oversight

Inspection to Evaluate the Implementation and Effectiveness of the Department's Procedures in Response to Section 306 of the Fiscal Year 2008 Appropriations Act - Maintenance of Integrity and Ethical Values within the Department.

Published by the Department of Education, Office of Inspector General on 2009-10-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                     UNITED STATES DEPARTMENT OF EDUCATION
                                                          OFFICE OF INSPECTOR GENERAL

                                                                                                Evaluation and Inspection Services

                                                                                                                      October 8, 2009
Memorandum
TO:                  Thomas Skelly
                     Delegated to Perform Functions of the Chief Financial Officer

FROM:                Wanda A. Scott /s/
                     Assistant Inspector General
                     Evaluation, Inspection, and Management Services

SUBJECT:             Final Inspection Report
                     Inspection to Evaluate the Implementation and Effectiveness of the Department’s
                     Procedures in Response to Section 306 of the Fiscal Year 2008 Appropriations
                     Act – Maintenance of Integrity and Ethical Values within the Department
                     Control Number (ED-OIG/ I13J0001)


This final inspection report presents the results of our inspection to evaluate the implementation
and effectiveness of the Department of Education’s (Department) procedures in response to
Section 306 of the Fiscal Year 2008 Appropriations Act – Maintenance of Integrity and Ethical
Values within the Department (Section 306) and the Department’s response to those results.



                                                      BACKGROUND


Section 306 of the Fiscal Year 2008 Appropriations Act – Maintenance of Integrity and Ethical
Values within the Department – required the Department to implement procedures (1) to assess
whether a covered individual or entity has a potential financial interest in, or impaired objectivity
towards, a product or service purchased with, or guaranteed or insured by, funds administered by
the Department of Education or a contracted entity of the Department; and (2) to disclose the
existence of any such potential financial interest or impaired objectivity. The statute further
provides that covered individuals or entities are Department officers or professional employees,
contractors or subcontractors and their employees, consultants and peer reviewers. This
provision has since been codified at 20 U.S.C. § 3490.

On February 22, 2008, the Department issued a notification to all Department managers titled,
“Procedures to Comply with Section 306 of the Fiscal Year 2008 Appropriations Act.” OIG
evaluated the Department’s procedures and the results were presented in a final inspection report,
“Inspection to Evaluate the Adequacy of the Department’s Procedures in Response to Section
306 of the Fiscal Year 2008 Appropriations Act – Maintenance of Integrity and Ethical Values
Within the Department (ED-OIG/I13I0004),” issued on April 21, 2008. In that report, we

 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
concluded that the procedures specific to contractors, subcontractors, and individuals hired by
the contracted entity, if fully implemented as planned, were adequate to assess and disclose the
existence of any potential financial interest or impaired objectivity.

As part of those Department procedures for contractors, subcontractors, and individuals hired by
the contracted entity; applicable contract solicitations since August 2007 were to include the
following requirements:

   •   A conflict of interest clause which covers organizational and personal conflicts of
       interest. The clause mentions that conflicts may arise in the following situations: unequal
       access to information, biased ground rules, or impaired objectivity.

   •   A conflict of interest certification which includes the language of the conflict of interest
       clause, as well as a certification in which the organization must certify that it has
       disclosed all information related to potential conflicts of interest for itself, any
       subcontractor, and any individual hired by the contracted entity.

   •   Instructions requiring organizations to submit a conflict of interest plan. In the conflict of
       interest plan, the organization is required to provide details on its policies and procedures
       to identify and avoid potential organizational or personal conflicts of interest (or apparent
       conflicts of interest). The organization’s plan should also address procedures taken to
       neutralize or mitigate such conflicts, if they have not been or cannot be avoided.

The effectiveness of the Department’s ability to uncover and disclose the existence of potential
financial interests or impaired objectivity through these procedures is dependent on the accuracy
of the information provided in response to the contract solicitation and the winning contractor’s
commitment to implementing the plan and reporting back to the Department.

Contracts and Acquisitions Management (CAM) and Federal Student Aid’s (FSA) Acquisitions
group are the Department functions responsible for the solicitation, award, administration, and
closeout of all contracts and other acquisition instruments in the Department of Education. The
Director of CAM also serves as the Department’s Senior Procurement Executive (SPE) with
responsibility for all of the Department’s acquisitions.



