oversight

HUD Improved Its Administration of Interagency Agreements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-05-25.

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

                                                                 Issue Date
                                                                 May 25, 2011
                                                                 
                                                                 Audit Report Number
                                                                 2011-HA-0002




TO:        Jemine Bryon, Chief Procurement Officer, Office of the Chief Procurement
             Officer, N


FROM:      Saundra G. Elion, Director, Headquarters Audit Division, GAH

SUBJECT: HUD Improved Its Administration of Interagency Agreements



                                   HIGHLIGHTS

 What We Audited and Why


             We audited the Office of the Chief Procurement Officer’s (procurement office)
             administration of interagency agreements (IAAs). This audit was part of our fiscal
             year 2010 audit plan because of congressional hearings on the use and
             management of IAAs throughout the Federal Government. Our objective was to
             determine whether the U.S. Department of Housing and Urban Development
             (HUD) effectively administered its IAAs and the costs to procure these products
             and services were reasonable.

 What We Found


             The procurement office improved its administration of IAAs by significantly
             reducing the backlog of expired IAAs. However, it must ensure that current IAAs
             are closed out in a timely manner. We also found that the costs HUD incurred to
             procure the products and services via IAAs were reasonable.
What We Recommend


           There are no formal recommendations because the Chief Procurement Officer had
           already addressed the noted issues based on our previous audit.


Auditee’s Response


           We provided the discussion draft to the procurement office for comment on
           April 22, 2011. We held the exit conference on April 29, 2011, and received
           written comments from the procurement office on May 4, 2011. The procurement
           office agreed with our findings.

           The complete text of the procurement office’s response can be found in appendix
           A of this report.




                                           2
                           TABLE OF CONTENTS

Background and Objective                                                     4

Results of Audit
      Finding 1: The Procurement Office Did Not Close Out IAAs in a Timely   6
                 Manner

      Finding 2: HUD’s Use and Costs of IAAs Were Reasonable                 8

Scope and Methodology                                                        10

Internal Controls                                                            12

Appendix

  A. Auditee Comments and OIG’s Evaluation                                   14




                                           3
                      BACKGROUND AND OBJECTIVE

The U.S. Department of Housing and Urban Development’s (HUD) Office of the Chief
Procurement Officer (procurement office) is responsible for awarding and administering
contracts for HUD. In addition to awarding contracts, the procurement office administers a large
portfolio of contracts that have expired (the performance period has ended) or have been
completed (products or services have been delivered). These procurement activities are
performed at HUD headquarters as well as three contracting offices located in Philadelphia, PA,
Atlanta, GA, and Denver, CO.

As part of its contracting function, the procurement office administers interagency agreements
(IAAs) for HUD. IAAs are written contractual agreements that allow one Federal agency (the
“requesting” agency) to obtain needed supplies, services, personnel, material, equipment, and
facilities from another agency (the “servicing” agency) through the transfer of funds from the
requesting agency. The life cycle for administering IAAs is the same as for contracts and
includes four phases: planning, awarding, monitoring, and closeout.

        Planning. Annually, the procurement office initiates the planning phase by requesting
strategic procurement plans from each of HUD’s program offices. HUD program offices submit
their plan of proposed procurement actions necessary to support their strategic goals and mission
to the procurement office.

        Award. During the award phase, the contracting officer prepares and executes the IAA.
At a minimum, the contracting officer ensures that IAAs contain the legal authority for the
agreement, amount of funding, effective date, period of performance, description of supplies
and/or services to be obtained, and payment cancellation and termination clauses.

        Monitoring. The monitoring phase refers to the day-to-day oversight of the contractor’s
performance and compliance with the terms of the IAA. The government technical
representative is the primary liaison between the contractor and the contracting officer regarding
the technical aspects of a contract, payment review, inspection and acceptance of deliverables,
and evaluating the contractor’s performance.

        Closeout. The final phase of administering an IAA is the closeout. Closeout refers to the
administrative actions taken to retire completed IAAs (all work has been finished, all
deliverables have been received and accepted or otherwise disposed of, and all financial matters
have been settled). The program office initiates the closeout process, while the procurement
office has the overall responsibility for closing out all contract actions.

