TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Voucher Audit of the Information Processing Support Services Contract –

TIRNO-00-D-00009

 

 

 

February 27, 2007

 

Reference Number:  2007-10-050

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

 

Phone Number   |  202-927-7037

Email Address   |  Bonnie.Heald@tigta.treas.gov

Web Site           |  http://www.tigta.gov

 

February 27, 2007

 

 

MEMORANDUM FOR CHIEF, AGENCY-WIDE SHARED SERVICES

 

FROM:                            Michael R. Phillips /s/ Michael R. Phillips

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Voucher Audit of the Information Processing Support Services Contract – TIRNO-00-D-00009 (Audit # 200610031)

 

This report presents the results of our review of the Internal Revenue Service’s (IRS) Information Processing Support Services Contract TIRNO-00-D-00009.  The overall objective of this review was to determine whether selected vouchers submitted and paid under contract number TIRNO-00-D-00009 were appropriate and in accordance with the contract’s terms and conditions.  We initiated this audit to determine whether the vouchers submitted by the contractor and paid by the IRS were accurate, supported, and allowable.

Impact on the Taxpayer

Contract expenditures represent a significant outlay of IRS funds.  The Treasury Inspector General for Tax Administration has made a commitment to perform audits of these expenditures.  To the extent our reviews assist the IRS in identifying and recovering inaccurate, unsupported, and unallowable charges, contract expenditures are reduced and taxpayer funds are saved.

Synopsis

We identified questionable charges totaling approximately $3.4 million, or about 19 percent of the approximately $17.8 million audited.  The questionable charges consist of unallowable and unsupported costs, including approximately $2.1 million for 105 consultants whose résumés the contractor could not provide, $793,000 for 51 consultants who did not qualify for the positions for which they were charged, $289,000 for 19 consultants who were improperly granted experience waivers by the IRS, $179,000 for subcontractors whose résumés were not provided, $22,000 in unsupported labor charges, $9,000 in unsupported subcontractor charges, and $900 in unsupported travel charges.  We provided details of these charges to the contractor and to the IRS.

As part of this audit, we also examined contract correspondence files and interviewed the Contracting Officer (CO) and the Contracting Officer’s Technical Representatives to determine whether the contractor’s performance was satisfactory.  Based on these limited auditing procedures, nothing came to our attention that would lead us to believe there were significant problems with the deliverables associated with the task orders included in our tests.

Recommendations

We recommended the Director, Procurement, require the appropriate CO to (1) review the questionable charges of approximately $3.4 million and initiate any recovery actions deemed warranted and (2) review the violations of the contract regarding qualification waivers and initiate any recovery actions or ratify the waivers, as warranted.

Response

IRS management agreed with our recommendations.  The CO has reviewed the questionable charges of $3.4 million and has determined that the contractor will be given until April 30, 2007, to provide additional supporting documentation.  The CO will conduct a thorough analysis of the additional documentation and determine whether recovery of a portion or all of the questionable charges is warranted, including negotiating consideration on behalf of the Federal Government.  In addition, the CO will provide written guidance to reinforce to the contractor the correct process for obtaining qualification waivers and identify the party responsible for approving such actions.  The CO will also provide additional guidance to Contracting Officer’s Technical Representatives to remind them that the CO is the only individual who contractually can approve waiver requests for contractor personnel who do not fully meet the education and experience requirements of the contract.  Management’s complete response to the draft report is included as Appendix V.

Copies of this report are also being sent to the IRS managers affected by the report recommendations.  Please contact me at (202) 622-6510 if you have any questions or Nancy A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.