                                 INSPECTION RESULTS


The objective of our inspection was to evaluate the implementation of the Department’s
procedures in response to Section 306 with regard to Department contractors, subcontractors, and
individuals hired by the contracted entity to determine if they are properly implemented and are
effective to uncover and disclose the existence of potential financial interests or impaired
objectivity. We determined that the Department’s procedures have not been implemented
properly; however, we continue to conclude that, if properly implemented, the procedures would
be effective to uncover and disclose the existence of potential financial interests or impaired
objectivity. No information came to our attention during the course of our inspection that would
indicate the Department failed to identify an actual conflict of interest. CAM provided examples


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of two contract solicitations in which the Contracting Officer identified a potential conflict of
interest and tailored a conflict of interest clause to address the potential conflict.

We found that the Department has not: 1) Adequately addressed the application of Section 306 to
product contracts; 2) Consistently implemented conflict of interest procedures for service
contracts valued over $100,000; and 3) Adequately addressed the requirements of Section 306
for service contracts valued $100,000 and below.


FINDING NO. 1 – The Department Has Not Adequately Addressed the Application of
                Section 306 to Product Contracts

During our 2008 review of the adequacy of the Department’s procedures to comply with
Section 306 (ED-OIG/I13I0004) it appeared that the Department’s procedures applied to all
contracts of every type. We have since determined that the Department has not adequately
addressed the application of Section 306 to product contracts. CAM officials stated that conflict
of interest plans are not required for the acquisition of products. According to CAM officials,
there cannot be a conflict of interest with a product so it has not applied Section 306
requirements to these contracts. Examples of products purchased under Department contracts
include software purchases, parking spaces, and products purchased off of the General Services
Administration’s (GSA) Federal Supply Schedules.

At the time of our inspection, CAM had not consulted with the Department’s Office of General
Counsel (OGC) on whether its decision to exempt product contracts from Section 306
requirements is supportable. CAM cited language in the conflict of interest certification that
refers only to “work performed under the contract or task order,” not to goods delivered. They
also cited Federal Acquisition Regulation (FAR) § 9.502 which lists four examples of possible
conflicts, all of which are related to service contracts. Although these provisions provide some
support for CAM’s position, neither specifically exempts product contracts from conflict of
interest requirements. In fact, FAR § 9.502 provides that the applicability of the organizational
conflict of interest provision is not limited to any particular kind of acquisition. Given CAM’s
position and the FAR statement that the conflict of interest provision is not limited to any
particular kind of acquisition, CAM should request a formal opinion from OGC to determine
whether the requirements of Section 306 apply to product contracts.

Recommendation

We recommend that the Acting Chief Financial Officer —

1.1    Request a formal opinion from OGC on whether CAM’s position regarding product
       contracts is supportable and implement policies and procedures in accordance with
       OGC’s opinion.




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FINDING NO. 2 – The Department’s Conflict of Interest Procedures for Service Contracts
                Valued Over $100,000 Have Not Been Consistently Implemented

We found that the Department’s conflict of interest procedures for service contracts valued over
$100,000 have not been consistently implemented. We determined that Department contracting
officials did not consistently include the conflict of interest clause, certification, and plan
instructions in the contract solicitations. We also determined that the contract files did not
consistently contain conflict of interest plans or evidence to show that the plans had been
evaluated. Due to inconsistent implementation, it appears that the conflict of interest procedures
were not adequately communicated to all relevant Department employees.

CAM’s Procedure for Identifying and addressing conflict of interest (CO-120) provide guidance
to different acquisition team members on their responsibilities related to identifying and
addressing conflicts of interest. The three specific steps are to:

            o Identify and avoid, neutralize, or mitigate potential conflicts during acquisition
              planning and other pre-award activity,
            o Identify, evaluate, and resolve conflicts during contract administration, and
            o Brief subsequent acquisition team members.

The CO-120 procedures do not include specific guidance on how to evaluate conflict of interest
plans. CAM officials stated that there are no criteria for reviewing conflict of interest plans and
that their procedure for evaluating conflict of interest plans was a “reasonableness test” by which
the contracting officer (CO) responsible for the contract determines whether or not the plan is
reasonable. In our review, we did not find evidence to support that the plans were reviewed for
reasonableness. CAM officials also stated that the evaluation of the plan is not necessarily
documented in the file if the plan was determined to be reasonable. Without criteria and
guidance for reviewing conflict of interest plans and documentation to ensure the plans have
been reviewed, CAM has no assurance that COs have performed the reviews and that the reviews
were consistent and thorough.

