TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

The Growing Number of Requests for Procurement Actions at Yearend Increases the Risk of Inefficient and Ineffective Spending

 

 

 

September 24, 2007

 

Reference Number:  2007-10-181

 

 

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

 

September 24, 2007

 

 

MEMORANDUM FOR DEPUTY COMMISSIONER FOR OPERATIONS SUPPORT

 

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

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – The Growing Number of Requests for Procurement Actions at Yearend Increases the Risk of Inefficient and Ineffective Spending (Audit # 200710004)

 

This report presents the results of our review of yearend spending.  The overall objective of this review was to determine whether the Internal Revenue Service (IRS) is efficiently managing its fiscal yearend spending.  This audit was part of our Fiscal Year (FY) 2007 annual audit plan and was requested by the IRS Director, Office of Procurement.

Impact on the Taxpayer

IRS fiscal yearend procurements are increasing dramatically.  Our analysis of commitments for a 5-year period[1] showed that the trend for spending at fiscal yearend is on the rise.  Inefficient and ineffective procurement actions can occur when there is a rush to use funds before they expire at fiscal yearend.  This rush increases the risk that items purchased may not meet the requester’s need, thus requiring a second procurement action; were not obtained at the best possible price; or did not use the best vendor or type of contract because Office of Procurement (Procurement) personnel do not have the time necessary to perform a full contractor competition process.  Therefore, funds may be spent inefficiently and ineffectively (i.e., not in the best interest of the Federal Government or the American taxpayer).

Synopsis

In FY 2002, the dollar value of commitments for the month of September was $17 million.  In contrast, for FY 2006, the value of commitments for September was more than $131 million, an increase of 671 percent.  Similarly, the number of September commitments also increased by approximately 29 percent, from 1,182 in FY 2002 to 1,529 in FY 2006.  While both Procurement and the IRS business units believe they have been able to satisfactorily manage fiscal yearend procurements so far, the issue has reached a possible critical limit. 

If the trend for spending at fiscal yearend on procurement actions continues to increase, there is a strong risk that Procurement will eventually be unable to handle the workload.  Procurement used overtime to complete its required procurement actions before the end of each year included in our review.  However, in the future, the IRS could be facing the difficult situation of obtaining items that do not meet requirements or are not needed, resulting in wasteful spending or having to allow the funds to expire and no longer be available to the IRS.  We believe neither situation is acceptable.  Given the current situation, the IRS needs to exercise better business practices when making budgetary decisions and planning for fiscal yearend procurement activities that would reduce the risk of inefficient and ineffective spending.

In addition to these trends, we identified deficiencies with 14 (15 percent) of 92 procurement actions[2] awarded in August and September 2006.  We believe appropriations regulations may have been violated for 4 of the actions, while all required acquisition steps were not completed for the remaining 10 actions.

Recommendations

We recommended the Deputy Commissioner for Operations Support, with support, assistance, and input from the Deputy Commissioner for Services and Enforcement, ensure business unit fiscal yearend procurement budgetary decisions and planning are performed in a manner that results in the early involvement of Procurement in the acquisition process, so Procurement can better manage its workload at fiscal yearend.  The Director, Procurement, should review the 14 actions noted in this audit and ensure all acquisition steps were completed and fully documented in the contract files.  Specifically, comments should be made explaining the acceptance or nonacceptance of the possible procurement regulation violations identified by this audit.  In addition, the Director, Procurement, should reinforce with Procurement personnel the importance of completing all acquisition steps and issue guidance to the business units regarding the requirements governing the use of appropriate fiscal year funding.

Response

IRS management agreed with our recommendations.  A cover memorandum signed by the Deputy Commissioner for Operations Support and the Deputy Commissioner for Services and Enforcement will be attached to the Advanced Acquisition Planning Information Request and Transmittal.  This memorandum will be distributed throughout each business unit and will emphasize the importance of teaming with Procurement at the earliest stages of the acquisition life cycle.  In addition, Procurement plans to provide both Deputy Commissioners a monthly report detailing the comparative percentages of funds committed and obligated by each business unit.

Procurement completed a review of each of the 14 actions and will place a Memo for the Record in each contract file acknowledging acceptance of the violation for 13 of the actions.  For the remaining action, which totaled $51,120, Procurement’s review showed the services being acquired were nonseverable.  Therefore, the funds were obligated in the appropriate fiscal year.  We accept Procurement’s review results as positive action taken in response to our recommendation. 