 

 

Table of Contents

 

Background

Results of Review

Questionable Contract Charges and Voucher Verification Process

Recommendations 1 and 2:

Contract Deliverables Were Acceptable

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Outcome Measure

Appendix V – Management’s Response to the Draft Report

 

 

Abbreviations

 

CO

Contracting Officer

COTR

Contracting Officer’s Technical Representative

IRS

Internal Revenue Service

 

 

Background

 

In June 2000, the Internal Revenue Service (IRS) awarded contract number TIRNO-00-D-00009, a cost-plus-fixed-fee/firm-fixed-price contract[1] as a part of the Treasury Information Processing Support Services contracts, the first of which was awarded in 1994.  The objective of the June 2000 contract was to provide a continuation of the broad range of information technology-related services initiated by the original Treasury Information Processing Support Services contracts.  The IRS awarded task orders against the contract on either a cost-plus-fixed-fee basis or a firm-fixed-price basis.

The contract was awarded for a base period from June 2000 through May 31, 2001.  The contract included four option periods that would extend the contract through May 31, 2005.  The IRS exercised all the options available under the contract.  In addition, a contract modification was issued that further extended the contract to November 30, 2005.  According to the IRS Request Tracking System,[2] as of January 23, 2006, the IRS had awarded 23 task orders with a total value not to exceed approximately $341 million and had approved 506 vouchers totaling approximately $262 million for payment to the contractor.

Because contract expenditures represent a significant outlay of IRS funds, the Treasury Inspector General for Tax Administration made a commitment to perform audits of these expenditures.  This audit was designed to determine whether amounts paid by the IRS under this contract were accurate, supported, and allowable through a review of contractor vouchers and supporting documentation.

This audit was performed at the Office of Procurement in the Office of Agency-Wide Shared Services in Oxon Hill, Maryland, and the contractor’s facility in Reston, Virginia, during the period March through September 2006.  Opinions expressed in this report pertain only to vouchers included in our sample.  The audit was conducted in accordance with Government Auditing Standards.  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

 

 

Results of Review

 

Questionable Contract Charges and Voucher Verification Process

We examined supporting documentation obtained from the IRS Office of Procurement and documentation received directly from the contractor for a judgmental sample of 11 vouchers.  (see Appendix I for details).  The sampled vouchers related to seven task orders.  The 7 task orders had award amounts totaling approximately $279 million and associated vouchers of approximately $250 million.  Our sample of 11 vouchers had processing dates from July 2003 to January 2006 and totaled $17,839,917 in IRS payments.  The primary expenses claimed by the contractor were labor costs, subcontractor costs, and indirect costs such as overhead and general and administrative expenses.

Questionable contract charges

We identified questionable charges of $3,411,179.10 (19.1 percent of the total audited) as shown in Figure 1.  We provided details of these charges to the contractor and to the IRS.

Figure 1:  Schedule of Questionable Charges

Questioned Activity

Questionable Charges

Consultant Résumés Not Provided

$2,117,766.59

Use of Unqualified Consultants

$792,986.92

Improper Experience Waivers

$289,040.65

Subcontractor Résumés Not Provided

$178,913.67

Unsupported Labor Charges

$22,190.83

Unsupported Subcontractor Charges

$9,383.83

Unsupported Travel Charges

$896.61

Total

$3,411,179.10

Source:  Treasury Inspector General for Tax Administration analysis of 11 vouchers submitted to the IRS.

The contractor could not provide résumés for 105 consultants, or 28 percent of the consultants listed on the 11 vouchers we tested.  Further, of the 264 consultants for whom we were provided résumés, 51 were not qualified for their positions according to the contract.  For example, in June 2003 the IRS paid the contractor a total of $28,120.32, including general and administrative expenses, overhead, and fees for consulting provided by a Senior Information Technology Specialist.  According to the contract, this Specialist position requires 8 years of progressive experience in the field of information technology, including 6 years of specialized experience in numerous highly specialized information technology disciplines involving a wide range of hardware/software solutions.  A maximum of 2 years of college education may be substituted for 2 years of experience.  This consultant had been a Financial Officer in the military from May 1988 to November 2000, involved primarily in financial and budgetary issues.  Thus, although the consultant may have qualified for another reimbursable position, the résumé did not support the position for which this consultant was being charged.

