage of GSA operations through program performance reviews, internal control assessments, and financial and mandated compliance audits.  It also conducts external reviews in support of GSA contracting officials to ensure fair contract prices and adherence to contract terms and conditions. The Office of Audits performs external reviews of FAS vendors.

OIG Offices and Functions (cont.) Office of Investigations The Office of Investigations, an investigative unit that manages a nationwide program to prevent and detect illegal and/or improper activities involving GSA programs, operations, and personnel.  Office of Audits and Office of Investigations Have two different and distinct responsibilities/functions

Multiple Award Schedules Program Provides Federal agencies with a simplified process for obtaining commercial supplies and services at prices associated with volume buying. Awards indefinite quantity/indefinite delivery contracts to provide supplies and services at fair and reasonable prices.

Types of MAS Reviews Conducted by the OIG Preaward Examinations Take place either before an initial contract is awarded or before exercising an option Provide the CO with vital and current information for contract negotiations Postaward Examinations Examine the contractor’s adherence to contract terms and conditions, including IFF

Preaward Examinations A review of a company’s proposal/offer Submitted in response to a solicitation or contract modification For the delivery of goods and/or services At offered prices, terms and conditions For a specified period of time

Preaward Examination (cont.) Are conducted prior to negotiation and award Majority of the OIG preawards are conducted for contract extensions

Postaward Examinations Conducted during the contract period or after the award of the contract Findings identify any aspects of the contractor’s noncompliance with: Billing proper prices and terms and conditions Passing on price reductions Reporting of all sales The negotiated terms and conditions of the contract

Postaward Examinations (cont.) Two types of Postaward MAS Reviews Full postaward Limited scope postaward

OIG’s Authority to Conduct MAS Contract Examinations Contract Clauses GSAR 552.215-70 & 71 Examination of Records by GSA FAR 52.215-2 Audit and Records – Negotiation FAR 15-404-2 Information to Support Proposal Analysis Inspector General Act of 1978 Audit Authority is Incorporated within the Act Provides for Subpoena Authority

OIG Auditor’s Role: To assist the contracting officers in fulfilling their responsibilities Support – Examine the books and records of the vendor Independence Do not make contracting decisions Do not negotiate contracts Office of Management and Budget (OMB) Recognition of increasing dollar value of GSA contract activities and limited OIG resources Provided the OIG additional financial support to increase work in this area

Auditor’s Function vs. IOA Function IOA provides a ‘quick and dirty’ look at the vendor’s compliance with a limited number of contractual requirements IFF, Reported Sales, Trade Agreements Act Typically performed in a limited timeframe Auditors conduct a detailed analysis of the contractor’s proposal and the systems in place to ensure compliance with many contractual requirements Could take as long as six to eight weeks at the site

MAS Contract Audits How many MAS contract are audited? How is a MAS contract selected for audit?

Contract Audits Results:

How is an MAS Contract Selected for Audit? OIG takes the list of all MAS contracts and: Develops a list of potential MAS contracts to be audited Coordinates with the OIG staff and the Federal Acquisition Service (FAS) staff to select contracts for possible audit

How Does An MAS Contract Get Selected for Audit? OIG develops the “final selection” of examinations to be performed Ensure adequate coverage Must have mix of products and services Must cover large and small dollar contracts Must have mix of types of schedules Don’t audit same contractors w/o reason Eliminate duplicates selections Ensure resources available for other audits Final list is based on the results of this analysis and available audit resources

The Preaward MAS Review Process

Preaward Review Objectives To determine whether: The Commercial Sales Practices (CSP) information submitted by the company is current, accurate and complete The company’s sales monitoring and billing systems ensure proper administration of the price reduction provisions and billing terms of the contract

Preaward Review Objectives (cont.) The company adequately accumulates and reports schedule sales for Industrial Funding Fee (IFF) payment purposes Were all GSA sales reported and the correct IFF paid?

