American Society of Military Comptrollers

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American Society of Military Comptrollers PDI
2008
SECNAV Acquisition Checks and Balances
Initiative

28 MAY 2008
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Agenda

• Naval Audit Service
• SECNAV Acquistion Checks and Balances Initiative
• SECNAV Task Force Review and Process
• Potential Oversight Mechanisms
• Potential Checks and Balances
• Whats Supposedly Working
• Vulnerabilities
• Recommendations
• NAVAUDSVC (Preliminary) Audit Results
• NAVAUDSVC Audit (Phase I)
• Questions/Comments

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NAVAUDSVC

• Internal Audit Organization for DoN
• Headquartered at the Washington Navy Yard
• 2 Field Offices (Norfolk, VA San Diego, CA)
• About 300-350 Auditors
• SECNAVINST 7510.7F, DoN Internal Audit
• Establishes DoN audit policy and our function
• Identifies Auditor General of the Navy/Naval
  Audit Service as Senior DoN Advisor to SECNAV and
  UNSECNAV on audit-related matters

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NAVAUDSVC

• SECNAVINST 7510.7F, DoN Internal Audit
• Establishes DoN audit policy and our function
• Identifies Auditor General of the Navy/Naval
  Audit Service as Senior DoN Advisor to SECNAV and
  UNSECNAV on audit-related matters

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NAVAUDSVC Management Structure
Aug 07
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SECNAV Initiative

• Background
• Recent instances of fraud and corruption in joint
  expeditionary contracting operations in Iraq,
  Afghanistan and Kuwait (e.g., various audit
  reports, Gansler Report, etc.)
• 2007 Team of Flag Officers and SES personnel
  conducted review of statutes, regulations,
  policies and audit reports on acquisition and
  contract administration checks and balances and
  internal controls
• October 2007 DON Acquisition Task Force visited
  NSA Bahrain and Dubai to identify vulnerabilities
  to fraud, waste, and abuse
• November 2007 Task Force briefed SECNAV on
  preliminary issues
• SECNAV requested an audit of OCONUS acquisition
  (contracting)

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Purpose of SECNAV Initiative

• Identify the DONs acquisition checks and
  balances intended to detect, deter, and prevent
  fraud, waste, and abuse
• Identify vulnerabilities to fraud, waste, and
  abuse
• Develop recommendations to ensure checks and
  balances are in place and working as intended

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Acquisition Review Project

• Phase I
• OCONUS Acquisition
• Phase II
• Echelon 3 4 Acquisition
• Remote Site Acquisition

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FY06 OCONUSDON Contract Actions

• Marine Corps .7M
• MSC 17.0M
• NAVFAC 780.0M
• NAVSEA 51.0M
• NAVSUP 581.0M
• TOTAL 1,429.7M

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Review Process

• Reviewed Statutes, Regulations and Policies
• Obtained for Analysis
• NAVAUDSVC Audit Reports
• GAO and DODIG Reports
• NCIS Criminal Investigations
• Gansler Report
• Procurement Performance Management Assessment
• Program (PPMAP) Reports and Performance
  Management
• and Assistant Program (PMAP) Reports
• Collected Data on OCONUS Acquisition Activity
• Task Force visited Bahrain, Dubai, Jebel Ali,
  Naples
• Djibouti

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Potential Oversight Mechanisms

• Acquisition strategies for non-Program services
  (MOPAS)
• PPMAP
• FedBizOps (Public Notice of Requirement/Strategy)
• Small and Disadvantaged Business Utilization
  (SADBU) Reviews
• Competition Advocate
• Internal Audits and investigations
• Legal Review
• Protests
• Acquisition Certification, Ethics Training,
  Post-Government
• Employment Restrictions, etc.
• Independence of Contracting Officer and Counsel

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PotenUallPotential Checks Balances

• Over 50 FAR, DFARS, NMCARS NMCAG Sections
• 14 DoD Policies, Instructions Memoranda
• Numerous DoN, Command and Activity Instructions
• PPMAPS/PMAPS
• Managers Internal control Plans
• NAVAUDSVC Audits
• IG Reviews
• Technology (e.g., Standard Procurement System
  (SPS), etc.)

