Procurement Audit Results Indicate Problems Continue to Exist After Corrective Actions Were Implemented
September 14, 2010
Reference Number: 2010-10-088
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 | 202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
PROCUREMENT AUDIT RESULTS INDICATE PROBLEMS CONTINUE TO EXIST AFTER CORRECTIVE ACTIONS WERE IMPLEMENTED
Highlights
Final
Report issued on September 14, 2010
Highlights of Reference Number: 2010-10-088 to the Internal Revenue Service Chief
of Agency-Wide Shared Services.
IMPACT ON TAXPAYERS
As of March 15, 2010, the Internal Revenue Service’s (IRS) Office
of Procurement was responsible for administering 839 procurements with a value
of approximately $48 billion over the life of the procurements. TIGTA has conducted a number of acquisition audits
and found that there were concerns with the procurement process. While the IRS took corrective actions to
address many of the findings when the TIGTA reports were originally issued, TIGTA
has continued to find recurring problems.
Until the IRS implements effective internal controls, it will be unable
to provide assurance that the Federal
Government is receiving the best value for procurements or that contractors are
meeting the procurements’ terms and conditions to deliver goods or services.
WHY TIGTA DID THE AUDIT
This
audit was initiated to identify and categorize IRS acquisition findings identified
in TIGTA audit reports issued from Fiscal Year 1999 through June 2009. This report also presents a high-level
overview to provide IRS management with the ongoing risks that may affect its
current and future procurements.
WHAT TIGTA FOUND
Based on our analysis of 74 TIGTA audit reports
conducted over an approximate 10-year period, TIGTA found that there were
several problems that continued to exist even after corrective actions were
taken by the IRS. This resulted in TIGTA
issuing repeat recommendations in many of these areas. For example, in two different audit reports issued
in Fiscal Year 2002, TIGTA recommended that the IRS use performance-based procurements
and firm fixed-price procurements whenever possible. Subsequent to these reports, TIGTA issued several
reports with similar recommendations.
TIGTA also identified trends where the IRS did not
have sufficient monitoring controls or processes to ensure contractors were
meeting the procurements’ terms and conditions; contractors did not provide
adequate documentation to support invoice charges; invoices included unallowable
labor, travel, or maintenance charges; and modernization contracts failed to
achieve their objectives or intended benefits.
One of the most common recurring issues was the need for improved
monitoring by the Office of Procurement’s Contracting Officers and the program
offices’ Contracting Officer’s Technical Representatives.
Collectively, these trends are a concern because they
indicate that the IRS continued to use inadequate controls, processes, and
practices to award and monitor procurements during this 10-year period. The IRS Office of Procurement advised us it
has started new initiatives that address some of the issues and trends that are
presented in this report. In addition, the
IRS needs to improve the control environment to reduce the risk of similar problems
in the future. TIGTA believes it is critical
that the IRS include prior audit findings and recommendations as part of its
overall annual risk assessment for acquisitions to ensure that the necessary internal
controls are implemented and are working effectively.
WHAT TIGTA RECOMMENDED
TIGTA did not make recommendations in this report. In their response to the report, IRS officials
agreed that increasing both performance-based and firm fixed-price contracting
has been challenging over the past 10 years, but added that they have made
significant progress in both of these areas and have identified several new
initiatives to address other trends. IRS
officials stated that had TIGTA performed an analysis of corrective actions
implemented in response to past audit reports, this report would more
accurately reflect the progress the IRS has made.
September 14, 2010
MEMORANDUM FOR CHIEF, AGENCY-WIDE SHARED SERVICES
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Procurement Audit Results Indicate Problems Continue to Exist After Corrective Actions Were Implemented (Audit # 200910033)
This report presents the results of our review of the procurement issues identified in prior Treasury Inspector General for Tax Administration audit reports. The objective of this review was to identify and categorize acquisition issues that were identified in Treasury Inspector General for Tax Administration audits issued from Fiscal Year 1999 through June 2009 in an effort to minimize risks associated with future Internal Revenue Service acquisitions. This review is included in our Fiscal Year 2010 Annual Audit Plan and addresses the major management challenge of Erroneous and Improper Credits and Payments.
