Audit finds millions in procurement waste and abuse at GSA unit

Ineffective management, a lack of internal controls and employee abuse culminated in the government's main contracting agency improperly spending millions of dollars in taxpayer funds, according to the General Services Administration's inspector general.

The report, released Friday, found that the agency's Federal Technology Service breached federal laws and regulations, and that activities in three regional offices made the entire operation vulnerable to "waste, fraud and abuse." The report identifies almost $300 million in contracts and orders that were affected by FTS employees' failure to follow well-known and long-established procedures.

The audit builds on improper contracting activities the inspector general discovered last year in the Bremerton, Wash., office of FTS, a subsidiary of GSA that buys information technology for other agencies. FTS collects a fee for those services, and employees are given financial bonuses for bringing in new business. In Bremerton, employees used nearly $40 million earmarked for technology to buy building and construction services, and some employees were financially rewarded. The office was working for the Defense Department, FTS' biggest customer.

In the new report, auditors identified numerous instances in which the FTS "culture" led employees to bow to customer demands. Employees in the regional offices improperly limited competition for certain contracts, often awarding work on a sole source basis to companies favored by FTS' clients. They also awarded work that was outside the scope of contracts; and may have falsified government documents to disguise the improper activities, auditors found.

As a result, the report concluded, the government could not be sure it had received "fair and reasonable" prices for what FTS purchased. "The fundamental objectives underlying the federal procurement process were not achieved," investigators wrote.

On Friday, FTS Commissioner Sandra Bates called the report "extremely disappointing," but said it "confirms the same underlying factors" found last year that led to the improprieties.

"By circumventing federal procurement laws, some Federal Technology Service offices appear to have wasted millions of taxpayer dollars," said Sen. Susan Collins, R-Maine, who chairs the Senate Governmental Affairs Committee. "Their blatant violations underscore the need for better oversight. However, I'm pleased that GSA initiated the investigation and is taking steps to remedy the problem. We'll continue to monitor the progress of those reforms." The audit covers the Bremerton office -- which was shut down last year following the revelations -- as well as offices in Kansas City, Mo., and Atlanta. The Kansas City office had the highest sales in all of FTS in fiscal 2002 -- more than $1 billion -- and it received the most scathing criticism from the inspector general. The report details how it often appeared the office's clients had more control over the procurement process than FTS had.

At times, FTS officials took customers at their word that they'd reviewed factors that would affect prices and competition on their orders. FTS employees accepted only "brief e-mails from clients as evidence" of "price reasonableness," the auditors wrote.

Auditors found multiple instances of sole-source contracting in all three offices. More than half of one set of orders was awarded on a sole-source basis, and "a substantial number [of those]…were not proper," the auditors wrote, meaning the lack of competition wasn't justified.

Clients "generally had a vendor in mind" before approaching FTS, the auditors said, noting, "Many clients were not interested in competing" their work. Also, FTS employees sometimes split projects into separate orders to keep the total project below a price ceiling above which competition is required.

FTS also modified existing orders without full competition, thus adding tens of millions of dollars in extra costs, the audit found. Often, the modifications were improper because they added work and time extensions that weren't called for under the original task order. In one instance, such modifications made the cost of a project jump from $11.3 million to $58 million.

FTS offices also misused contracts held by small businesses and purchased items that had little to do with technology. These included floating marine barriers, construction services and the purchase of antibodies for detecting biological pathogens such as anthrax. That work was performed on behalf of the Defense Department.

The Kansas City office accepted $53 million in orders for boat barriers during fiscal 2001 and 2002, which were to be used to keep watercraft from threatening U.S. naval vessels. The office paid for the barriers and their installation using money from the Information Technology Fund, which is set aside exclusively for technology purchases.

FTS officials attempted to justify their purchases, saying each barrier contained a "chip" that would be used to electronically determine its position. The auditors learned, however, that the chip only costs $5. The price for a single boat barrier was more than $50,000.

The auditors also found that the FTS contractor on the boat barrier procurement, Northern NEF Inc., "passed through" 100 percent of the work to a subcontractor. Northern NEF performed no work, but it collected a fee for acting as FTS' "order administrator," the audit found. By passing orders to companies "recommended" by the Navy, Northern NEF earned more than $2.6 million, the auditors said.