In addition, where applicable, Procurement plans to complete previously overlooked acquisition steps.  The Director, Procurement, also plans to issue an email reminder to all Procurement personnel advising them of the importance of adhering to procurement regulations and policies at all times.  Finally, Procurement plans to develop a discussion paper regarding bona fide need and discuss the topic at the Acquisition Planning Conference.  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 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

Fiscal Yearend Requests for Procurement Actions Have Been Increasing

Recommendation 1:

Fiscal Yearend Actions May Have Violated Appropriation Regulations and Were Being Awarded Without All Acquisition Steps Being Completed

Recommendation 2:

Recommendation 3:

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

 

FY

Fiscal Year

IRS

Internal Revenue Service

 

 

Background

 

Inefficient yearend spending can occur when there is a rush to use funds at the end of the fiscal year before the funds expire and can no longer be used.

Federal Government agencies generally receive a new budget each fiscal year[3] and are responsible for managing the funds to run their operations and to obtain goods and services.  As a general rule, funds must be obligated[4] before the end of the fiscal year, or the funds will expire and no longer be available to that agency. 

If a Federal Government agency needs to purchase an item, several steps must occur, depending on the dollar value of the item.  Within the Internal Revenue Service (IRS), purchases are generally processed through the IRS Office of Procurement (Procurement).  Various offices throughout the IRS will submit requests to Procurement to purchase a particular item.  Procurement is responsible for researching different contractors, selecting the appropriate one, purchasing the item, and approving the invoice(s) for payment.  The contractor provides the item directly to the requesting office.

Procurement activity is governed by numerous regulations and policies designed to protect the public’s interest and ensure procurement actions[5] are performed in the most efficient and effective manner.  In general, this would include the accurate definition of requirements to ensure the requester’s needs are satisfied, meaningful contractor negotiations to ensure the ability to obtain the best possible price, and adequate time to perform a full contractor competition process to ensure the selection of the best contract type.

The Federal Acquisition Regulation[6] provides uniform policies and procedures for acquisitions by executive agencies of the Federal Government.  The Department of the Treasury Acquisition Regulation also includes policies and procedures to assist in processing Department of the Treasury acquisitions.  In addition, the IRS has issued policies and procedures memoranda regarding the acquisition process.

The IRS Request Tracking System[7] contained 17,467 commitments, totaling approximately $1.9 billion, for Fiscal Year (FY) 2006.  Approximately 14 percent of these commitments occurred in the last 2 months of the fiscal year.  Additionally, the Request Tracking System contained 12,530 obligations, totaling approximately $1.8 billion, for FY 2006, with more than 27 percent of these obligations occurring in the last 2 months of the fiscal year.

This review was performed at the Office of Procurement in the Office of Agency-Wide Shared Services in Oxon Hill, Maryland, during the period January through May 2007.  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

 

Fiscal yearend procurements have increased dramatically over the last 5 fiscal years, both in dollar value and number of requests.  Procurement actions made in the last month of the fiscal year (September) represent a high risk, especially because there is limited time to process the actions and required steps must be taken.  While both Procurement and the IRS business units believe they have been able to satisfactorily manage fiscal yearend procurements so far, this issue has reached a possible critical limit.  Based on this trend, the IRS could exercise better business practices when making budgetary decisions and planning for fiscal yearend procurement activities, resulting in more efficient and effective spending.  Our analysis identified two conditions that indicate IRS management needs to make changes in this area as soon as possible.  First, there has been a trend of increasing requests for fiscal yearend procurement actions; second, there have been fiscal yearend procurement actions for which all required acquisition steps were not completed.

Fiscal Yearend Requests for Procurement Actions Have Been Increasing

Our analysis of commitment and obligation rates for a 5-year period, FYs 2002 through 2006, showed that requests to expend funds for procurement actions at fiscal yearend have been increasing dramatically.  In FY 2002, the value of commitments in the Request Tracking System for September was $17 million.  In contrast, for FY 2006, the value of commitments for September was more than $131 million, an increase of 671 percent.  Figure 1 shows the value of commitments and obligations for September over the 5-year period.