In another case, the IRS paid the contractor a total of $22,154.48, including general and administrative expenses, overhead, and fees for consulting provided in June 2003 by a Junior Information Technology Specialist.  This Specialist position requires 4 years of progressive experience in the field of information technology, including 3 years of specialized experience in highly specialized information technology disciplines involving a range of hardware/software solutions.  A maximum of 2 years of college education may be substituted for 2 years of experience.  This consultant, while possessing the requisite college education that substitutes for 2 years of experience, did not begin working in the information technology field until September 2001, and thus did not qualify for the entry-level information technology position for which he or she was being charged.[3]

In addition, 19 consultants with charges totaling $289,040.65 were provided improper qualification waivers by the IRS.  The contract requires the contractor to prepare a written qualification waiver request and submit it to the Contracting Officer (CO) and the Contracting Officer’s Technical Representative (COTR) when the contractor wants to hire an individual for a specific labor category, but that individual does not possess all of the qualifications required for that category.  The contractor must receive written approval from the CO before the individual can work on the task order.  Each waiver we reviewed was signed by a COTR and the COTR’s Branch Chief.  The CO stated that he or she did not recall receiving waivers from the contractor and did not delegate his or her authority to the COTR.

The Federal Acquisition Regulation[4] stipulates a contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred.  In our opinion, résumés or other suitable documentation should be readily available for review to ascertain whether an individual meets the educational, technical, or experience requirements of the position for which he or she is being charged.  The Federal Acquisition Regulation also provides that costs shall be allowed to the extent they are reasonable, allocable, and allowable under the Federal Acquisition Regulation.

Voucher verification process

Contracts may be entered into and signed on behalf of the Federal Government only by COs.  COs have the authority to administer or terminate contracts and make related determinations and findings.  COs are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships.

The requesting program office nominates a COTR, who is the CO’s technical expert and representative in the administration of a contract or task order.  Usually, the CO will appoint the COTR by issuing a signed letter of appointment tailored to meet the needs of each contract.  The CO and the COTR are required to jointly review all appointed duties.

Prior to April 28, 2004, the Department of the Treasury Contracting Officer’s Technical Representatives Handbook was the primary guidance for COTRs.[5]  Part IV of the Handbook stated, in part, COTRs are responsible for reviewing and approving invoices and vouchers on contracts.  It also stated that COTRs will receive instructions regarding involvement in the review and approval of invoices and vouchers from the CO.  Attachment E of the Handbook offered, as a sample responsibility, that COTRs are responsible for reviewing and signing off on the vouchers to attest to their accuracy.  Four of the 11 vouchers we reviewed during this audit were subject to this guidance.

On April 28, 2004, the IRS replaced the Handbook guidance, in part, with a reference to the Office of Federal Procurement Policy document A Guide to Best Practices for Contract Administration (the Guide).  The Guide offers, as a practical technique, that COTRs reviewing vouchers under cost-reimbursement contracts should review, among other things, contractor timecards to help assess the reasonableness of direct labor costs.  The Guide also contains directions to review major cost categories such as travel, supplies, other direct costs, and subcontractor costs to again determine the reasonableness of the claimed costs.

None of the five COTRs involved with the vouchers we sampled for this audit were aware of the existence of the Guide or that the Handbook was no longer the primary guidance for COTRs.  Three of the five COTRs reviewed the vouchers primarily from a budgetary standpoint, rather than looking at details of expenses.  None had written review policies, procedures, or checklists, and three of the COTRs did not review the qualifications of any of the consultants provided by the contractor.  Because qualifications were not closely monitored, consultants who were not qualified according to the contract’s requirements were allowed to work on the contract.

We believe the identification of a significant amount of unsupported consultant qualifications, which represented the majority of our questioned charges, was directly related to the incomplete voucher verification process described above.  We conclude that, if the IRS was periodically or routinely requiring the contractor to provide such documentation, the contractor would have been able to provide employee résumés when requested during the period of our audit.  We will continue to include a review of the IRS’ voucher verification process in future contract voucher audits and, if warranted, recommend improvements to the process.

