oversight

The Federal Acquisition Service's Reporting of Small Business Procurements Contained Significant Inaccuracies

Published by the General Services Administration, Office of Inspector General on 2020-09-14.

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

          Office of Audits
          Office of Inspector General
          U.S. General Services Administration




              The Federal Acquisition
              Service’s Reporting of Small
              Business Procurements
              Contained Significant
              Inaccuracies
              Report Number A170121/Q/6/P20006
              September 14, 2020




A170121/Q/6/P20006
Executive Summary

The Federal Acquisition Service’s Reporting of Small Business Procurements Contained
Significant Inaccuracies
Report Number A170121/Q/6/P20006
September 14, 2020

Why We Performed This Audit

We performed this audit based upon previous preaward contract audit work that identified a
small business award in which the work was primarily performed by a large business. Our
objective was to determine if the Federal Acquisition Service (FAS) properly identifies and
reports small business procurements in accordance with the Federal Acquisition Regulation.

What We Found

To determine if FAS’s reporting of its small business procurements was accurate, we sampled
procurements that FAS identified as small business in Fiscal Year 2016 and Fiscal Year 2017. We
found that FAS’s reporting of small business procurements contained significant inaccuracies.
We identified $89 million in procurements erroneously recorded as small business in the
Federal Procurement Data System–Next Generation. While Federal Acquisition Regulation
4.604, Responsibilities, specifies that the awarding contracting officer has the responsibility to
accurately identify and report small business procurements, Federal Procurement Data System–
Next Generation limitations do not allow contracting officers to accurately report small
business procurements at the task order level.

In addition, FAS’s small business procurement reporting does not identify the extent of the
work performed by large businesses. We found approximately $120 million of small business
procurements in which large businesses performed a portion of the work. Because there is no
requirement for small businesses or FAS to report how much of the work is performed by large
businesses, the reported information may not provide an accurate assessment of FAS’s small
business procurements.




A170121/Q/6/P20006                          i
What We Recommend

We recommend that the FAS Commissioner:

   1. Address the Federal Procurement Data System–Next Generation limitations to ensure
      that contracting officers can accurately identify, and the data will accurately reflect,
      small business procurements.

   2. Hold discussions with the Small Business Administration to consider if changes should
      be initiated to require reporting of subcontracting and reseller work for small business
      procurements.

The FAS Commissioner partially agreed with Recommendation 1 and agreed with
Recommendation 2. FAS contends that its small business procurement reporting was in
accordance with current regulations and Federal Procurement Data System–Next Generation
limitations. However, the data reported is inaccurate, which is not in accordance with the
Federal Acquisition Regulation as noted in the report. FAS agreed to provide a corrective
action plan to address both recommendations. FAS’s response is included in its entirety in
Appendix B.




A170121/Q/6/P20006                         ii
Table of Contents

Introduction ..................................................................................................................... 1

Results
Finding – FAS’s reporting of small business procurements contained significant
          inaccuracies. ............................................................................................................. 3

Conclusion........................................................................................................................ 6
Recommendations .................................................................................................................... 6
GSA Comments .......................................................................................................................... 6

Appendixes
Appendix A – Scope and Methodology.......................................................................... A-1
Appendix B – GSA Comments ........................................................................................B-1
Appendix C – Report Distribution................................................................................... C-1




A170121/Q/6/P20006                                              iii
Introduction

We performed an audit of the Federal Acquisition Service’s (FAS’s) identification and reporting
of small business procurements.

Purpose

We performed this audit based upon previous preaward contract audit work that identified a
small business award in which the work was primarily performed by a large business.

Objective

Our objective was to determine if FAS properly identifies and reports small business
procurements in accordance with the Federal Acquisition Regulation (FAR).