Figure 1:  Commitment/Obligation Amounts for the Month of September
(by fiscal year)

Figure 1 was removed due to its size.  To see Figure 1, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

In addition, the number of commitments increased by approximately 29 percent, from
1,182 in FY 2002 to 1,529 in FY 2006.  Figure 2 shows the number of commitments and obligations for September over the 5-year period.

Figure 2:  Commitment/Obligation Numbers for the Month of September
(by fiscal year)

Figure 2 was removed due to its size.  To see Figure 2, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Procurement officials expressed concerns with the rising dollar value of commitments at fiscal yearend, which significantly increases the workload for Procurement in the last month of the fiscal year.  Procurement officials also expressed concern that, because of the number of requests they receive at fiscal yearend, they believed they were not getting as much savings as they could if they had had more time to define requirements, negotiate with the contractors, and select the adequate type of contract.

In addition, Procurement officials stated that many of the requisitions submitted by the business units are incomplete.  We could not identify this as an issue because the Procurement files we reviewed did not contain any documentation that business unit requests were inaccurate, incomplete, or untimely.  Procurement officials explained that information regarding poorly submitted requests would not be documented in the contract because this issue occurs before a contract file is created.  Procurement officials did agree to consider having these poorly submitted requests documented on the Request Tracking System.  Poorly submitted requests affect Procurement’s efficient and effective use of resources because Procurement personnel need to send the requisitions back to the business units or work with the business units to obtain all the necessary information.

An increase in spending at fiscal yearend is not a new condition for IRS management, and there have been attempts to try to reduce the need for September procurements.  Each year, the Chief Financial Officer and the Chief, Agency-Wide Shared Services, issue a memorandum to the business units explaining the fiscal yearend process.  In FY 2006, the memorandum was issued on February 13, 2006.  It provided the dates by which spending plans were due to the Chief Financial Officer and when commitments needed to be in the Request Tracking System for Procurement to process them by fiscal yearend.  The Director, Procurement, also issues a memorandum regarding acquisition planning dates each year.  This memorandum provides requisition due dates for various types of contractual vehicles.

However, as shown in Figures 1 and 2, these joint actions have not been effective.  To explain this condition, Chief Financial Officer officials offered that the spike at the end of the year is normal and most of the business unit managers will be conservative and not spend all their funds early in the year.  In addition, some funds may not become available until the end of the fiscal year when the various IRS offices determine they do not need all the funds they initially anticipated.  Further, Procurement and business unit personnel indicated that budgetary continuing resolutions are a contributing factor to the increased fiscal yearend spending.  These continuing resolutions affect the IRS’ ability to initiate procurement actions earlier in the year.  Figure 3 presents the continuing resolutions and the dates on which budget appropriations were passed for the IRS.

Figure 3:  Continuing Resolutions (by fiscal year)

Fiscal Year

Date Appropriation Was Passed

2002

1/10/2002

2003

2/20/2003

2004

1/31/2004

2005

12/08/2004

2006

12/31/2005

Source:  Documentation provided by Procurement.

During a continuing resolution, the IRS has limits on the use of its funds.  For instance, new programs or initiatives cannot be started, and IRS guidance indicates that funded contracts should be “mission critical” items or services that, if not obligated or paid for during the continuing resolution, would greatly diminish service to taxpayers or tax law enforcement.

We understand the need to expend funds at the end of the fiscal year.  However, we believe any rush to use funds before they expire increases the risk of inaccurate definition of requirements, resulting in the item purchased not meeting the requester’s need and completion of another procurement action.  It may also result in less meaningful contractor negotiations that limit the IRS’ ability to obtain the best possible price and inadequate selection of the contract type because Procurement personnel do not have the time necessary to perform a full contractor competition process.

We believe good business practices dictate that the business units anticipate potential overages or excess funds that could be released at the end of the year and not wait until they are notified that funds are available before starting the research to prepare the procurement request.  The better the business units are able to describe the requested item (e.g., what are the business needs, capacity, size), the easier it is for Procurement to identify the best vendor and price.  If Procurement is involved in the fiscal yearend acquisition process as early as possible (i.e., when there are indications the funds could be released or shortly after funds are released), it can assist in planning the acquisitions by alerting the business units to the types of information needed for the request.  This joint planning fosters accurate, complete, and timely requests for goods and services.  In addition, involving Procurement early in the process will help Procurement manage its workload and satisfy its customers in terms of cost, quality, and timeliness of the delivered products or services.