Further, allowing a contractor to use consultants who may not meet the requirements of the positions for which they are being charged could provide the contractor with an unfair advantage over other prospective contractors who did not bid on the solicitation because they did not have sufficient staff that met those specific contract requirements as stipulated in the solicitation.

Recommendations

Recommendation 1:  The Director, Procurement, should ensure the appropriate CO reviews the identified questionable charges of $3,411,179.10 and initiates any recovery actions deemed warranted.

Management’s Response:  IRS management agreed with this recommendation.  The CO has reviewed the questionable charges and determined that the contractor will be given until April 30, 2007, to provide additional supporting documentation.  The CO will conduct a thorough analysis of the additional documentation and determine whether recovery of a portion or all of the questionable charges is warranted, including negotiating consideration on behalf of the Federal Government.

Recommendation 2:  The Director, Procurement, should require the appropriate CO to review the violations of the contract regarding qualification waivers and initiate any recovery actions or ratify the waivers, as warranted.

Management’s Response:  IRS management agreed with this recommendation.  The CO agrees that additional documentation should be obtained from the contractor regarding the résumés which were not available from the contractor.  Upon receipt of the additional documentation, the CO will conduct a thorough analysis and make a determination whether recovery of a portion or all of the costs is warranted, including negotiating consideration on behalf of the Federal Government for contractor personnel who did not fully meet the education and experience requirements.  The CO will also provide written guidance to reinforce to the contractor the correct process for obtaining qualification waivers and identify the party responsible for approving such actions.  Also, the CO will provide additional guidance to COTRs to remind them that the CO is the only individual who contractually can approve waiver requests for contractor personnel who do not fully meet the education and experience requirements of the contract.

Contract Deliverables Were Acceptable

We examined contract correspondence files and interviewed the CO and COTRs to determine whether the contractor’s deliverables were acceptable for the 11 vouchers related to our voucher review.  In general, this contract was designed to provide sources of information processing support services for the Department of the Treasury, the IRS, and other Department of the Treasury bureaus.  The IRS was to be the primary user in the following four principal task areas:

  • Information Systems Services.
  • Telecommunications Support Services.
  • Organizational/Management Services.
  • Operational Support Services.

Based on our limited auditing procedures, nothing came to our attention that would lead us to believe there were significant problems with the deliverables associated with the vouchers included in our tests.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to determine whether selected vouchers submitted and paid under contract number TIRNO-00-D-00009 were appropriate and in accordance with the contract’s terms and conditions.  To accomplish our objective, we:

I.                   Analyzed the IRS voucher verification process prior to certifying payment to the contractor.

A.    Interviewed the CO and COTRs to confirm our understanding of the voucher verification process.

B.     Documented voucher processing risks including accuracy, supportability, and allowability of voucher charges and concluded as to the overall control environment.

C.     Interviewed IRS personnel involved in the administration of the contract to identify any concerns that existed regarding the contractor, its billing practices, or any specific vouchers.

II.                Verified whether voucher charges submitted by the contractor and paid by the IRS were accurate, supported, and allowable.

A.    Identified a universe of Request Tracking System[6] transactions as of January 23, 2006.  The universe contained the expenses reflected on 506 vouchers processed between November 2000 and February 2006.  The universe consisted of $340,830,327.28 in awards and $261,770,584.52 in processed transactions.  To ensure our sample consisted only of material vouchers, we eliminated from our sample universe all vouchers of less than $100,000.  We also eliminated all vouchers submitted prior to 2003.  This ensured supporting documentation would be readily available, we would have the ability to identify current internal control weaknesses, and IRS managers and employees would be available who would be knowledgeable of the current voucher verification process.

From this modified universe, we judgmentally selected 11 vouchers for review.  The vouchers related to 7 task orders that had award amounts totaling approximately $279 million and associated vouchers totaling approximately $250 million.  The sampled vouchers had processing dates between July 2003 and January 2006 and involved $17,839,917 in IRS payments.  We believed this sampling method would provide sufficient evidence to accomplish our audit objective and result in acceptable management corrective action without the need for a precise projection of sample results.

