OFFICE OF INSPECTOR GENERAL U.S.DEPARTMENT OF THE INTERIOR CARES Act Flash Report Lessons Learned for CARES Act Awards On March 27, 2020, the President signed into law the Coronavirus Aid, The DOI received Relief, and Economic Security Act (CARES Act), which provided the U.S. Department of the Interior (DOI) with $756 million to support the $756 million needs of DOI programs, bureaus, Indian Country, and the Insular Areas. under the CARES Act to The DOI will award most of its CARES Act funding through contracts respond to impacts from and financial assistance agreements (such as grants and cooperative the coronavirus: agreements). Our past work demonstrates that these awards are a vulnerable area for the DOI. $453 million for the Bureau of Indian Affairs Moreover, awards made as part of emergency response are riskier than normal because they are awarded quickly and often without competition $157.4 million for DOI and have a higher purchase threshold than other acquisitions. In addition, operations (Office of the each emergency situation presents its own unique characteristics and has Secretary) the potential to grow rapidly in size, scope, or complexity. $69 million for the Bureau of Indian For all these reasons, awards under the CARES Act will need careful Education management and administration, particularly given the amount of money that will be awarded and the pace at which it will be awarded. $55 million for the To date, $437.1 million, or 58 percent, has been obligated. Office of Insular Affairs In this report we present lessons learned and risks identified in our $12 million for the prior work—both audits and investigations—that the DOI should Bureau of Reclamation consider as it makes awards and provides oversight under the CARES (BOR)–water resources Act. We have found that the following factors are important for successful oversight, even of funds restricted to specific recipients or $8.1 million for the purposes: BOR–policy and administration Ensuring sufficient workforce capacity $1 million for the Office Ensuring use of the appropriate award vehicle (contract vs. of Inspector General grant vs. cooperative agreement) Maximizing competition in the source selection process $500,000 for the BOR– Central Utah Project Ensuring background research and risk assessments of Completion Act potential recipients Monitoring documentation and use of funds by recipients Reviewing recipients’ performance and financial reports CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 1 Ensuring Sufficient Workforce Capacity The CARES Act established requirements for increased reporting for agencies and award recipients, detailed spending plans, and identifying and tracking of charge card transactions. The CARES Act also requires that all appropriations be obligated by September 30, 2021, and emphasizes speedy awards and implementation. These circumstances are causing a surge in workloads. In a 2010 report on the oversight of stimulus funds under the American Recovery and Reinvestment Act, we noted that successful implementation of the Act would depend on an acquisition workforce that was sufficient in number and had the necessary skills and Award Selection strategies to address any challenges or shortfalls. Several bureaus Selecting the appropriate stated they did not have enough contract staff to award and administer award vehicle depends on Recovery Act contracts. Other bureaus identified concerns in meeting the following factors: Recovery Act requirements while managing awards made under annual appropriations. What goods or services are needed Key Action: Successful planning, administration, and monitoring of awards will be critical in complying with existing laws and new Whether the project is CARES Act requirements. Effective and efficient administration of expressly exempted by this funding depends on an acquisition workforce that is large enough statute from any Federal and has the skills necessary for these types of procurements. requirements Whether the goods or Ensuring Use of the Appropriate services are for the Award Vehicle direct use or direct benefit of the bureau Our past work has identified instances of bureaus using incorrect award vehicles in their procurements. Whether the goods or services primarily In a 2019 evaluation, we found that after a bureau failed to put a benefit the bureau’s contract in place for operation and maintenance services for a water mission treatment research plant, the bureau instead issued a cooperative agreement for the work. We determined that this was an inappropriate How much Federal award vehicle to fund operation and maintenance activities. involvement in the work is anticipated In a 2016 review of a bureau program, we found that similar contracts managed from different offices included different language and terms Whether the recipient for price adjustments. The bureau’s price adjustment processes were and the bureau will both unsupported and did not ensure that the rates paid were the best value. be substantially involved In addition to these contracts, the bureau issued cooperative in doing the work agreements for related work that should have also been contracts. Further, the cooperative agreements included specified rates rather than reimbursing actual expenses (as required by Federal regulations). This resulted in inaccurate claims and allowed for potential profits, which is not allowed under a cooperative agreement. CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 2 Key Action: Acquisitions staff will need to understand the award types and requirements to ensure best use of CARES Act funds. Maximizing Competition in the Source Selection Process In past reviews we have found inappropriate use of sole-source awards, which are considered higher risk than competitive awards. Sole sourcing can be a useful tool to quickly make awards in CARES Act spending to date: emergency situations, but there is a risk of overreliance. Proper justification of sole-source awards ensures they are not used to $2.4 million obligated on circumvent