If the trend for spending at fiscal yearend on procurement actions continues to increase, there is a strong risk that Procurement will eventually be unable to handle the workload.  Procurement used overtime to complete its required procurement actions before the end of each year included in our review.  However, in the future, the IRS could be facing the difficult situation of obtaining items that do not meet requirements or are not needed, resulting in wasteful spending or having to allow the funds to expire and no longer be available to the IRS.  We believe neither situation is acceptable.  Given the current situation, we believe IRS management has an opportunity now, before the situation gets out of control, to reduce fiscal yearend spending and intentionally plan for spending funds more equally throughout the fiscal year.

Recommendation

Recommendation 1:  The Deputy Commissioner for Operations Support, with support, assistance, and input from the Deputy Commissioner for Services and Enforcement, should ensure business unit fiscal yearend procurement budgetary decisions and planning are performed in a manner that results in the early involvement of Procurement in the acquisition process, so Procurement can better manage its workload at fiscal yearend.

Management’s Response:  The IRS agreed with the recommendation.  A cover memorandum jointly signed by the Deputy Commissioner for Operations Support and the Deputy Commissioner for Services and Enforcement will be attached to the Advanced Acquisition Planning Information Request and Transmittal.  The memorandum will be distributed throughout each business unit and will emphasize the importance of teaming with Procurement at the earliest stages of the acquisition life cycle.  In addition, Procurement plans to provide both Deputy Commissioners a monthly report detailing comparative percentages of funds committed and obligated by each business unit.

Fiscal Yearend Actions May Have Violated Appropriation Regulations and Were Being Awarded Without All Acquisition Steps Being Completed

The IRS may have violated appropriation regulations and did not ensure all steps were completed before awarding procurement actions at fiscal yearend.  We selected 92 procurement actions awarded in August and September 2006 to determine whether all required steps were performed before the procurement actions were awarded.

Procurement regulations and policies require the IRS to perform various steps before awarding a procurement action.  The required steps are based on the type of action and the dollar value of the action.  For instance, the Federal Acquisition Regulation and IRS policy generally require that acquisition planning be documented in a written acquisition plan.  In addition, post-procurement reviews are to be performed.  The type and level of such reviews are dependent upon the amount of the procurement action.

We identified deficiencies with the award in 14 (15 percent) of the 92 actions. While these deficiencies did not involve significant dollar amounts, Procurement needs to ensure all the required steps are followed before awarding an action.  These deficiencies included the following:

  • Two awarded actions, totaling approximately $186,000, appeared to use FY 2006 funds for work starting in FY 2007, which is prohibited.  These actions should have been awarded using FY 2007 funds because a legitimate need in FY 2006 was not established.  One of these actions had in place an existing contract that expired on September 30, 2006.  The office requesting the action explained that this contract was not originally extended for FY 2007 and was set to expire on September 30, 2006.  However, the contractor’s expertise was still needed; therefore, a new action was awarded.
  • Two actions were awarded as firm-fixed-price[8] purchase orders.  The orders were each awarded for approximately $5,000 more than the quote that was provided by the vendor.  The contracting officer explained that the business unit wanted the additional funds added at the time of award to cover any revisions or corrections that may be needed on the project.  However, because these were firm-fixed-price orders, they should not have been awarded with the additional FY 2006 funds.  If the orders needed to be modified for additional work in FY 2007, that year’s funds should have been used at the time the modification occurred.  No legitimate need was identified for the additional $5,000 for these orders.
  • One action, totaling approximately $4.6 million, was awarded without an acquisition plan, a procurement review, and a tax check being completed.  The contracting officer explained that this was an oversight because of the extensive number of procurement actions being processed at fiscal yearend.
  • Three actions, totaling approximately $11 million, included requests for post-award procurement reviews in the files.  However, at the time of our review in February 2007, the reviews had not been performed as required.  The contracting officers explained the reviews were overlooked and the actions would be presented for the required reviews immediately.
  • Six actions, totaling approximately $143,000, did not have a procurement review documented in the file before the award of the actions.  The contracting officer explained that reviews on these six actions were completed before the awards, but the files were not documented until after the awards.