Management’s complete response to the draft report is
included as Appendix XI.
Copies of
this report are also being sent to the Internal
Revenue Service managers affected by the report finding. Please contact me at (202) 622-6510 if
you have questions or Nancy A. Nakamura, Assistant Inspector General for Audit (Management
Services and Exempt Organizations), at (202) 622-8500.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
V – Total Outcome Measures by Type
Appendix
VI – Use of Different Contract Types During the Period 2005–2010
Appendix
VII – Office of Procurement Authorized Staffing Levels Fiscal Years 2000–2009
Appendix
VIII – Number and Total Value of Internal Revenue Service Procurements
Appendix
IX – Office of Procurement’s
Operational Budget Levels Fiscal Years 2000–2009
Appendix
XI – Management’s Response to the Draft Report
Abbreviations
|
COTR |
Contracting Officer’s Technical Representative |
|
IRS |
Internal Revenue Service |
|
OMB |
Office of Management and Budget |
|
TIGTA |
Treasury Inspector General for Tax Administration |
The Treasury Inspector General for Tax Administration (TIGTA) issued 74 audit reports[1] addressing procurements by the Internal Revenue Service (IRS) during the period Fiscal Year 1999 through June 2009. We conducted this review to identify and categorize IRS acquisition issues that were identified in these TIGTA audits. Appendix IV contains the number of audit reports issued by year, with the corresponding number of findings, recommendations, and corrective actions included in the reports. Appendix V shows the outcome measures by type.
We also evaluated IRS initiatives and the most significant policy and procedural changes affecting IRS procurements during our audit period. Some of these changes resulted from legislation, regulatory reform, or Office of Management and Budget (OMB) policy issuances, while others occurred due to internal or Government-wide process improvement initiatives.[2] These changes were accompanied by the need to develop new controls for the new initiatives and requirements or to update and strengthen controls as the procurement environment evolved.
One major initiative that has affected
IRS procurements since Calendar Year 1999 is the IRS Business Systems
Modernization Program. This program is a
complex effort to modernize IRS technology and related business processes. As of Fiscal Year 2010, the Business Systems Modernization
Program is in its 11th year and has received more than $3 billion
for contractor services and internal IRS costs.
Another
important issue affecting IRS acquisitions has been the greater emphasis on security,
including computer system security and security requirements for contractor
personnel. Other issues affecting IRS
acquisitions over the past decade include:
The need for a strategic approach towards acquisition is common across the Federal Government. A January 2007 report issued by the Acquisition Advisory Panel[5] to the Office of Federal Procurement Policy[6] and the United States Congress recommended that Federal agencies establish clear performance requirements, measurable performance standards, and a quality assurance plan to improve the use of performance-based contracting.[7] In addition, the Government Accountability Office issued a report in February 2007[8] in which it recommended that the Office of Federal Procurement Policy develop an oversight strategy or plan with milestones and reporting requirements to help it ensure the implementation of the advisory panel’s recommendations and to gauge how they improve Federal acquisition.
