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Saturday, June 2, 2012

An ounce of prevention: Pre-award audits

There's the old saying, an ounce of prevention is worth a pound of cure. So it seems to be with pre-audit oversight, accountability being an essential principle of procurement, and effective accountability being an essential part of cost-savings.

I posted earlier about the 2011-12 semi-annual OIG report to Congress. This post is about one of the highlights of that report.
Our Office of Audits has continued to focus on GSA’s Multiple Award Schedule program, with a concentration in preaward audits, as well as oversight of GSA’s American Recovery and Reinvestment Act of 2009 projects and financial reporting. Our Office of Investigations focused on major procurement fraud, construction fraud, and counterfeit product identification in the federal government’s supply line. The OIG Office of Forensic Auditing continued its proactive data analysis to uncover potentially fraudulent activity.

Chief among the OIG’s achievements this semiannual period was Oracle Corporation’s $199.5 million settlement to resolve qui tam allegations that it defrauded the United States by intentionally failing to disclose discounts available to its commercial customers.

GSA provides federal agencies with billions of dollars of products and services through various types of contracts. As of March 31, 2012, there were over 19,800 Multiple Award Schedule (MAS) contracts under GSA’s procurement program with over $20.3 billion in total sales. We oversee this program by conducting preaward, postaward, and performance audits. Historically, for every dollar invested in our preaward audits, we achieve at least $10 in lower prices, or more favorable contract terms and conditions for the benefit of the government and the taxpayer.

The pre-decisional, advisory nature of preaward audits distinguishes them from other audit products. This program provides vital and current information enabling contracting officers to significantly improve the government’s negotiating position and to realize millions of dollars in savings on negotiated contracts.

During this reporting period, the Office of Audits performed preaward audits of 26 contracts with an estimated value of almost $7 billion. Because of their pre-decisional, advisory nature, the OIG’s preaward audits play a crucial role in improving the government’s negotiating position and in realizing millions of dollars in savings on negotiated contracts. Five of our more significant audits during this period were of Multiple Award Schedule (MAS) contracts with projected government-wide sales totaling more than $5.1 billion. These audits resulted in recommendations that $222 million in funds to be put to better use.

All five of the audits showed that the Price Reductions clause was ineffective because there were either no or limited sales to the basis of award customer, the listing of proposed exclusions as provided by the vendor was so encompassing as to prevent a price reduction from being triggered, or all sales were to either GSA or other federal agencies.

In four of our audits, we determined there were overbillings for various reasons, including: failure to pass along price reductions, invoiced pricing higher than the GSA schedule price, inclusion of sales tax, and invoicing for unqualified labor or
inappropriate labor categories.

Two of the audits determined that the commercial sales practice information provided in support of the extension proposal was not current, accurate, or complete. One company failed to disclose any sales other than those to the existing basis of award customer. Examination of the non-disclosed sales showed better than offered pricing,
which could result in cost savings of approximately 19 percent of the estimated contract sales for the extension period.

Two of the audits showed that customers with less sales volume received higher discounts and better terms than GSA, and suggest that GSA should leverage its buying power to obtain similar pricing.

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