In September 2006, the headquarters procurement office implemented an aggressive closeout
initiative to remedy the serious backlog of 9,500 contract actions, purchase orders, and IAAs that
were expired but not closed out in the procurement and accounting system. The procurement
office considered IAAs to be “low hanging fruit,” and as such, its goal was to continue to focus
on closing these actions.

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Congressional hearings in early 2010 examined the rapid growth of interagency contracts in the
Federal Government. Specifically, Congress was interested in the massive increase in
interagency contracting vehicles, the lack of competition, and whether the negotiated prices were
too high.

Our objective was to determine whether the procurement office effectively administered its IAAs
and the costs to procure these products and services were reasonable.




                                                5
                                RESULTS OF AUDIT

Finding 1: The Procurement Office Did Not Close Out IAAs in a
Timely Manner
The procurement office did not close out expired IAAs in a timely manner. This condition
occurred because the procurement office (1) did not have timelines for closing out IAAs and (2)
made closing out IAAs a low priority. As a result, the procurement office delayed deobligating
$107,905 from IAAs that had expired.



   Instructions for Closing IAAs


            The procurement office had made progress in closing IAAs; however, we found
            some IAAs were not closed in a timely manner.

            Historically, the procurement office had treated the IAAs the same as it did
            contracts with regard to planning, awarding, and monitoring. However, since
            subpart 4.804 of the Federal Acquisition Regulation (48 CFR [Code of Federal
            Regulations], chapter 1) is silent on when IAAs should be closed out, it was left to
            the discretion of the individual contracting offices to determine when IAAs should
            be closed out. But, in February 2008 the procurement office then brought the IAA
            closeout timeline into alignment with the requirement for all other contracts when it
            issued Acquisition Instruction 08-1. This instruction specified that IAAs should be
            closed within 6 months after their expiration.

            At the beginning of HUD’s 2006 contract closeout initiative, HUD had a backlog of
            567 IAA actions. However, since the procurement office considered those actions
            to be “low hanging fruit” (i.e., relatively easy to close), it aggressively pursued IAA
            actions that had expired. Consequently, more than 1,000 IAA actions had been
            closed by March 2011.


 Expired IAAs Were Not Closed
 in a Timely Manner


            We acknowledge the progress that the procurement office has made to date.
            However, we observed that of the 13 IAAs in our review that had expired, 6 IAAs
            were closed late, by as much as 25 months after the 6-month grace period.
            Additionally, 2 of the 13 IAAs had not been closed, although they had expired more
                                               6
         than 20 months before the end of our audit period. By not closing these eight IAAs
         in a timely manner, the procurement office delayed the deobligation of $107,905
         from the IAAs that had remaining balances.

Conclusion


             Although we found IAAs that had not been closed in a timely manner, the
             procurement office had made a concerted effort to reduce its backlog of expired
             IAAs by closing more than 1,000 IAA actions. In addition, as a result of our
             previous audit (2010-HA-0003, dated September 30, 2010), the procurement
             office placed more emphasis on the contract closeout process by holding
             contracting officers and contract specialists accountable for closing contracts in a
             timely manner.



Recommendation


             There are no formal recommendations because the Chief Procurement Officer had
             already addressed the noted issues based on our previous audit.




                                               7
Finding 2: HUD’s Use and Costs for IAAs were Reasonable
HUD effectively used IAAs to obtain products and services. The number of IAAs decreased and
the services obtained were unique to the Federal agencies that HUD entered into agreements
with. The services allowed HUD to meet its operational needs.



HUD Effectively Awarded IAAs


              Our review of Congress’ specific concerns about the rapid growth in “interagency
              contracts” (IAAs) in the Federal Government disclosed that HUD’s approach to
              obtaining services from other Federal agencies was reasonable. The number of
              IAAs HUD awarded between fiscal years 2004 and 2010 decreased.




                      Source: Office of the Chief Procurement Office. November 5, 2010

              Although there was a moderate increase in the number of IAAs awarded between
              2005 and 2006 and again between 2008 and 2009, there was an overall reduction
              of 19 percent in the number of IAAs awarded during this 7-year period.