There has also been an increased focus on the acquisition workforce. The Acquisition Advisory Panel report also stated that the size of the Federal acquisition workforce has remained relatively stable since 1999, while the volume and complexity of Federal contracting has mushroomed. The report recommended that all agencies begin acquisition workforce human capital planning immediately. Our review did not address the sufficiency of the size or experience and skill levels of the IRS acquisition workforce; however, this is being reviewed in another ongoing TIGTA audit, which was initiated in April 2010.[9]
In addition to the broad procurement environment changes, we
evaluated the IRS’ procurement program data for our audit period and compared that
data to the data as of March 2010, the end of our fieldwork. The data included the total numbers, dollar
value, and contract types[10]
of IRS procurements and trends for staffing levels within the Office of
Procurement. As of March 15, 2010, the
Office of Procurement was responsible for administering 839 procurements; 664 in
contracts of varying types (including associated task and delivery orders) and
175 in Blanket Purchase Agreements and Interagency Contracts and Agreements. Procurement records show that the number of
procurements has remained relatively steady since April 15, 2005, when there
were 871 procurements. However, the
total value of the procurements increased from $43.6 billion to approximately
$48 billion since April 2005. For our 10-year
audit period, the Office of Procurement’s authorized staffing[11]
has remained constant while its operating budget has nearly doubled. Specifically, the Office of Procurement’s
staffing level was at 542 employees as of September 2000 and 537 employees as
of September 2009. However, the
operational costs for the Office of Procurement increased significantly, from
$43.4 million in September 2000 to $78.3 million in September 2009, an increase
of $34.9 million (or about 80 percent).[12]
This review was performed at the Office of Procurement in
Based on our review of the 74 TIGTA audit reports, we found that there were several findings[13] that continued to exist throughout our audit period. For the most part, the 111 findings and 200 related recommendations[14] identified in these 74 reports were unique and could not easily be placed into defined categories. However, the TIGTA made repeat recommendations in some areas. For example, in two different audit reports issued in Fiscal Year 2002, the TIGTA recommended that the IRS use performance-based procurements and firm fixed-price procurements whenever possible.[15] Subsequent to these reports, the TIGTA issued several additional reports containing similar recommendations. We also identified other trends, such as: the IRS did not have sufficient monitoring controls or processes to ensure contractors were meeting the procurements’ terms and conditions, contractors did not provide adequate documentation to support invoice charges, invoices included unallowable labor and travel charges, and modernization contracts failed to achieve their objectives or intended benefits. One of the most common recurring issues was the need for improved monitoring by the Office of Procurement’s Contracting Officers and the program offices’ Contracting Officer’s Technical Representatives (COTR).[16]
Collectively, these trends are a concern because they indicate that the IRS continued to use inadequate controls, processes, and practices to award and monitor procurements during this period. The IRS needs to improve the control environment to reduce the risk of similar problems in the future. Until this occurs, the IRS will be unable to provide assurance that the Federal Government is receiving the best value for its procurements and/or that contractors are meeting the procurements’ terms and conditions. To accomplish this, we believe it is critical that the IRS include prior audit findings and recommendations as part of its overall annual risk assessment[17] for acquisitions to ensure that the necessary internal controls are implemented and are working effectively.
Recurring Audit Findings and Recommendations Indicate Corrective Actions Were Not Sufficient to Resolve Problems
We found several instances of repeat or similar findings or recommendations occurring over the years covered by our audit period. The IRS took corrective actions to address many of the recommendations included in the reports we reviewed. However, the repeat findings and recommendations are an indication that the corrective actions were not effective.[18]
We identified two issues for which the TIGTA made several repeat recommendations—the use of performance-based contracting and the use of firm fixed-price contracts. In Fiscal Year 2002, the TIGTA recommended that the IRS use performance-based contracting whenever possible. While the IRS agreed with the recommendation, it did not agree with the TIGTA’s method for implementing the recommendation. As a result, the IRS did not implement any corrective actions for this recommendation. In Fiscal Year 2005, the TIGTA issued a second report containing a similar finding and recommendation. In this instance, while the IRS did not reject the TIGTA’s recommendation, the TIGTA did not believe that the IRS’ corrective action was adequate to address the issues noted in the report. Three additional reports containing similar findings and recommendations were issued since the Fiscal Year 2005 report. While the IRS implemented corrective actions in response to these reports when they were originally issued and has subsequently taken additional actions, we did not evaluate these actions in this audit to determine if the IRS effectively addressed the issue. However, as of March 31, 2010, the IRS reported that 49 percent of eligible contracts were performance-based which exceeds the Department of the Treasury’s Fiscal Year 2010 goal of 40 percent.[19]
The TIGTA reported in Fiscal Year 2002 that the IRS’ use of firm fixed-price contracts had decreased and recommended that the IRS use firm fixed-price contracts whenever possible. The IRS agreed with this recommendation and implemented corrective actions. However, in Fiscal Year 2005, the TIGTA issued another report addressing the need for the IRS to increase the use of firm fixed-price contracts. While the IRS agreed to the overall recommendation, the TIGTA stated that the IRS’ corrective actions would not correct the identified issue. In Fiscal Years 2007 and 2009, the TIGTA issued two additional reports with similar findings and recommendations.