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What Appeared to be Working

• Tone at the Top
• OCONUS Navy Customers Seem Satisfied
• Records Available for Audit
• OCONUS Personnel Engaged
• Self-Assessments Positive
• Overarching Husbanding Contracts Provide Global
  Support
• Automated Contract Writing Tool lncorporates
  Checks and Balances (e.g., Standard Procurement
  System, etc.)

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Vulnerabilities

• People
• Procurement Actions Up Staffing Down
• Oversight Function Reduced
• Recruiting for OCONUS
• Applicant Quality
• Time to fill positions 6 to 9 months on average
• Unaccompanied Tours
• Lack of Civilian Incentive
• Inadequate Training
• DAU Priority System challenging for Foreign
  National (FN) employees
• Length of Tours
• Constant Churn or Repetitive Extensions
• Leads to Instability or go to FN Staff

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Vulnerabilities (continued)

• People (continued)
• Reliance on Local Nationals and Third Country
  Nationals (TCNs)
• Provide corporate Knowledge
• Salary Differentials
• TCNs cost activity roughly one-third of U.S.
  Citizen
• Lack of Training Opportunities
• Questionable Ethics Requirements
• Inconsistent Security Checks
• Uncertain Loyalties
• Language Issues
• SOFA Requirements
• Application of Individual Augmentation Policies
• Inadequate Legal Support
• Time to Fill Positions 14 months in Bahrain
• May Not Be in Best Geographic Location

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Vulnerabilities (continued)

• Mission Priority Trumps Acquisition Controls
• Must Support War Effort
• Acquisition Process Undervalued
• Acquisition Community Focused on Contract Award
  not Contract Administration
• Distant Oversight
• Infrequent Oversight visits
• No Surprise Visits
• Logistical Issues
• Time Zone Differentials
• Commercial Bill Paying--Limited External
  Assessment
• Naples Disbursing Officer -- 65M at Personal
  Risk
• Bahrain Disbursing Officer -- 1OM at Personal
  Risk
• Djibouti Disbursing Officer -- 2M at Personal
  Risk
• Inadequate Technology
• E-initiatives not Always Working
• People Avoid Using Technology May Be Training
  Issue

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Vulnerabilities (continued)

• Reporting Process
• FN Staff Reliant on Supervisor for Job
• Business Culture Against Critical Self-Reporting
• Multiple Unstaffed Hotlines
• Africa
• Immature System
• Short Tours Tyranny of Turnover
• No continuing corporate Memory
• Most Lack Sufficient Experience
• Cash Transactions
• Unmonitored Transferring of Responsibilities
• Paying Agent vs Field Ordering Officer duties
• Infrequent Oversight
• Logistical Issues
• NAVEUR African Partnership Station initiative in
  Gulf of Guinea

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Preliminary Recommendations

• DASN (ALM) Conduct Staff Analysis to Determine
  Proper Staffing Requirements
• Numbers
• Appropriate Mix of Civilians/Military
• Reassess Reliance on Local and Third Country
  Nationals
• Proactively Assign Qualified Acquisition
  Professionals in
• Emerging Mission Areas
• Develop Acquisition Workforce for OCONUS
• Succession Planning
• Finding Proper Skillset
• Revise Individual Augmentation Practices
• Work with DAU for FN/TCN Training
• Review Technology Needs and Capabilities

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Diverse Review Team Reps

• OGC, Navy Acquisition Integrity Office (co-lead)
• AGC (RDA) (co-lead)
• NAVAUDSVC
• ASN (RDA)
• NAVINSGEN
• NCIS

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Gansler Report Recommendations

• Increase Stature, Quantity and Career Development
  on Acquisition Workforce
• Restructure Organization
• Provide Training and Tools
• Obtain Legislative, Regulatory and Policy
  Assistance

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Next Steps

• Integrated NAVSUP/NAVFAC Djibouti PPMAP
• Review Team Provided Oversight and Assessment
• NAVAUDSVC Control Testing
• Bahrain
• Dubai
• Djibouti
• Naples
• Western Pacific
• AFRICOM

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Audit Objective

• Verify that DON checks and balances for
  acquisitions (contracting) by selected activities
  are in place to detect, deter and prevent fraud,
  waste and abuse, IAW Federal, DoD and DON
  acquisition requirements.