The contracting officers explained that in the rush to get actions awarded at the end of the fiscal year some things are overlooked.  None of the contracting officers believed the integrity of any fiscal yearend procurements was compromised.  In addition, business unit personnel stated that it is not a deliberate decision to wait until the end of the fiscal year to make purchases.  However, at times, funding becomes available at the end of the year for projects that originally did not have any funding.

The business units need to be cautious in how they are using these funds.  The Principles of Federal Appropriations Law[9] provide that a “bona fide need” for the fiscal year in which the action is awarded needs to be established.  Appropriations law mandates that a fiscal year’s appropriation only be obligated to meet a legitimate (bona fide) need arising in the fiscal year for which the appropriation was made.  Actions cannot be awarded just to use available funding.  Also, Procurement offices need to ensure all steps required by regulations and policies are followed before awarding an action.  These controls are intended to ensure contract awards are in the best interest of the Federal Government and the “bona fide need” rule is not violated.

Recommendations

Recommendation 2:  The Director, Procurement, should review each of the 14 actions noted in this audit and ensure all acquisition steps were completed and fully documented in the contract files, especially the 4 actions in which procurement regulations may have been violated.  A specific comment should be made in the procurement file explaining the acceptance or nonacceptance of the possible procurement regulation violations identified by this audit.

Management’s Response:  The IRS agreed with the recommendation.  Procurement completed a review of each of the 14 actions and will place a Memo for the Record in each contract file acknowledging acceptance of the violation for 13 of the actions.  For the remaining action, which totaled $51,120, Procurement’s review showed the services being acquired were nonseverable.  Therefore, the funds were obligated in the appropriate fiscal year.  In addition, where applicable, Procurement plans to complete previously overlooked acquisition steps.

Office of Audit Comment:  We accept Procurement’s review results as positive action taken in response to our recommendation.  As a result, we reduced our reported outcome measure in Appendix IV from $196,000 to $144,880.

Recommendation 3:  The Director, Procurement, should reinforce with Procurement personnel the importance of completing all acquisition steps and issue guidance to the business units regarding the concept of “bona fide need” and the requirements governing the use of appropriate fiscal year funding.

Management’s Response:  The IRS agreed with the recommendation.  The Director, Procurement, plans to issue an email reminder to all Procurement personnel advising them of the importance of adhering to procurement regulations and policies at all times.  In addition, Procurement plans to develop a bona fide need discussion paper and make it available on the Procurement Policy Framework Intranet web site.  Further, Procurement plans to discuss the bona fide need topic at the annual Acquisition Planning Conference.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to determine whether the IRS is efficiently managing its fiscal yearend spending.  To accomplish this objective, we:

I.                   Conducted a preliminary analysis of a small sample of procurement actions to identify indicators of inefficient fiscal yearend spending.

A.    Reviewed the Federal Acquisition Regulation,[10] the Department of the Treasury Acquisition Regulation, and IRS policy and procedure memoranda and developed a checklist to identify all the steps that need to be completed before a procurement action[11] is awarded.

B.     Identified a sample selection universe of 3,664 procurement actions awarded during August and September 2006 from a list provided by the Office of Procurement (Procurement).  To conduct our preliminary analysis, we judgmentally selected 10 of these actions and verified, through a review of the contract files, whether all the steps required before award of the procurement actions were completed.  We used a judgmental sample because we did not plan to project our results to the universe. 

C.     Concluded that sufficient indicators of fiscal yearend spending problems were identified and continued our review.

II.                Determined whether Procurement followed all acquisition regulations when awarding procurement actions at fiscal yearend.

A.    Documented the process for awarding procurement actions and any concerns regarding fiscal yearend spending through interviews with Procurement personnel.

B.     Selected samples of 92 of the 3,664 procurement actions awarded during August and September 2006.  We judgmentally selected 72 of the 92 actions and randomly selected the other 20 actions.  The judgmental sample was based on the dollar value of the action and the date the action was awarded.  We used a judgmental sample because we did not plan to project our results to the universe.  We used a random sample, in part, to reduce our risk of a bias from the judgmental sample. 

C.     Verified through a review of the contract files whether all steps required before award of the procurement actions included in our sample were completed. 

D.    Interviewed Procurement personnel for all the procurement actions identified as not having all the required steps completed before the award.  We requested in writing an explanation of the condition.

III.             Determined whether the requesting office accurately, completely, and timely identified the need for goods and services being procured at fiscal yearend.