During our review, we found that as of March 15, 2010, only a little over half of the IRS contracts were firm fixed-price contracts.[20] When considered as a percentage of the total number of procurements, fixed-price procurements decreased from 66 percent to 56 percent from Fiscal Year 2005 to March 2010. However, when considered as a percentage of the total dollar value of procurements, they increased from 13 percent to 33 percent from Fiscal Year 2005 to March 2010. As of March 15, 2010, the total value of the cost-reimbursement type contracts, including option years, was $17 billion. The selection of the proper contract type is important because under firm fixed‑price contracts, the contractor is paid only for those costs agreed to in the contract, which limits the financial risk to the Federal Government. For cost-reimbursement contracts, the contractors are reimbursed for all their costs, which is a higher monetary risk to the Federal Government.
In addition to the above issues, we identified several broader trends involving similar findings relevant to the procurement process. The IRS took corrective actions to address many of these findings when the TIGTA reports were originally issued; however, the actions were usually focused on the specific findings presented in the reports and may not have comprehensively addressed the risk area across the procurement process. We have not conducted followup audits on all 74 of the reports we analyzed as part of this review and, therefore, can not comment on whether any of the corrective actions taken were effective. However, collectively, the trends indicate that the IRS’ control environment over procurements needs strengthening. Examples of these trends include:
Many of these recurring findings relate to inadequate monitoring of the procurements by the IRS Office of Procurement’s Contracting Officers and the program offices’ COTRs. In addition to the 74 TIGTA reports we reviewed, a Fiscal Year 2009 TIGTA report[27] found that the IRS’ contract administration was ineffective. As a result, the IRS could not ensure that payments were made only to contractors who performed in accordance with the procurements’ terms and conditions and that taxpayer dollars were not being misspent. To ensure effective contract administration, the IRS needs to address the recommendations in that report and ensure it has qualified acquisition employees at sufficient staffing levels to carry out this key responsibility.
The intention of our review was to identify trends in acquisition findings and recommendations in the TIGTA reports and, accordingly, we are not making any new recommendations in this report. The IRS Office of Procurement advised us it has started new initiatives that address some of the issues and trends that are presented in this report.[28] In addition, the IRS should take steps to implement the Acquisition Advisory Panel’s recommendations[29] and improve its overall annual risk assessment for acquisitions. These actions should reduce the risk of similar findings and recommendations in future TIGTA audits of IRS procurements.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to identify and categorize IRS acquisition issues that were identified in
TIGTA audit reports issued from Fiscal Year 1999 through June 2009 in an effort
to minimize risks associated with future IRS acquisitions. To accomplish our objective, we:
I. Contacted IRS Procurement personnel and identified how the procurement of goods and services has changed from Fiscal Year 1999 through June 2009, including the number and types of acquisitions initiated by the IRS and the size of the workforce administering the procurements. We did not perform any procedures to validate the accuracy and reliability of the procurement data provided by the IRS.
II. Reviewed 74 IRS procurement-related reports issued by the TIGTA from Fiscal Year 1999 through June 2009 for the purpose of identifying and categorizing the findings and recommendations reported.
III. Determined whether the IRS took corrective actions to address all recommendations identified in the TIGTA procurement audits conducted from Fiscal Year 1999 through June 2009.
IV. Reviewed one report issued in September 2009 regarding the effectiveness of procurement monitoring controls.
Internal controls methodology
Internal controls relate to management’s
plans, methods, and procedures used to meet their mission, goals, and
objectives. Internal controls include
the processes and procedures for planning, organizing, directing, and
controlling program operations. They
include the systems for measuring, reporting, and monitoring program
performance. We did not evaluate
internal controls because doing so was not applicable within the context of our
objective. In addition, we did
not perform a separate internal control assessment as these would have been
performed for the 74 audit reports we reviewed.