              Further, HUD had adequate justification for its use of the 13 IAAs included in our
              review. Some of those justifications included

                 The services acquired were unique to the agencies that provided them (the
                  U.S. Department of Treasury’s support for the HUD Integrated Human
                  Resources and Training System).
                 HUD lacked the subject-matter expertise to perform the services that were
                  procured (the Office of Personnel Management’s services to develop training
                                                 8
                 strategies for HUD employees; and staffing and classification support to fill
                 1,000 employment vacancies).
                he timing/speed needed to respond to legislation and/or direct appropriation
                 from Congress required HUD to enter into an IAA to meet the required
                 timelines (the Federal Housing Administration’s Mortgage Risk and Fraud
                 Initiative and Public Law 102-550 Title X of the Residential Lead-Based
                 Paint Hazard Reduction Act of 1992).
                HUD did not have sufficient contracting staff to manage contracts (the Office
                 of Community Planning and Development’s information technology
                 services).
                The services being procured were to perform an inherently governmental
                 function (Federal records management with the National Archives and
                 Records Administration).

Conclusion


             Because of the uniqueness and timing of the services that HUD obtained via the
             IAAs, we considered the justifications and the costs paid to be reasonable;
             especially since by using these IAAs HUD’s program offices met their
             operational needs.




Recommendation

             There is no formal recommendation because HUD effectively used IAAs.




                                             9
                         SCOPE AND METHODOLOGY

We performed our audit work at HUD headquarters, Washington, DC, between October 2010 and
March 2011. Our audit generally covered the period January 5, 2004, through September 30, 2010.

To accomplish our objective, we

     Reviewed applicable laws, the Federal Acquisition Regulation, HUD acquisition
      regulations, and HUD Handbook 2210.3 REV-9.
     Examined files for interagency agreements awarded between January 5, 2004, and
      September 30, 2010.
     Examined contract history reports and data from the procurement and accounting systems.
     Conducted interviews with HUD employees from the procurement office and HUD’s
      program offices to determine their roles and responsibilities related to interagency
      agreements.

To achieve our objective, we relied in part on computer-processed data in HUD’s Procurement
System. Although we did not perform a detailed assessment of the reliability of the data, we
performed a minimal level of testing, and found the data to be adequate for our purposes.

The procurement office provided us with a spreadsheet of IAAs from HUD’s Procurement
System. That spreadsheet included 603 transactions valued at more than $768 million that were
awarded between January 5, 2004, and September 30, 2010. From these data, we identified four
populations:

       105 active/awarded (the performance period had not expired)
       194 active/expired (the performance period had expired)
        30 active/in closeout (the deliverables had been received and the closeout process
             started)
       274 inactive/closed (the IAA had been closed)

We statistically selected a sample of 88 IAAs for our review. We selected one sample from the
population of active/expired and inactive/closed IAAs to determine whether the IAAs were
closed out in a timely manner. We computed the sample size using unrestricted attribute
sampling and selected the IAAs using a random number generator. We selected another sample
from the population of active/awarded IAAs to determine whether the costs to procure the
products and services were reasonable. We computed this sample size using fractional,
monetary unit sampling. For both samples we used a confidence level of 90 percent, an
estimated error rate of 50 percent, and a precision rate of 10 percent.

We requested the files for 27 IAAs (13 active/awarded, 4 active/expired, and 10 inactive/closed).
The procurement office could not locate one inactive/closed file; therefore we reviewed a total of
26 IAAs. We reviewed all of the active/awarded, 4 active/expired and 9 inactive/closed and
concluded our review of the IAAs after reviewing these files.

                                               10
We conducted the audit 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 findings 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.




                                               11
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
               We determined that the following internal controls were relevant to our audit
               objective:

                     Effectiveness and efficiency of operations – Policies and procedures that
                      management has implemented to reasonably ensure that a program meets its
                      objectives.

                     Compliance with applicable laws and regulations – Policies and procedures
                      that management has in place to ensure that resource use is consistent with
                      laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control
               does not allow management or employees, in the normal course of performing
               their assigned functions, the reasonable opportunity to prevent, detect, or correct
               (1) impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on
               a timely basis.


 Significant Deficiency

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance on the effectiveness of the internal
                                               12
control structure as a whole. Accordingly, we do not express an opinion on the
effectiveness of the Office of the Chief Procurement Officer’s internal control.




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                 APPENDIX

Appendix A

             AUDITEE COMMENTS




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