competition and make awards to less-qualified bidders or contracts related parties, which can lead to waste and inadequate accountability. $431.9 million obligated on financial assistance In a 2015 audit of a scientific research program, we found that a bureau agreements bypassed requirements for competition and public notice. Specifically, $2.8 million in other we reviewed 48 agreements totaling more than $13 million and found obligations (e.g., supplies, that 44 were sole-source agreements that had been announced only in purchase cards, and orders) the research network. Further, we found that 28 (or 58 percent) of the 48 agreements had inadequate or missing sole-source justifications. OIG Audit Planning In a 2013 program audit, we found missing justifications for sole- We use risk attributes to help source awards totaling nearly $1.4 million, and we questioned more select for review the award than $1 million of that amount. Further, the award recipients avoided recipients we identify as higher dollar thresholds and additional procurement requirements by using risk. Some factors we consider purchase orders for more than $1 million in goods and services that that increase risk include: should have been charged directly to existing contracts. We also found Lack of Federal award that individuals with apparent or actual conflicts of interest were experience allowed to apply for, evaluate, manage, or benefit from Federal Poor past performance on funding. Undisclosed conflicts of interest between key parties were at other Federal awards the core of 23 grants totaling roughly $16 million. We concluded that Many subrecipients we had no assurance that prices paid were optimal or that Federal Cost-reimbursement type funds were equally available to all potential bidders. agreements (as opposed to firm-fixed-price) Key Action: Maximizing use of competition in making CARES Act Multiple or large-dollar awards can help ensure reasonable prices, improve recipient agreement modifications performance, and promote accountability for results. Work scope in one of the GAO’s high-risk areas Ensuring Background Research and Risk Work scope in one of the DOI’s targeted management Assessments of Potential Recipients challenge areas Awards that are high- In past reviews we have recommended background research and risk profile or made quickly for assessments to help ensure the DOI does not make awards to recipients disaster response or who have been suspended or debarred, do not have the experience to emergency relief handle the particular award, or have significant past performance problems. Awards made without competitive bidding CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 3 In a 2014 audit of funds related to Hurricane Sandy relief and recovery efforts, we found that inadequate background research resulted in the bureau paying extreme markups—ranging from 417 percent to 1,035 percent—for heavy equipment rentals on three contracts under the same contractor. We found no evidence that contracting staff identified ordinary fair-market value for these equipment rentals during the bidding phase. The bureau should have recognized how extreme the contractor’s markups were and expanded its efforts to find potential bidders. We also learned that same contractor had no prior experience with Federal contracts and was unfamiliar with the Federal Acquisition According to a recent study, Regulation. They had no apparent segregation of financial and accounting system duties and did not have any written accounting organizations lose about policies or procedures. The bureau’s contractor selection process was 5 percent of their revenue each flawed and should have identified these risk factors. year to fraud (in Government, “revenue” equates to the In a 2016 audit, we found insufficient documentation of the bureau’s money received and then spent, pre-award steps for a cooperative agreement. The bureau did not for example on contracts and properly assess the agreement’s risk level and did not adequately financial assistance awards). support its decision not to compete the award. The award recipient was Using this analysis, an a small company that had never received a Government contract or estimated $37.8 million of the grant, had no internal controls, and had never worked in the agreement’s area of expertise. Bureau staff improperly completed the DOI’s CARES Act funds would internal risk assessment form, resulting in a low risk score. We were be vulnerable to fraud. This unable to determine the value of the services provided by the recipient, amount does not account for and we questioned as unsupported the entire $256,100 paid and funds susceptible to waste or identified $2,123 in duplicate costs claimed. mismanagement. In a 2019 investigation, we found that a debarred contractor created The same study found that four companies through family members and another associate and 43 percent of the initial improperly obtained Federal contracts from 2013 to 2015 with total detection of fraud is via tips, value of over $5 million. In October 2018, he pleaded guilty to one count of wire fraud and one count of conspiracy to defraud the United and that organizations with States. He was later sentenced to 10 months of confinement, 36 months fraud awareness training of supervised release, and a $300 assessment. gathered 56 percent of tips through formal reporting In another 2019 investigation, we found that a bureau contract mechanisms, compared to specialist steered three contracts to a vendor because of a personal 37 percent for organizations relationship, a violation of Federal ethics regulations. The contract without such training. We have specialist left the DOI after learning of our investigation. been giving fraud awareness training for years and will make Key Action: For CARES Act acquisitions, attention to the pre-award CARES Act-specific training steps will help bureaus identify recipients or activities that require available across the DOI. additional monitoring and focus limited monitoring resources