GSA information technology fund finishes year in the red

The General Services Administration's information technology fund ended fiscal 2006 $96 million in the red, according to a year-end agency statement obtained by Government Executive.

An Oct. 13 internal report states that fiscal 2006 revenues within the IT fund amounted to $4.9 billion, about 32 percent less than projected revenues of $7.2 billion. About $72 million of the $96 million in IT fund losses are attributable to a write-off of GSA Preferred, a failed IT project.

Agency officials said they prefer to describe total losses as about $24 million because the write-off is a one-time expense. Similar numbers can also be found in the agency's annual financial statement, which was released Monday.

Aside from the write-off, GSA officials attributed losses primarily to slow business in the agency's regional IT shops, which performed $2.1 billion worth of business, or 51 percent less than projected, according to the documents.

"This extreme drop in business is due to clients' decisions to use in-house contracting, increased time to issue orders due to changes in internal GSA acquisition processes and service orders not being filled for various reasons (clients' loss of funding)," according to the GSA report.

The agency is in large part a self-sustaining governmentwide procurement shop that pays for its operating costs out of fees assessed on customers.

GSA is locked in an argument over appropriations law with its main customer, the Defense Department. As a result of that, as well as increasing Defense resistance to using outside procurement shops, business has suffered, particularly at GSA's regional shops.

Congress approved a bill on Sept. 25 (H.R. 2066) allowing a merger of the IT fund with GSA's general supply service fund, but the law will not take effect until early December.

GSA officials have said the new combined fund will allow the agency to use surpluses generated by money-making acquisition units to cover losses.

In the meantime, GSA has been covering its losses by drawing on reserve funds, said Kathleen Turco, the agency's chief financial officer, speaking to reporters Monday. But reserve funds set aside for the agency's transition to Networx, a next-generation telecom contract, have not been touched, she said.

The general supply fund ended the year in much better shape than planned, generating a net operating result of $125.9 million as opposed to a projected loss of $54 million. "This increased profitability resulted primarily from across-the-board direct operating expense savings (hiring freeze implemented in January 2006) in conjunction with higher than expected business volumes," a GSA analysis stated. Nonetheless, the total revenue of $3.7 billion was slightly lower than planned revenues of $3.8 billion.

Spending on IT through GSA schedules accounted for half of the agency's general supply fund revenue. Management and other services accounted for another quarter. The upshot is that perhaps GSA should consider getting out of the non-IT commodities business, said Bob Woods, a former GSA Federal Technology Service commissioner, now president of Topside Consulting Group in Vienna, Va.

Administrator Lurita Doan announced shortly after her May appointment that she would begin an aggressive cost-cutting strategy, predicting that GSA "will be solvent at the end of this year." Internal documents show that travel by GSA acquisition officials is markedly reduced.

In all, GSA spent 27 percent less in fiscal 2006 on travel for acquisition officials than in fiscal 2005, for a total of $9.9 million. Travel restrictions have been unpopular with many GSA officials, who have complained the limits are self-defeating because official travel promotes customer relations. They also have said the restrictions are indicative of micromanagement by the agency's central office. The clampdown on travel may be relaxed somewhat, according to agency sources speaking on condition of anonymity.

GSA officials also announced Monday that the agency's independent auditor has given it an unqualified opinion on its fiscal 2006 financial statements. New York-based PricewaterhouseCoopers had issued a disclaimer for the fiscal 2005 year-end statement, mostly because GSA had difficulty with accounting for all the unobligated funds stored in the IT fund. Some agencies had unobligated funds sitting in GSA accounts dating back to 1997, though the majority was from fiscal 2002 to fiscal 2004, Turco said.

In the process of cleaning up its books, the agency returned about $1 billion to other federal agencies -- $581 million of that to the Defense Department. About $476 million came from the IT fund, according to Turco. Another $103 million came from the agency's public building service and the remainder came from the supply fund.

Turco said most of the returned funds were not left within GSA to evade fiscal year spending restrictions, but because the goods or services procured by GSA were cheaper than the obligated amount. "The financial folks should have been a bit more savvy in monitoring," she said. "It will not happen again." The CFO's office will now monitor acquisition units' books every six months for unobligated funds and have them returned to the customer agency, she said.