See Appendix A – Scope and Methodology for additional details

Background

Maximizing contracting opportunities for small businesses is a priority throughout government.
In 1953, Congress created the Small Business Administration (SBA) to assist and protect the
interests of small business concerns and ensure that a fair portion of federal purchases and
contracts be placed with small businesses. In 1988, Congress established an annual
government-wide goal for contracting directly with small businesses. Currently, the goal for
contracting to small businesses is 23 percent of all government procurements. Each year, the
SBA works with federal agencies to set additional agency-specific small business procurement
goals. In an effort to meet established small business contracting goals, FAS awards contracts to
small businesses to fulfill its own and customer agency procurement needs. 1 During Fiscal Years
(FYs) 2016 and 2017, $3.7 billion of FAS procurements were reported as small business
procurements.

The SBA is responsible for establishing small business size standards for categories of products
and services. These categories have unique numerical codes defined under the North American
Industry Classification System (NAICS). When a federal agency solicits for a product or service, it
lists the required NAICS code(s) in its solicitation. A business responding to the solicitation must
represent itself as either a small or large business for the solicited NAICS code(s). This
designation is based on a business’s self-certification in the federal government’s System for
Award Management for each NAICS code it offers. The maximum size standards governing
eligibility for small business procurements vary among the NAICS codes. 2 The maximum size

1
    FAS procures for itself and on behalf of other federal agencies through the Office of Assisted Acquisition Services.

2
 As a result, the same business can be designated as small business for some NAICS codes and a large business for
others.


A170121/Q/6/P20006                                      1
standards are based on either: (1) the number of employees or (2) average annual gross
revenues. The contractor determines which size standard it is certifying as small business.

Agencies must report all contract actions in the GSA-managed Federal Procurement Data
System–Next Generation (FPDS-NG). Acquisition agencies are required to enter all contract
information into FPDS-NG at the time of award; therefore, FPDS-NG is the main source for
tracking and storing all government procurement data. The SBA uses FPDS-NG data to track
agencies’ progress toward meeting small business contracting goals and provides Congress with
a Small Business Goaling Report annually. FPDS-NG data is also used to create other reports
related to small business procurements that are provided to the President, Congress, and the
public.




A170121/Q/6/P20006                          2
Results

Maximizing contracting opportunities for small businesses is a priority throughout government.
In an effort to meet its small business contracting goals, FAS awards contracts to small
businesses to fulfill its own and customer agency procurement needs. To determine if FAS’s
reporting of its small business procurements was accurate, we sampled procurements that FAS
identified as small business in FY 2016 and FY 2017. We found that FAS’s reporting of small
business procurements contained significant inaccuracies. We identified $89 million in
procurements erroneously recorded as small business in FPDS-NG. While FAR 4.604,
Responsibilities, specifies that the awarding contracting officer has the responsibility to
accurately identify and report small business procurements, FPDS-NG limitations do not allow
contracting officers to accurately report small business procurements at the task order level.

In addition, FAS’s small business procurement reporting does not identify the extent of the
work performed by large businesses. We found approximately $120 million of small business
procurements in which large businesses performed a portion of the work. Because there is no
requirement for small businesses or FAS to report how much of the work is performed by large
businesses, the reported information may not provide an accurate assessment of FAS’s small
business procurements.

Finding – FAS’s reporting of small business procurements contained significant inaccuracies.

Inaccurate Identification and Reporting of Small Business Procurements in FPDS-NG

Due to inaccurate NAICS codes, FAS identified and reported four task orders valued at
$89 million as contract awards to small businesses although they were actually large business
procurements.

NAICS codes are used as a basis for determining whether a business is considered a small or
large business. Each NAICS code has size standards that are used to determine eligibility for
small business procurements. All government contractors report their status as a small or large
business in the federal government’s System for Award Management based on the size
standards applicable to the NAICS codes they offer.

We identified 10 procurements totaling $274 million for which the NAICS codes in FPDS-NG did
not match the NAICS codes on the contract award documents. Four of those ten procurements,
totaling $89 million, were large business procurements identified inaccurately in FPDS-NG as
small business procurements due to the wrong NAICS code.