Appendix II
Major Contributors to This Report
Nancy A. Nakamura, Assistant Inspector General for Audit (Management
Services and Exempt Organizations)
Alicia P. Mrozowski, Director
Michelle Philpott, Audit Manager
Doris J. Hynes, Acting Audit Manager
David P. Robben, Lead Auditor
William Simmons, Senior Auditor
Lara E. Phillippe, Auditor
William E. Thompson, Auditor
Brett C. Thornock, Auditor
Appendix III
Commissioner C
Office of
the Commissioner – Attn: Chief of
Staff C
Deputy Commissioner for Operations Support OS
Deputy Commissioner for Services and Enforcement SE
Director, Office of 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
Deputy Commissioner for Services and Enforcement SE
Chief, Agency-Wide Shared Services OS:A
Director, Office of Procurement OS:A:P
Appendix IV
Number of Procurement-Related Audit Reports Issued by Year With the
Corresponding Number of Findings, Recommendations, and Corrective Actions
The following table
provides an analysis of the 74 procurement-related audit reports issued by the TIGTA
during the period Fiscal Year 1999 through June 2009.
|
Fiscal Year |
Number of Reports Issued |
Total Findings |
Total Recommendations |
Number of Recommendations Rejected |
Number of Corrective Actions |
Number of Corrective Actions Implemented[30] |
|
Through June 2009 |
3 |
7 |
9 |
0 |
9 |
4 |
|
2008 |
8 |
10 |
18 |
0 |
35 |
34 |
|
2007 |
12 |
18 |
29 |
0 |
32 |
31 |
|
2006 |
9 |
6 |
10 |
3 |
8 |
8 |
|
2005 |
10 |
13 |
32 |
4 |
30 |
30 |
|
2004 |
11 |
20 |
36 |
5 |
45 |
43 |
|
2003 |
4 |
6 |
9 |
0 |
9 |
9 |
|
2002 |
7 |
14 |
29 |
4 |
30 |
30 |
|
2001 |
3 |
0 |
0 |
0 |
0 |
0 |
|
2000 |
4 |
8 |
17 |
1 |
17 |
17 |
|
1999 |
3 |
9 |
11 |
0 |
10 |
10 |
|
Totals |
74 |
111 |
200 |
17 |
225 |
216 |
Source:
TIGTA issued reports and Joint Audit Management Enterprise System
Corrective Action Forms.
Appendix V
Total Outcome Measures[31]
by Type
Some of the 74
procurement-related audit reports issued by the TIGTA during the period Fiscal
Year 1999 through June 2009 included outcome measures. The following chart shows the total outcome
measures by type of measure included in the final reports. We did not obtain the actual outcomes for the
potential outcomes that may have been realized after our reports were issued.
|
Type of Outcome
Measure |
Potential Outcomes |
Actual Outcomes |
|
Increased Revenue |
$180,485 |
$0 |
|
Cost Savings |
$18,794,317 |
$6,853,536 |
|
Inefficient Use of Resources |
$0 |
$3,719,844 |
|
Protection of Resources/ |
$160,322,430 |
$121,445,258 |
|
Total |
$179,297,232 |
$132,018,638 |
Source: TIGTA issued reports.
Appendix VI
Use of Different Contract Types During the Period 2005–2010[32]
The
chart was removed due to its size. To
see the chart, please go to the Adobe PDF version of the report on the TIGTA Public
Web Page.
The
chart was removed due to its size. To
see the chart, please go to the Adobe PDF version of the report on the TIGTA
Public Web Page.
.
Appendix VII
Office of Procurement Authorized Staffing
Levels Fiscal Years 2000–2009[33]
|
Fiscal Year |
Total Staffing |
|
2000 |
542 |
|
2001 |
546 |
|
2002 |
528 |
|
2003 |
508 |
|
2004 |
528 |
|
2005 |
561 |
|
2006 |
544 |
|
2007 |
557 |
|
2008 |
550 |
|
2009 |
537 |
Source: IRS Office
of Procurement.
Appendix VIII
Number and Total Value of Internal Revenue Service Procurements
|
Calendar Year |
Number of Procurements |
Total Value |
|
2005 |
871 |
$43,558,918,446 |
|
2006 |
839 |
$70,621,796,339 |
|
2007 |
803 |
$70,736,332,246 |
|
2008 |
905 |
$45,791,453,271 |
|
2009 |
836 |
$43,222,479,019 |
|
2010 |
839 |
$48,143,496,760 |
Source: IRS Active Contract Listings.