A.    Obtained a report from the IRS Request Tracking System[12] that summarized commitments and obligations made monthly for FYs 2002 through 2006 and analyzed the commitment rates and the levels of spending.

B.     Identified any concerns regarding commitment rates and levels of spending through interviews with Procurement, the Chief Financial Officer, and business unit personnel.

C.     Reviewed contract files and requesting office documentation for the procurement actions in our sample and noted the sufficiency of the reason for the action, the need for the goods/services, and the timeliness of the request.

D.    Interviewed requesting personnel for all procurement actions identified as not being accurate, complete, or timely and, when appropriate, requested in writing an explanation of the condition.

 

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 Brunetto, Audit Manager

Debra Kisler, Lead Auditor

Theresa Haley, Senior Auditor

Seth Siegel, Senior Auditor

Niurka Thomas, Auditor

 

Appendix III

 

Report Distribution List

 

Acting Commissioner  C

Office of the Commissioner – Attn:  Acting Chief of Staff  C

Deputy Commissioner for Services and Enforcement  SE

Chief Financial Officer  OS:CFO

Chief Information Officer  OS:CIO

Director, Procurement  OS:A:P

Chief Counsel  CC

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: 

Deputy Commissioner for Operations Support  OS

           Chief, Agency-Wide Shared Services  OS:A:F

Director, Procurement  OS:A:P

           Director, Stakeholder Management  OS:CIO:SM

 

 

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:

·         Cost Savings, Funds Put to Better Use – Potential; $144,880 (see page 8).

Methodology Used to Measure the Reported Benefit:

In our draft report, we reported $196,000 in potential cost savings related to 4 procurement actions that used FY 2006 funds for work we believed was not going to start until FY 2007.  Two of these actions were each awarded for approximately $5,000 more than the quote that was provided by the vendor.  The additional funds were added to the procurement action for revisions that may be necessary, even though these actions were awarded as firm-fixed-price[13] purchase orders.  If modifications became necessary in FY 2007, the need should have been funded with FY 2007 funds.  In addition, 2 actions totaling approximately $186,000 were awarded but appeared to use FY 2006 funds for work starting in FY 2007.  These actions did not establish a “bona fide need” in FY 2006 and should have been awarded in FY 2007. 

In response to our draft report, the Office of Procurement (Procurement) completed a review of each of the 14 actions identified in the audit and will place a Memo for the Record in each contract file acknowledging acceptance of the violation for 13 of the actions.  For the remaining action, which totaled $51,120, Procurement’s review showed the services being acquired were nonseverable.  Therefore, the funds were obligated in the appropriate fiscal year and, accordingly, we reduced our outcome measure to $144,880 ($196,000 less $51,120). 

 

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] FYs 2002 – 2006.

[2] A procurement action can be a contract, contract modification, delivery/task order, etc.

[3] Congress makes funds available for expenditure by means of appropriation acts or continuing resolutions.  An appropriation is the authority given to Federal Government agencies to incur expenses and make payments from the Department of the Treasury for specified purposes.  A continuing resolution provides budget authority to continue operations until appropriations are enacted.  Continuing resolutions are enacted when action on appropriations is not completed by the beginning of the fiscal year.

[4] Procurement actions are recorded in two steps:  commitment and obligation.  A commitment is a reservation of funds prior to the obligation of funds.  Typically for procurement actions (purchase orders, contracts, etc.), a commitment is created by a purchase requisition.  This action sets aside sufficient funds to cover the cost of the purchase.  The funds remain committed until the obligation is made or the commitment is cancelled.  An obligation is a binding agreement that will result in fund disbursements immediately or in the future.  Funds are obligated when procurement actions are awarded.  The funds are spent as invoices are received from the vendor for goods and services provided to the IRS.

[5] A procurement action can be a contract, contract modification, delivery/task order, etc.

[6] 48 C.F.R. ch. 1 (2005).

[7] 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.

[8] A firm-fixed-price contract is a type of contract providing for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.

[9] Principles of Federal Appropriations Law, Third Edition, published by the Government Accountability Office.

[10] 48 C.F.R. ch. 1 (2005).

[11] A procurement action can be a contract, contract modification, delivery/task order, etc.

[12] 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.

[13] A firm-fixed-price contract is a type of contract providing for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.