According to FAR 4.604, Responsibilities, the awarding contracting officer has the responsibility
to accurately identify and report small business procurements in FPDS-NG. Therefore, the
contracting officer is responsible for ensuring the correct NAICS code is input into FPDS-NG.



A170121/Q/6/P20006                          3
However, according to FAS officials and the FPDS-NG Data Dictionary, the incorrect NAICS codes
for these procurements are due to a system limitation within FPDS-NG. FPDS-NG pre-populates
the NAICS codes for task orders using the NAICS code for the base contract and does not allow
contracting officers to modify the NAICS codes, even when the code is inaccurate.

The four procurements identified above were task orders placed against base contracts, but
were awarded using a different NAICS code. As described by FAS officials and the FPDS-NG Data
Dictionary, FPDS-NG pre-populated the task orders with the NAICS code for the base contract
and, although the codes were incorrect for the task orders, the system does not allow the pre-
populated NAICS code to be corrected. As a result of incorrect NAICS codes identifying the task
orders as small business procurements in FPDS-NG, these procurements were misreported and
FAS’s small business procurements were overstated by at least $89 million for FY 2016 and FY
2017.

Reporting of Small Business Procurements Performed by Large Businesses

According to FAR 19.202-5, Data collection and report requirements, agencies must accurately
measure small business participation in their acquisition programs. However, there is no
requirement or reporting mechanism to provide visibility into the amount of small business
awards that are performed by large businesses. As a result, FAS reporting of small business
procurements does not reflect that at least $120 million of contracts designated as small
business awards were fulfilled by large businesses.

FAR 19.702, Statutory requirements, requires large business contractors to report their
subcontracting activities and dollar values. The federal government uses the Electronic
Subcontracting Reporting System to track and report the amount of small business participation
in government contracting that is achieved through large business subcontracting to small
businesses. However, there is no similar requirement for small businesses to identify and report
activities and amounts of work they subcontract to large businesses. As a result, FAS reporting
of small business awards designates contracts as small business awards even when they are
performed in part or even mostly by large businesses.

While examining FAS’s reported small business procurements for FY 2016 and FY 2017, we
identified five small business procurements (totaling approximately $308 million) where three
of the small businesses subcontracted at least 25 percent of the work ($76 million) to large
businesses, yet the entire $308 million was reported as small business.

We also reviewed 11 FAS procurements, with a total value over $46 million, to small businesses
that resell items manufactured by large businesses. For these 11 procurements, we determined
that large businesses actually performed between 94 to 99 percent of the work. The small
business resellers in these procurements performed limited administrative functions only. As a
result, reporting the entire $46 million as small business in FPDS-NG, while consistent with the
reporting requirements, was misleading because at least $43 million of the $46 million was
performed by large businesses.


A170121/Q/6/P20006                         4
In total, we identified contracts worth at least $120 million reported as small business
procurements, which were actually performed by large businesses. FAS officials advised us that
the decision to report subcontracting and reseller work for small business procurements and
how to report, is made by the SBA, as authorized by the Small Business Act and the Code of
Federal Regulations.3 Because GSA does not have the authority to pursue policy changes on its
own, FAS should discuss a policy change with the SBA that would result in more accurate
information on the extent small business procurements are actually performed by small
businesses.




3
    13 CFR § 125.6.


A170121/Q/6/P20006                         5
Conclusion

To determine if FAS’s reporting of its small business procurements was accurate, we sampled
procurements that FAS identified as small business contracts in FY 2016 and FY 2017. We found
that FAS’s reporting of small business procurements contained significant inaccuracies. We
identified $89 million in procurements erroneously recorded as small business in FPDS-NG.
While FAR 4.604, Responsibilities, specifies that the awarding contracting officer has the
responsibility to accurately identify and report small business procurements, FPDS-NG
limitations do not allow contracting officers to accurately report small business procurements
at the task order level.