Appendix IX
Office of Procurement’s Operational Budget[35] Levels Fiscal
Years 2000–2009
|
Fiscal Year |
Total Budget |
|
2000 |
$43,372,252 |
|
2001 |
$52,056,694 |
|
2002 |
$57,730,764 |
|
2003 |
$57,836,618 |
|
2004 |
$61,347,499 |
|
2005 |
$65,595,352 |
|
2006 |
$73,248,869 |
|
2007 |
$76,625,572 |
|
2008 |
$76,269,289 |
|
2009 |
$78,343,076 |
Source: IRS Office of Procurement.
Appendix X
Listing of the Reports Addressing the Use of
Performance-Based and Firm Fixed-Price Procurements
The following 9 TIGTA reports (from our population of 74
audit reports) address the 2 areas where we made several repeat
recommendations.
TIGTA Reports Addressing Performance Based
Procurements
·
The Business Systems Modernization Office Needs to
Strengthen Its Processes for Overseeing the Work of the PRIME Contractor (Reference Number 2002-20-059, dated March 1, 2002).
·
While Many Improvements Have Been Made, Continued Focus Is
Needed to Improve Contract Negotiations and Fully Realize the Potential of
Performance-Based Contracting
(Reference Number 2005-20-083, dated May 26, 2005).
·
The IRS Is Successfully Taking Steps to Transition
Modernization Activities From the PRIME Contractor; However, Difficult
Challenges Remain (Reference Number
2007-20-003, dated October 24, 2006).
·
While Improvements Continue in Contract Negotiation Methods
and Management Practices, Inconsistencies Need to Be Addressed (Reference Number 2007-20-123, dated July 27, 2007).
·
Due to the Lack of Experienced Users, the Benefits of
Performance-Based Acquisition Are Not Being Fully Realized (Reference Number 2008-10-098, dated April 11, 2008).
TIGTA Reports Addressing Firm Fixed-Price
Procurements
·
Additional Improvements Are Needed in the Application of
Performance-Based Contracting to Business Systems Modernization Projects (Reference Number 2002-20-170, dated September 13, 2002).
·
While Many Improvements Have Been Made, Continued Focus Is
Needed to Improve Contract Negotiations and Fully Realize the Potential of
Performance-Based Contracting (Reference
Number 2005-20-083, dated May 26, 2005).
·
While Improvements Continue in Contract Negotiation Methods
and Management Practices, Inconsistencies Need to Be Addressed (Reference Number 2007-20-123, dated July 27, 2007).
·
Current Practices Might Be Preventing Use of the Most
Advantageous Contractual Methods to Acquire Goods and Services (Reference Number 2009-10-037, dated February 10, 2009).
Appendix XI
Management’s Response to the Draft Report
DEPARTMENTOF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
CHIEF
AGENCY-WIDE
SHARED SERVICES
August 4. 2010
MEMORANDUM FOR MICHAEL R PHILLIPS
DEPUTY
INSPECTQR GENERAL FOR AUDIT
FROM: David
A Grant /s/ David A. Grant
Chief, Agency-Wide Shared Services
SUBJECT: Draft
Audit Report - Procurement Audit Results Indicate Problems Continue to Exist
After Corrective Actions Were Implemented (Audit #200910033)
Thank you for the opportunity to respond to
the subject audit report. The audit was conducted to identify and categorize
Internal Revenue Service (IRS) acquisition issues that were identified in Treasury
Inspector General for Tax Administration (TIGTA} audits issued from Fiscal Year
1999 through June 2009 in an effort to minimize risks associated with future
IRS acquisitions.
The audit reviewed 74 previously issued audit
reports. Although the majority of the resulting 111 findings and 200 related
recommendations were unique in nature, two areas, the use of performance-based
contracting and the use of firm fixed-price contracts, were thought to be problematic,
producing repeat recommendations. The report also cites other “trends” which
were of concern as TIGTA feels they indicate that the IRS continued to use
inadequate controls, processes, and practices to award and monitor procurements.