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Criteria

• SECNAVINST 7510.7F, Department of the Navy
  Internal Audit, dated 27 Dec 05
• Generally Accepted Government Auditing Standards
  (GAGAS), dated Jul 07
• Federal Acquisition Regulations (FAR)
• Defense Federal Acquisition Regulations (DFARS)
• Current Internal Operating Procedures at
  Selected and associated activities

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Scope

• Reviewed Validity of Requirements
• Bona fide need/requirement for goods/services
• Documented Acquisition Planning
• Appropriate procurement approvals and
  authorizations
• Verified Source Selection
• Documented market research
• Price reasonableness
• Adequate competition
• Goods/services procured most conveniently or
  economically

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Scope (continued)

• Verified Contract Admin/Mgmt
• Monitored contractor performance
• Received goods or services paid for
• Maintained key contract documents
• Used Proper type funding
• Trained contracting personnel (DON and Foreign
  Nationals)
• Reviewed Ethics Program
• Policies
• Program Design
• Program established and working IAW Exec Order
  12674 and FAR 3.104

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Methodology

• Audit Universe
• FY06-07 Contracts/Contract Actions
• Two Selected Activities
• Naval Audit Data Mining Division
• 6,442 actions, 125M
• Compared for material differences (e.g., total
  obligations/award amts, number of actions, etc.)
• Sample Selection Criteria
• High-dollar value obligations
• Action/Order award dates (FY06FY07)
• Type of goods or services procured
• Sample for Selected Activities
• 39 contract actions, 28M

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Audit Results

• Positive Findings
• Contracting personnel received required training
  to perform assigned responsibilities
• Selected Activities performed in-house
  acquisition training and continuously kept
  employees abreast on updates to policies and
  procedures related to the acquisition process
• No Indications of fraud or other irregularities
• Requirements
• Checks and balances to ensure that funds are
  obligated for the particular service/products
  before the contracts were awarded needed
  improvements
• Management oversight of products/services a ship
  orders and ultimately receives when visiting the
  port needs improvements
• Selected Activity contracting office does not
  verify who, as supply officer, is authorized to
  order/certify on behalf of the ship

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Audit Results (Continued)

• Contract Admin/Mgmt
• Source Selection
• Improvement needed
• Selected Activity1 2 contracts/actions, 210K
• Selected Activity 2 6 contracts/actions,
  3.5M
• Legal reviews not consistently performed for
  contracts/actions over 100K
• Contracts/actions not consistently closed-out
  timely IAW FAR
• As of FY07, 1,060 contracts/actions pending
  complete closeout
• No documentary evidence to support performance
  for price reasonableness, market research and
  sole source justification

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Audit Results (Continued)

• Contract Officer (CO) exceeded CO authority.
• Delegated CO authority to unwarranted and
  unqualified contract specialist
• 3 contract actions, 1.6M
• Proper procedures for unauthorized commitments
  not consistently followed, IAW DoD Regulations.
• 1 contract, 13K

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Audit Results (Continued)

• Separation of Duties - Contract Specialist at
  Selected Activity
• Office
• Certified invoices for payment for Non-Navy
  Activity
• No supporting documentation of receipt of
  service/product by user
• Two Contracts - 21 of 46 invoices, 175K
• One Contract - One of two invoices, 12K
• Quality Assurance - 28 of 39 contract actions,
  19.4M
• No QASP or documented evidence of monitoring
  contractor performance) (e.g., no ratings or
  evaluation methods, etc.)