The CO-120 procedures are enhanced when supplemented by the conflict of interest clause, the
conflict of interest certification, the conflict of interest plan instructions, and conflict of interest
plan. As stated in our previous report on Section 306 (ED-OIG/I13I0004), the Department’s
procedures for contractors, subcontractors, and individuals hired by the contracted entity, if fully
implemented as planned, are adequate to assess and disclose the existence of potential financial
interests or impaired objectivity. The Department cannot effectively uncover and disclose the
existence of potential financial interests or impaired objectivity until these procedures have been
properly implemented.

Recommendations

We recommend that the Acting Chief Financial Officer —

2.1     Develop guidance for Group Managers and COs to assess the conflict of interest plans
        submitted by vendors;




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2.2      Communicate the Department’s conflict of interest procedures for service contracts
         valued over $100,000 to all relevant employees so that the procedures may be
         consistently implemented across the Department; and

2.3      Develop a process to confirm or validate that conflict of interest plans have been
         reviewed for reasonableness.


FINDING NO. 3 – The Department Has Not Adequately Addressed the Requirements of
                Section 306 for Service Contracts Valued $100,000 and Below

Service contracts valued $100,000 and below are not adequately addressed under CAM’s current
conflict of interest procedures. CAM officials stated that the inclusion of the conflict of interest
clause, the conflict of interest certification, the conflict of interest plan instructions, and conflict
of interest plan is a procedure only required for service contracts valued over $100,000.

All Department contracts valued at $100,000 and below are categorized as simplified
acquisitions, which, according to the FAR, are acquisitions of supplies or services not exceeding
$100,000 that have simplified procedures in order to reduce administrative costs, improve
opportunities for vendors, promote efficiency and economy in contracting, and avoid
unnecessary burdens for agencies and contractors. 1 According to a CAM official, a conflict of
interest plan is not required for simplified acquisitions because “the cost burden on both the
contractor and the Department would be prohibitive and be contrary to the concept of simplified
acquisitions.”

The Department’s policy of applying the conflict of interest procedures only to service contracts
valued over $100,000, does not meet the requirements of Section 306. The Department cannot
effectively uncover and disclose the existence of potential financial interests or impaired
objectivity for service contracts valued $100,000 and below if CAM’s procedures do not
adequately address contracts below the simplified acquisition threshold.

Recommendations

We recommend that the Acting Chief Financial Officer —

3.1      Address the requirements of Section 306 for service contracts valued $100,000 and below
         in a manner consistent with the simplified acquisition regulations; and

3.2      Ensure that all executive officers are aware of their responsibilities regarding conflicts of
         interest for service contracts valued $100,000 and below.




1
 The regulations at 48 C.F.R. § 13.002 specify the use of simplified acquisition procedures in order to “(a) Reduce
administrative costs; (b) Improve opportunities for small, small disadvantaged, women-owned, veteran-owned,
HUBZone, and service-disabled veteran-owned small business concerns to obtain a fair proportion of Government
contracts; (c) Promote efficiency and economy in contracting; and (d) Avoid unnecessary burdens for agencies and
contractors.”


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                               DEPARTMENT COMMENTS


On September 3, 2009, we provided the Department with a copy of our draft inspection report for
comment. We received the Department’s comments to the report on October 2, 2009. The
Department concurred with all of our findings and recommendations with the exception of
Recommendation 1.1. We have summarized the Department’s comments on that recommendation
and provided our response below. In response to our determination that “Department contracting
officials did not consistently include the conflict of interest clause, certification, and plan
instructions in the contract solicitations,” the Department stated that it believes it is more
practicable to include the requirement for a conflict of interest plan only in solicitations where the
potential for a conflict of interest is known in advance. The Department stated that in all other cases,
a conflict of interest plan is required from the successful vendor prior to the award of a contract,
rather than at the solicitation phase. The Department stated that its procedure for requiring conflict
of interest plans needs to be revised accordingly. We recognize this as a departure from the
Department’s original procedures to comply with Section 306 issued on February 22, 2008. This
procedure, if implemented in conjunction with our recommendations, will meet the requirements of
Section 306. The Department’s response, in its entirety, is attached.