We agree that increasing both
performance-based and firm fixed-priced contracting has been challenging for the
IRS Office of Procurement during the past ten years. However, we have made significant
progress over the last several years in both of these areas. Our current
statistics show that we are in fact, exceeding our Treasury set goal for performance-based
contracting this fiscal year. And while no goal specifically for firm fixed-price
contracting has been established, Executive Office of the President, Office of Management
and Budget Memo M-09-25 does call for a 10 percent reduction to "high risk
contract authorities” based on Fiscal Year 2008 total dollar value of
procurements
The report states that, when considered as a
percentage of the total dollar value of procurements, IRS Procurement has
increased its use of firm-fixed price contracts from 13 percent in Fiscal Year
2005 to 33 percent as of March 2010.
As an organization, we practice continuous
improvement. The progress made in the areas above is due to dedicated efforts
including mandatory training for all Contracting Officers and Contract
Specialists, monitoring by Contract Review Boards, and Quality Assurance
reviews. Additionally, we have a significant number of initiatives identified
to address the trends, including a number of new mandatory training courses for
Contracting Officer's Technical Representatives and their managers
While the report acknowledges challenges in
performance based and fixed-price contracts, it understates the significant
improvements achieved. As stated in the report, TIGTA did not evaluate the
effectiveness of corrective actions that have been implemented. Had the analysis
been performed we feel the report would have more accurately reflected the
progress made as a result of previous audit recommendations.
We appreciate your continued support and the
valuable assistance and guidance your team provides. If you have any questions,
please contact me or a member of your staff may contact Fred W. Martin,
Director, Procurement, at (202) 283-1200.
[1] See Appendix IV for the number of reports issued by fiscal year.
[2] The IRS Office of Procurement provided us with a summary of the legislation, regulations, policy issuances, and process improvements it believed had the greatest influences on IRS acquisitions during the last decade.
[3] “Green” procurement is one of the program elements of the IRS’ Environmental Program to ensure sound environmental stewardship, the prevention of environmental incidents, compliance with all relevant environmental regulations, and the promotion of continual improvement in environmental performance.
[4] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[5] The Acquisition Advisory Panel was authorized by Section 1423 of the Services Acquisition Reform Act of 2003, which was enacted as part of the National Defense Authorization Act for Fiscal Year 2004.
[6] The Office of Federal Procurement Policy in the OMB was established by Congress in 1974 to provide overall direction for Government-wide procurement policies, regulations, and procedures and to promote economy, efficiency, and effectiveness in acquisition processes.
[7] Performance-based contracting is a method of contracting for which the Government defines the results it is seeking, rather than the process by which those results are attained. The benefits include better prices and performance, the Government is released from having to develop detailed specifications and define the process, the contractor has more flexibility on how it achieves the desired results, less day-to-day surveillance is required, and contractors are motivated to be innovative and to save money.
[8] Oversight Plan Needed to Help Implement Acquisition Advisory Panel’s Recommendations (GAO-08-160, dated December 2007).
[9] On April 12, 2010, the IRS was advised of the audit Internal Revenue Service Acquisition Workforce (Audit Number 201010012).
[10] See Appendix VI for trends in contract types, Appendix VII for trends in staffing levels, and Appendix VIII for trends in total numbers and dollar value of procurements.
[11] See Appendix VII for the Office of Procurement authorized staffing details.
[12] See Appendix IX for the Office of Procurement annual operational budget levels. Approximately 70 percent of the operational cost increase is due to increases in salaries and benefits and an additional 28 percent of the increase is related to increases in support costs which include training and computer support.
[13] The TIGTA’s audit reports identify issues that require the IRS’ attention to improve its administration of the tax laws. These issues (called “findings”) are followed with recommendations to the IRS suggesting ways to address the issue. The IRS responds to the TIGTA’s audit reports and includes in its response “corrective actions” that are designed to address the report’s recommendations and the related problems identified in the audit reports.
[14] See Appendix IV for the number of findings and recommendations per year.
[15] See Appendix X for a listing of the TIGTA reports addressing the use performance-based procurements and firm fixed-price procurements.