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Audit Results (Continued)

• Data Integrity
• FPDS-NG
• Contract data not reliable
• 4 contract actions, 742K
• DUNS Numbers
• Dummy/default DUNS/CAGE numbers used to bypass
  Central Contractor Register (CCR) database
  requirement for foreign contractors/vendors
• Contractors/vendors P.O. Box and Bill to
  addresses defaulted to Crystal City, VA.
• 7 contracts, 1M

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Audit Results (Continued)

• Selected Activity performed work outside scope
  of Command authority
• Real Estate Leases 1 contract, 708K
• Construction 1 contract, 95K
• Missing Documents (not in contract files)
• 38 of 39 contract actions/mods, as reqd by FAR
  4.803(b) and 43.204(a)
• Selected Activity, 24 contract actions, 20M
• Selected Activity, 14 contract actions, 4M

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Audit Results (Continued)

• Funding
• 3 of 39 contract actions, 599K, missing
  documents
• 2 of 39, 174k, funding document did not
  reconcile to contract award amount. No evidence
  funding was approved before contract awarded
• 12 of 39, 14.3M, no mod in file to support
  deobligations (Procedures, Guidance and
  Information 243.171, Obligations or Deobligation
  of Funds)
• 4 of 39, 2.3M, authorized officials name
  typed on funding document does not match name
  of official who signed document

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Audit Results (Continued)

• Ethics Program was in place at Selected
  Activities
• Staff current on required ethics training
• Management continuously expressed their views on
  ethical behavior
• Bulletin board in-house
• Email address to report any unethical and/or
  fraudulent behavior
• Hotline number posted
• Discrimination notice including in-house training
• Foreign Nationals at Selected Activities
• Met training requirements to perform assigned
  responsibilities
• Clearances performed by NCIS FBI
• DON adheres to Bahrain labor laws

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DocumentsRequested and Not Provided

• Missing Invoices
• IGEs
• Acquisition Planning Documents
• SOWs
• Modifications
• QASPs
• Funding Documents
• Delegation Memorandums
• Ratification Document
• RFP/RFQ

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Lessons Learned(Potential Recommendations)

• Selected Activities Need to Establish and
  Implement Controls
• Maintain complete contract files in accordance
  with FAR 4.801 (a) to ensure that all contract
  documents including delegation memorandums, are
  prepared, properly filed, and maintained (files
  should contain/tell a complete story)
• Ensure contracts are closed out IAW FAR 4.804-2
  and FAR 4.804-5
• Process unauthorized commitments per ratification
  authority (FAR 1.602 NAVSUPINST 4200.81E)
• Ensure contracts are awarded by warranted
  contracting officers (FAR 1.6)

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Lessons Learned(Potential Recs) (Continued)

• Ensure contracts and mods have appropriate
  signatures (FAR 4.803)
• Ensure COs do not exceed warranted authority
• Comply with FAR 1.6, DFARS 201.6, DoD FMR,
  NAVSUPINST 4200.99, DON and DoD acquisition
  guidance for ratification of unauthorized
  commitment.
• Develop acquisition plans IAW FAR 7.1 and Navy
  Command Instruction abcd.56D
• Engage customers early in development of
  acquisition to allow sufficient advance notice of
  requirements to facilitate acquisition planning
• Ensure legal reviews are consistently performed

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Lessons Learned(Potential Recs) (Continued)

• Contracting personnel receive proper oversight
  and necessary training to prevent potential
  Antideficiency Act violations (ADA) (DoD FMR Vol
  14, Chap 10, Par 100)
• Appropriate procurement approvals and
  authorizations are obtained and documented (FAR
  42.2 DFARS 201.6)
• Ensure signatures on funding documents are of
  authorized officials
• Separation of Duties for initiating, authorizing,
  processing, recording, and reviewing transactions
  

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Lessons Learned(Potential Recs) (Continued)

• Appropriate procurement authority should exists
  before awarding contracts for construction or
  real property
• Ensure data inputs in FPDS-NG are accurate and
  periodic reviews of data are conducted (FAR 4.6)
• Monitor use of dummy/default DUNS numbers
• Ensure information on ALL foreign vendors is
  entered in FPDS-NG and Central Contractor
  Registration

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Reporting Suspected Fraud

• Naval Inspector General Hotline
• Phone [phone]
• Email NAVIGHotlines_at_navy.mil
• DoD Inspector General Hotline
• Phone [phone]
• Email Hotline_at_dodig.osd.mil
• Website http//www.dodig.osd.mil/hotline

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Wrap-up

• Questions
• Comments
• Concerns
• Alvin Lowe
• 202-433-6270
• alvin.lowe_at_navy.mil