This audit did not include procedures to obtain evidence that computer-processed data within the IRS Request Tracking System were valid and reliable.  Although used during this audit, the data in general were not considered significant to the audit’s objective or resultant findings.  We used the data within the Request Tracking System only to reasonably verify the universe from which we selected our sample of transactions for substantive testing of their accuracy, supportability, and allowability.  We concluded and reported on those substantive tests.  Therefore, there was no adverse effect on the audit as a result of not including the reliability of computer-processed data audit procedures.

B.     For the vouchers in our sample, obtained supporting documentation from the IRS and contractor and performed the following tests:

1.      Verified the mathematical accuracy of the vouchers and supporting documentation.

2.      Traced voucher charges to supporting documentation.

3.      Verified whether voucher charges were actually paid by the contractor through examination of payroll records and extracts from the contractor’s financial records.

4.      Verified whether voucher charges were allowable under the terms and conditions of the contract.

III.       For the vouchers included in our sample, verified through interviews with responsible officials and reviews of project files whether the contractor’s performance and deliverables were acceptable as stipulated in the contract.

 

Appendix II

 

Major Contributors to This Report

 

Nancy A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

John R. Wright, Director

Thomas J. Brunetto, Audit Manager

Robert W. Beel, Lead Auditor

Melvin Lindsey, Auditor

Richard Louden, Auditor

Rashme Sawhney, Auditor

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Operations Support  OS

Director, Procurement  OS:A:P

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis  RAS:O

Office of Internal Control  OS:CFO:CPIC:IC

Audit Liaisons:

            Chief, Agency-Wide Shared Services  OS:A

            Director, Procurement  OS:A:P

 

Appendix IV

 

Outcome Measure

 

This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration.  This benefit will be incorporated into our Semiannual Report to Congress.

Type and Value of Outcome Measure:

·         Questioned Costs – Potential; $3,411,179.10 (see page 2).

Methodology Used to Measure the Reported Benefit:

We examined vouchers and supporting documentation obtained from the IRS Office of Procurement, as well as documentation received directly from the contractor, to verify charges for a judgmental sample of 11 vouchers.  We selected our sample from a universe of $261,770,584.52 in transactions processed by the IRS.  The 11 vouchers involved $17,839,917.00 in IRS payments.

Our review resulted in the identification of questionable charges of $3,411,179.10.  Specifically, these charges consisted of $2,117,766.59 for consultant résumés not provided, $792,986.92 for unqualified consultants, $289,040.65 for experience waivers improperly granted, $178,913.67 in subcontractor résumés not provided, $22,190.83 in unsupported labor charges, $9,383.83 in unsupported subcontractor charges, and $896.61 in unsupported travel charges.

 

Appendix V

 

Management’s Response to the Draft Report

 

The response was removed due to its size.  To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.



[1] A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract.  A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.

[2] The Request Tracking System is a web-based application that allows IRS personnel to prepare, approve, fund, and track requests for the delivery of goods and services.  The System also allows for electronic receipt and acceptance of items delivered and provides an interface with the Integrated Financial System (the IRS financial accounting system) for payment processing.

[3] In this example, the consultant was at least 3 months short of qualifying for the entry-level position.  We did not review other invoices to determine if this consultant worked on the IRS contract prior to June 2003.

[4] 48 C.F.R. ch. 1 (2005).

[5] Department of the Treasury Acquisition Circular No. 02-01, dated April 28, 2004, deleted references to the Contracting Officer’s Technical Representatives Handbook.  The Circular also stated the Department of the Treasury would no longer maintain the Handbook.

[6] The Request Tracking System is a web-based application that allows IRS personnel to prepare, approve, fund, and track requests for the delivery of goods and services.  The System also allows for electronic receipt and acceptance of items delivered and provides an interface with the Integrated Financial System (the IRS financial accounting system) for payment processing.