In addition, FAS’s small business procurement reporting does not identify the extent of the
work performed by large businesses. We found approximately $120 million of small business
procurements in which large businesses performed a portion of the work. Because there is no
requirement for small businesses or FAS to report how much of the work is performed by large
businesses, the reported information may not provide an accurate assessment of FAS’s small
business procurements.

To address these issues, FAS should address the FPDS-NG limitations to ensure awards to small
businesses are reported accurately and hold discussions with the SBA regarding reporting large
business subcontracting and reseller awards to small businesses.

Recommendations

We recommend that the FAS Commissioner:

   1. Address the FPDS-NG limitations to ensure that contracting officers can accurately
      identify, and the data will accurately reflect, small business procurements.

   2. Hold discussions with the SBA to consider if changes should be initiated to require
      reporting of subcontracting and reseller work for small business procurements.

GSA Comments

The FAS Commissioner partially agreed with Recommendation 1 and agreed with
Recommendation 2. FAS contends that its small business procurement reporting was in
accordance with current regulations and FPDS-NG limitations. However, the data reported is
inaccurate, which is not in accordance with the FAR as noted in the report. FAS agreed to
provide a corrective action plan to address both recommendations. FAS’s response is included
in its entirety in Appendix B.




A170121/Q/6/P20006                         6
Audit Team

This audit was managed out of the Heartland Region Audit Office and conducted by the
individuals listed below:

   Michelle Westrup       Regional Inspector General for Auditing
   Erin Priddy            Audit Manager
   Shannon McKinzie       Auditor-In-Charge




A170121/Q/6/P20006                        7
Appendix A – Scope and Methodology

Our audit evaluated if FAS properly identified and reported small business procurements in
accordance with the FAR.

To accomplish our objective, we:

   •   Reviewed background information related to small business government contracting
       and the FPDS-NG;
   •   Obtained all FAS small business procurements for FY 2016 and FY 2017 from FPDS-NG,
       totaling $3.7 billion;
           o Evaluated a judgmental sample of the 30 largest small business procurements
               awarded by the FAS Office of Assisted Acquisition Service, totaling $752 million.
               This represents approximately 20 percent of small business awards during our
               review period based upon sales volume; and
           o Reviewed GSA contract files and related correspondence for all small business
               procurements sampled;
   •   Reviewed the Small Business Act, FAR, and FAS internal policies governing small
       business procurements;
   •   Interviewed GSA contracting officials, small business contractors, and GSA Office of
       Small and Disadvantaged Business Utilization officials; and
   •   Held discussions with FAS Office of Acquisition Policy officials.

We conducted the audit between June 2018 and June 2019 in accordance with generally
accepted government auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our finding
and conclusions based on our audit objective. We believe that the evidence obtained provides a
reasonable basis for our finding and conclusions based on our audit objective.

Internal Controls

Our assessment of internal controls was limited to those necessary to address the objective of
the audit.




A170121/Q/6/P20006                         A-1
Appendix B – GSA Comments




A170121/Q/6/P20006          B-1
Appendix B – GSA Comments (cont.)




A170121/Q/6/P20006          B-2
Appendix B – GSA Comments (cont.)




A170121/Q/6/P20006          B-3
Appendix B – GSA Comments (cont.)




A170121/Q/6/P20006          B-4
Appendix B – GSA Comments (cont.)




A170121/Q/6/P20006          B-5
Appendix B – GSA Comments (cont.)




A170121/Q/6/P20006          B-6
Appendix C – Report Distribution

GSA Administrator (A)
GSA Deputy Administrator (AD)
Commissioner (Q)
Deputy Commissioner (Q1)
Chief of Staff (Q0A)
Chief Administrative Services Officer (H)
Audit Management Division (H1EB)
Assistant Inspector General for Auditing (JA)
Director, Audit Planning, Policy, and Operations Staff (JAO)




A170121/Q/6/P20006                          C-1