Preaward Review Objectives (cont.) NOTE: The following objectives apply only to services reviews Employees assigned to work on GSA task orders are qualified for the billable positions The company has an adequate accounting system for the segregation and accumulation of labor hours, materials, and other direct costs (ODCs) on time and material task orders

MAS Preaward Process (cont.) Notification to Vendors 210 days prior to the contract expiration, the contracting officer notifies vendor of intent to exercise contract option and impending preaward review Timeliness of the 210 letter is critical Procurement Information Notice (PIN) 2006-02 lists items to be included in the letter

MAS Preaward Process (cont.) Notification to Vendors (cont.) Vendor must contact the auditor within 7 days The Office of Audits sends the vendor a written request for information Information copy is sent to the contracting officer Vendor has 60 days to provide the requested information Request letter is a preliminary list of information necessary to begin the review

MAS Preaward Process (cont.) Notification to Vendors (cont.) Request letter includes vendor’s electronic commercial sales data ALL sales data related to ALL classes of customer are requested Not only basis of offer or basis of award customers Any class of customer could be MFC customer Basis of award could be changed if not MFC Allows verification that all GSA sales were reported and IFF paid Allows tie in to financial statements and verification that no transactions were omitted

MAS Preaward Process (cont.) Notification to Vendors (cont.) This is where the delays often begin Vendors often delay providing the information necessary to begin the review Audit staff will attempt to work with the vendor to obtain the information If unsuccessful, will contact the contracting officer for assistance PIB 2006-02 outlines contracting officer’s actions If vendor delays the process - OIG suggests limited temporary extensions as leverage Our perspective is - long extensions at current pricing encourages delays Contracting officer assistance is key to successfully obtaining required information and not delaying the audit and therefore the award process

MAS Preaward Process (cont.) After receipt of vendor’s information and initial office evaluation of this data, the Office of Audits Makes a preliminary selection of commercial transactions to review Contacts the vendor to set up an entrance conference to commence the on-site work Fieldwork takes anywhere from two to six weeks on site

MAS Preaward Process (cont.) Why does it take so long? Large size of MAS contracts requires examination of substantial amounts of data Vendors often do not provide timely responses to audit requests Negative incentive for the vendor to provide the requested information and explanations Significance and number of audit findings are often a factor All reviews are performed in accordance with Generally Accepted Government Auditing Standards (GAGAS) And OIG Policies and Procedures Audit staff issues – Leave, other commitments, etc.

MAS Preaward Process (cont.) What happens next? After the fieldwork is completed, audit team continues analysis of data in the office Continues to ask questions and obtain clarification of information Summarizes workpapers, develops conclusions and drafts report All work is reviewed by a supervisor All reports are “referenced” before they are released in final red cover form Throughout the process, auditor should be in communication with the contracting officer CO can request preliminary audit information Understand info can be revised based on supervisory review and referencing

MAS Preaward Process (cont.) Issuance of ‘red cover’ preaward report Issued to the contracting officer Contracting officer develops the negotiation position Contracting officer negotiates the contract

Typical Preaward Findings CSP is inaccurate and/or incomplete Government not offered MFC pricing despite comparability to commercial MFC Full range of commercial discounts, terms and conditions more favorable than those offered to GSA not disclosed

Typical Preaward Findings (cont.) Inadequate controls and procedures to properly monitor the price reduction and billing provisions of the contract resulting in overcharges to GSA schedule users (Postaward Implications) Failure to identify and report all GSA schedule sales (Postaward Implications)

Typical Preaward Findings (cont.) Services Reviews findings: Employees do not meet the education and work experience for the labor positions billed (Postaward Implications) Commercial price list used as the basis of award is not used by the vendor MAS labor categories do not map to the vendor’s labor categories used on other projects Cost buildup does not reflect vendor’s cost data Industry averages used

Typical Preaward Findings (cont.) Services Reviews findings (cont.): Substantial subcontract work on MAS task orders is not reflected in the proposed labor rates Vendor does not bill actual hours, instead bills monthly at 1/12 of annual rate

What Should You Do? A hotline report can be submitted via: FraudNet Form Avoids disclosure of email address Email to fraudnet@gsa.gov Email address is transmitted to FraudNet Hotline officer Telephone 1 (800) 424-5210 (Toll free) (202) 501-1780 (Washington DC metropolitan area)

Questions?