Department Comments
The Department concurred in part with Recommendation 1.1. The Department stated that on
September 22, 2009, CAM sought a formal opinion from OGC as to CAM’s interpretation of the
statute. The Department notes that OGC’s opinions are advisory and the SPE is ultimately
“responsible for…implementation of unique acquisition policies, regulations and standards of the
executive agency.”

OIG Response
We recognize the advisory nature of OGC opinions and the responsibilities of the SPE. We note
that although OGC opinions are advisory; disregarding an OGC opinion may put the Department
at risk of non-compliance with Federal requirements.



                   OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our inspection was to evaluate the implementation of the Department’s
procedures in response to Section 306 with regard to Department contractors, subcontractors, and
individuals hired by the contracted entity to determine if they are properly implemented and are
effective to uncover and disclose the existence of potential financial interests or impaired
objectivity.

We began our fieldwork on April 7, 2009, and conducted an exit conference on August 13, 2009.

The scope of our review included all contracts both solicited and awarded between April 21, 2008
(the date of the final inspection report - ED-OIG/I13I0004), and April 6, 2009 (the date of our
request for files). In order to evaluate the Department’s implementation of its conflict of interest


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procedures, we reviewed a random sample of Department contract files from within this time
period. FSA contracts were included in our sample because, although FSA has a separate
acquisitions group, the same conflict of interest procedures to comply with Section 306 apply.
We stratified our sample into three categories:

   •   Contracts valued over $100,000 – a random sample of 15 from a universe of 50;
   •   Contracts valued $25,001-$100,000 – a random sample of 10 from a universe of 26; and
   •   Contracts valued $3,000-$25,000 – a random sample of 30 from a universe of 140.

We reviewed all 15 of the files for contracts valued over $100,000. We reviewed files for 9 of
the 10 contracts valued $25,001-$100,000 and 10 of the 30 contracts valued $3,000-$25,000.
Because CAM informed us, during our fieldwork, that the conflict of interest procedures are only
required for service contracts valued over $100,000, we ended our review of contracts under
$100,000. We also reviewed CAM’s “Procedure for Identifying and addressing conflict of
interest” and relevant e-mails provided by CAM. We met with Department staff in the Office of
the Chief Financial Officer’s Contracts and Acquisitions Management office and Federal Student
Aid’s Acquisitions group. Additionally, we referred to OIG’s final inspection report regarding
the Department’s procedures to comply with Section 306 (ED-OIG/I13I0004).

Our inspection was performed in accordance with the 2005 President’s Council on Integrity and
Efficiency Quality Standards for Inspections appropriate to the scope of the inspection described
above.




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                            ADMINISTRATIVE MATTERS


An electronic copy of this final inspection report has been provided to your Audit Liaison
Officer. We received your comments, which concurred with all of our findings and generally
concurred with our recommendations.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your offices
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System (AARTS). Department policy requires that you enter your final corrective
action plan (CAP) for our review in the automated system within 30 days of the issuance of this
report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports issued by the Office
of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act..

Electronic cc: Hugh Hurwitz, Director, Contracts & Acquisitions Management
               Jim Ropelewski, Deputy Director, Contracts & Acquisitions Management
               Roscoe Price, Audit Liaison, Contracts & Acquisitions Management
               Patrick Bradfield, Director, Federal Student Aid Acquisition Group
               Mark Love, Audit Liaison, Federal Student Aid




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                       United States Department Of Education
                       Office of the Chief Financial Officer




MEMORANDUM

DATE:             October 2, 2009

TO:              Wanda A. Scott
                 Assistant Inspector General
                 Evaluation, Inspection and Management Services

FROM:            Thomas P. Skelly /s/
                 Delegated to Perform Functions of the Chief Financial Officer

SUBJECT:         Inspection ED-OIG/I13J0001, entitled “Inspection to Evaluate the
                 Implementation and Effectiveness of the Department’s Procedures in Response to
                 Section 306 of the Fiscal Year 2008 Appropriations Act – Maintenance of
                 Integrity and Ethical Values within the Department”


The Department has reviewed the Inspector General’s (IG) draft inspection and was encouraged
that there was no information indicating that the Department failed to identify an actual conflict
of interest.

