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Monday, April 27, 2015

Clean audit doesn't reveal dirty procurement management laundry

House HS Subcommittee Takes Hard Look at DHS's Procurement Processes
DHS achieved a much sought-after clean audit of its financial statements by independent auditor KPMG. The audit found DHS’s financial statements were in order. The auditors certified they had “reasonable assurance that what they saw on” DHS’s books “is correct,” said Chip Fulghum, DHS’s chief financial officer and acting undersecretary of management.

“I am pleased to announce that for the second year in a row, our audit firm KPMG, working in conjunction with our Office of Inspector General, has issued the Department of Homeland Security an unqualified audit opinion -- essentially a reasonable assurance from our outside auditors and the department’s Inspector General that our financial statements are accurate,” Fulghum said, adding that, “For the third largest department of our government … consisting of 22 components, 240,000 personnel, a 60 billion dollar budget and six core financial systems and hundreds of feeder systems, I consider this a remarkable achievement.

However, the chairman of House Committee on Homeland Security Subcommittee on Oversight and Management Efficiency harshly criticized the Department of Homeland Security’s (DHS) department-wide acquisition processes last week during an acquisition oversight hearing on how effectively DHS is safeguarding taxpayer dollars. “A broken acquisition process delivers tools that are late, cost more and do less than anticipated. Watchdogs continue to find failures in DHS’s management of its acquisitions, which is unacceptable and puts taxpayer dollars at risk," said subcommittee chairman Scott Perry (R-Pa.).

“Each year, DHS invests billions of dollars in its major acquisition programs to help execute its many critical missions. In fiscal year 2014 alone, DHS planned to spend almost $11 billion on these acquisition programs, and the department expects it will ultimately invest more than $200 billion in them,” said Michele Mackin, director of Acquisition and Sourcing Management at the Government Accountability Office (GAO).

“Each of DHS’s major acquisition programs generally costs $300 million or more and can span many years,” she explained to the subcommittee, noting that, “We have reported that DHS’s acquisition policy is generally sound, in that it reflects key program management practices,” but, “Due to shortfalls in executing the policy, we have highlighted DHS acquisition management issues on our high-risk list and made numerous recommendations to improve acquisition management practices.” Mackin said, “many of our recommendations have not yet been implemented, including that DHS ensure all major acquisition programs fully comply with DHS acquisition policy.”

Mackin told lawmakers that, “In its April 2015 report, GAO reviewed 22 major programs at DHS and found that [only] two of them were on track to meet schedule and cost parameters." However, she said, “GAO was unable to assess six programs—four of which are in Customs and Border Protection—because DHS leadership had not yet approved baselines establishing their schedules and cost estimates as required by DHS policy. The remaining 14 programs had experienced schedule slips, or schedule slips and cost growth. On average, these program milestones slipped more than three-and-a-half years, and their life-cycle cost estimates increased by $9.7 billion, or 18 percent.”

Mackin said, "DHS lacks key information necessary to manage its programs. For example, GAO found ambiguity across DHS testing assessments in that they did not always clearly identify whether the systems tested met all of their key performance parameters (that is, the capability or system attributes that are required to successfully meet the DHS mission).” “In addition,” Mackin explained, “DHS’s official system for acquisition program reporting—which feeds into required congressional reports—is hampered by data problems, such as inaccurate lifecycle cost estimates.

“Finally,” Mackin told the subcommittee, “DHS does not have information on operations and maintenance costs for 42 operational programs for which the normal documentation requirements were waived in 2013. GAO found that only one of these 42 programs has an approved life-cycle cost estimate. Operations and maintenance costs—which can account for more than 80 percent of program lifecycle costs—could run in the billions of dollars for these 42 programs." In Fiscal Year 2014, DHS still “lack[ed] written guidance for a consistent approach to day-to-day oversight,” according to an earlier GAO audit, which stated, “Federal standards for internal control call for organizations to define and document key areas of responsibility in order to effectively plan, direct and control operations to achieve agency objectives."

Sustainment costs can account for more than 80 percent of total costs, but all but one of these programs lack an approved cost estimate. GAO said “cost estimates are necessary to support decisions about program funding and resources.”

Sen. Tom Carper (D-Del.), former chairman and now ranking member of the Senate Committee on Homeland Security and Governmental Affairs, was especially incensed about GAO having found that DHS “needs to develop more realistic baselines for the cost and schedules of major acquisitions, improve testing and ensure that senior DHS leaders and Congress have complete and reliable data on the status of major acquisitions.

DHS needs people to effectively carry out everything that is on paper (rules, guidelines, etc.),” Homeland Security Today was told by former DHS Chief Procurement Officer Dr. Nick Nayak, who along with former DHS procurement ombudsman Jose Arrieta, wrote their report, Partnering with Industry is Key to Improving Acquisition Outcomes, in the Aug./Sept. 2014 issue of Homeland Security Today. Nayak explained that, “There simply are not enough cost estimators or program management people to carry out the oversight everyone wants.”

“DHS programs are large and complex, much like DoD, and they simply do not have the capability (through people) to get every single thing done,” Nayak said, emphasizing that, “The limited people in place perform heroically -- because they are mission driven to protect the country – [but] they are stretched so far that it is humanly impossible to sustain that level of performance over time.” And it all leads “to another problem,” Nayak said, which is “employee burnout, low morale and ultimately high turnover.”

Nayak and Arrieta wrote,“DHS has developed a unique way to train its acquisition workforce to be smarter and faster. DHS has developed an innovative approach to fill a gap in acquisition training that has existed forever across government agencies - lack of industry understanding." According to Nayak and Arrieta, “Today, DHS is spending 17 billion more a year teaching acquisition professionals about how industry does business, including concepts such as how companies determine to bid on a requirement, the best approach to minimizing proposal costs in order to maximize competition, and how to minimize or eliminate protests through effective communication.”

They added that, “DHS has been able to address the systematic and market convergence pressures immediately by partnering with industry associations to develop industry led seminars for the workforce – the cost is almost zero, and the impact is immediate. The seminars,” they explained, “focus on developing DHS acquisition professionals’ understanding of the marketplace and create a safe environment outside the acquisition process for contracting professionals to learn about their potential industry partners and to gain valuable experience before ever soliciting them for a requirement. They are even frank discussions about contracting and acquisition issues that nobody typically talks about until they are adverse in nature.

Further, Nayak and Arrieta said there's also a problem with government acquisition “brain drain.” They noted that, “In every magazine, newspaper and blog on federal contracting, you will find an article about transforming the acquisition workforce. Why? Because acquisition professionals are important. The federal acquisition process is a business executed and managed by people. Annually, the federal government spends $500 billion through the acquisition process. In total, across the federal government, there are 40,000 contracting professionals, about 30 percent of whom are eligible to retire in five years."

Meanwhile, 30 percent of the acquisition workforce has less than five years of work experience. Furthermore, it takes about five years to provide adequate training and experience to develop a competent contracting professional.
There is much, much more in the article, which you should read in full at the link above.

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