[16] A Contracting Officer is a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The COTR is a person designated by the Contracting Officer to perform certain technical and administrative tasks related to a specific contract. The primary role of the COTR is to monitor the contractor’s performance, ensure that the contractor delivers what is called for in the terms and conditions of the contract, and serve as the technical liaison between the contractor and the Contracting Officer.
[17] OMB Circular A-123 (December 2004) defines management’s responsibility for internal control in Federal agencies. The purpose of the Circular is to improve the accountability and effectiveness of Federal programs and operations by establishing, assessing, correcting, and reporting on internal controls. When assessing risks, management should take into account previous audit findings, internal management reviews, or noncompliance with laws and regulations. In May 2008, the OMB issued a memorandum to Chief Acquisition Officers, Conducting Acquisition Assessments Under OMB Circular A-123, which provides guidelines for conducting entity-level internal control reviews of the acquisition function as required by Circular A-123.
[18] Our review did not assess the effectiveness of the corrective actions that did not fall into the categories discussed here, so we are not commenting on whether they adequately addressed the reported findings.
[19] Federal Procurement Data System-Next Generation statistics demonstrate the IRS awarded $262,556,513 as performance-based acquisitions out of $539,915,066 eligible actions, thereby resulting in 49 percent of the awarded eligible service contracts implementing performance-based acquisitions through the second quarter of Fiscal Year 2010.
[20] See Appendix VI for the types of contracts.
[21] Cost Savings Can Be Achieved Through Improved Monitoring of the Treasury Communications System Contract (Reference Number 2000-10-028, dated February 15, 2000).
[22] Audit of the Asset Seizure and Forfeiture Program Contract (Reference Number 2004-10-174, dated September 21, 2004).
[23] The Statement of Work is a technical description of the program requirement and is the basis upon which contractors prepare proposals, contracts are awarded, and performance is monitored.
[24] The Tax Exempt Determination System Release 1 Delivered Only a Small Portion of the Expected Benefits and Significantly Exceeded Cost Estimates (Reference Number 2006-10-174, dated September 26, 2006).
[25] All Small-Scale Information Technology Projects Should Be Included in the Investment Inventory, and Related Procurement Requisitions Should Be Properly Reviewed and Approved (Reference Number 20005-20-050, dated March 16, 2005).
[26] Vital Decisions Must Be Made to Ensure Successful Implementation of Customer Account Data Engine Capabilities (Reference Number 2007-20-080, dated July 13, 2007).
[27] Controls Over the Contracting Officer’s Technical Representatives Workforce Were Ineffective, Resulting in Significant Risks to the Government (Reference Number: 2009-10-139, dated September 30, 2009).
[28] The IRS Office of Procurement provided us with information on several initiatives it is undertaking regarding acquisition planning, performance-based contracting, and its receipt and acceptance processes. We did not evaluate the effectiveness of these initiatives in addressing prior findings as a part of this review.
[29] The majority of the Panel’s recommendations were made to the Office of Federal Procurement Policy within the OMB, while the others were directed to Congress and Federal agencies.
[30] As of July 2009.
[31] The TIGTA also identifies the measurable impact that our recommended actions will have on tax administration. These impacts are referred to as “outcomes” and are presented as both “potential” and “actual.” The Office of Audit also conducts followup reviews on some of the corrective actions to determine if their implementation adequately addressed the reported issue.
[32] Because the IRS Office of Procurement Active Contract Listings are continuously updated and maintained on a cumulative basis, we obtained the listing report with data as of April 13, 2005; March 31, 2006; March 31, 2007; March 31, 2008; May 13, 2009; and March 15, 2010 for the basis of our comparison.
[33] Staffing includes the position categories of Specialists, Program Managers, Analysts, Contracting Specialist/Officer, Purchasing, and various Administrative and Clerical. Staffing levels do not include the COTRs in the IRS’ operating divisions but do include vacancies for positions within the IRS Office of Procurement. The number of vacancies ranged from 71 in Fiscal Year 2000 to 41 in Fiscal Year 2009.
[34] The IRS has a unilateral right specified in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract for additional years (option years) without having to award a new procurement.
[35] This is the Office of Procurement Operational Budget only and does not include the amount of the procurements.