The Department notes that Conflict of Interest is an issue that is of concern across the
Government and that while the Department implemented policy addressing this issue in 2007,
OMB is expected to issue Government-wide policy shortly. If such action is taken, the
Department will need to consider the Government-wide policy as it relates to current agency-
specific requirements.

The Department’s comments regarding specific findings and recommendations are as follows:

FINDING NO. 1: The Department Has Not Adequately Addressed the Application of
Section 306 to Product Contracts.

The Department concurs with this finding. The Department believes that its reading of the
legislation is the only reasonable interpretation. In the case of a product contract, the contract’s
sole purpose is to supply a product. For those situations, we believe that a conflict of interest
cannot exist for a supplier or its employees. However, the Department agrees that specific
guidance articulating this position should be more widely disseminated.




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Our Mission is to promote student achievement and preparation for global competitiveness by fostering
                                educational excellence and ensuring equal access
       Recommendation 1.1: Request a formal opinion from OGC on whether CAM’s position
       regarding product contracts is supportable and implement policies and procedures in
       accordance with OGC’s opinion.

       The Department concurs in part with the recommendation. On September 22, 2009,
       CAM sought a formal opinion from the Office of the General Counsel (OGC) as to
       CAM’s interpretation of the statute. However, OGC’s opinions are advisory. In
       accordance with FAR 2.101, the Senior Procurement Executive (SPE) is ultimately
       “responsible for …implementation of unique acquisition policies, regulations and
       standards of the executive agency.”

FINDING NO. 2: The Departments’ Conflict of Interest Procedures for Service Contracts
Valued Over $100,000 have not been consistently implemented.

The Department concurs with this finding.

Our understanding is that this finding is based, at least in part, on a February 22, 2008,
memorandum from the General Council which stated that the COI provisions are included in all
“applicable solicitations.” We believe it is more practicable to include the requirement for a COI
plan only in solicitations where the potential for a COI is known in advance. In all other cases,
the COI Plan is required from the successful vendor prior to the award of a contract, rather than
at the solicitation phase. As with Finding No. 1, we believe that the procedure requires revision
in order to make this clearer.

       Recommendation 2.1: Develop guidance for Group Managers and COs to assess the
       conflict of interest plans submitted by vendors.

       The Department concurs with the recommendation. The Department will develop
       guidance for the assessment of conflict of interest plans and include this guidance in
       CO-120 or its replacement.

       Recommendation 2.2: Communicate the Department’s conflict of interest procedures
       for service contracts valued over $100,000 to all relevant employees so that the
       procedures may be consistently implemented across the Department.

       The Department concurs with the recommendation. Upon completion of 2.1 and 2.3, the
       Department will reissue guidance to all relevant employees.

       Recommendation 2.3: Develop a process to confirm or validate that conflict of interest
       plans have been reviewed for reasonableness.

       The Department concurs with the recommendation and will implement a process by
       which Contracting Officers will document that they have reviewed COI plans for
       reasonableness and identify the process in the guidance in CO-120 or its replacement.




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FINDING NO. 3: The Department Has Not Adequately Addressed the
Requirements of Section 306 for Service Contracts valued $100,000 and Below.

The Department concurs with this finding.

       Recommendation 3.1: Address the requirements of Section 306 for service contracts
       valued $100,000 and below in a manner consistent with the simplified acquisition
       regulations.

       The Department concurs with the recommendation. As agreed between the IG and the
       SPE at the Exit Conference, the Department has included language in the Education
       Acquisition Regulation (EDAR) to address procurements at or below the Simplified
       Acquisition Threshold, currently $100,000. The regulation is currently undergoing
       Department clearance review.

       Recommendation 3.2: Ensure that all executive officers are aware of their
       responsibilities regarding conflicts of interest for service contracts valued $100,000 and
       below.

       The Department concurs with the recommendation. Upon receiving
       Department clearance for publication of the EDAR, all personnel responsible
       for simplified acquisitions will be notified of any actions they are responsible
       for taking with regards to COI.

If you have any questions concerning this response, please contact Jim Ropelewski at
202-245-6221.




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