on the awards that require the most oversight. Proper background research on bidders also ensures that awards are not made to debarred or related parties. CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 4 Monitoring Documentation and Use of -- Funds by Recipients In past reviews we have found insufficient documentation by award recipients, which often results in questioned costs. Lack of support for costs claimed can indicate that moneys have been misused, misappropriated, or even embezzled. In a 2018 audit of a tribal transportation program, we found that a tribe’s accounting system and procedures were not configured to manage A Closer Look at Federal funds. Specifically, the tribe commingled all funds received, so Questioned Costs tracking its funding by agreement or allocating expenses by project— which are important and required steps for such funding—was Our audits identify the impossible. Commingling can therefore result in unallowable costs being following types of questioned charged to Federal awards. We found similar commingling of funds in a costs: 2015 audit of a different tribe, which deposited funds from two DOI agreements in an account that also received deposits unrelated to the Unsupported costs are costs that either have no agreements. Further, the account was used to pay unauthorized expenses. documentation or the documentation is not In the same 2018 audit mentioned above, we also found more than adequate. $7,000 in unallowable purchases made with agreement funds, such as a holiday party and gifts. The bureau did not review the tribe’s Unallowable costs are financial status reports in a timely manner or identify these costs that are prohibited unallowable purchases. by the terms and conditions of a Federal In both previously mentioned 2014 audits related to Hurricane Sandy award (such as costs relief and recovery efforts, we found insufficient or incorrect for lobbying or documentation for costs claimed for property or equipment rental. entertainment). In one audit, we found that equipment inspection reports were not completed and the contractor was billing for 8 hours of daily use for Ineligible costs are costs that are not related to the equipment that was in fact not used for that length of time. In the other award or program being audit, we found that subcontractors were billing and being paid for audited. equipment without sufficient supporting documentation. We also questioned whether the rates the subcontractor billed for equipment Unreasonable costs are rentals were reasonable. In a comparison of the rates billed for four costs that exceed what equipment items to the daily rental rates charged by market would be paid by a competitors for similar items, we determined that the subcontractor prudent person in the charged an average markup of 293 percent. same circumstances. In a 2015 investigation, we uncovered a fraud scheme by the executive Funds to be put to better director of a State marine resources agency. We determined that the use are amounts that executive director and his son misused Federal funds, including DOI could be used more efficiently. funds, as part of a conspiracy to defraud the Government. The two men pleaded guilty to multiple fraud charges and were ordered to pay joint restitution to multiple Federal agencies. In a 2019 investigation (different from the two mentioned previously), we found that a contractor did not fully compensate its subcontractor for construction services on two projects at a national park. The contractor CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 5 submitted false payment applications to the bureau, certifying that the subcontractor had been paid for its work when it had not. The contractor pleaded guilty to making false statements and was sentenced to 22 months in prison and 3 years of supervised release and ordered to pay restitution totaling $135,507. Key Action: Acquisitions staff will need to thoroughly monitor recipient use of CARES Act funds to ensure that expenditures are allowable, reasonable, and have been appropriately documented. Required reports: Reviewing Recipients’ Performance and Financial Reports Single Audit: Organization- wide audit required In past reviews we have found instances of insufficient bureau review annually for recipients of of performance and financial reports (including SF-425s) submitted by Federal award dollars award recipients. Federal Financial Report, or SF-425: Required at In the 2018 audit of a tribal transportation program cited above (under least annually, to submit “Monitoring Documentation and Use of Funds by Award Recipients”), financial information about we found that the bureau did not complete timely reviews of financial individual Federal awards status reports or identify errors in the reports when reviewed. Bureau officials told us that they did not review reports submitted by the tribe Other reports that may in 2013 and 2014 until the fall of 2016. They also told us they had be required: difficulty reviewing the financial reports because they were not familiar with how to review them and had not received training. Program reports on progress toward goals and In a 2019 audit of four tribal agreements, we found deficient review of objectives financial status reports submitted by another tribe. The bureau staff responsible for financial oversight told us they were not trained or Project status reports that qualified to review financial status reports and relied on the tribe’s summarize financial or single audit and accounting records. The tribe made mathematical narrative information about the project errors on its SF-425s that resulted in an underreporting of expenses. Bureau staff told us they did not have written procedures or guidance Final performance report to aid them in their SF-425 reviews. on or before the end of the period of performance Key Action: Accurate and timely review of performance and financial reports will be key to successful management of CARES Act awards. CARES Act Flash Report • No. 2020-FIN-037 • Issued May 20, 2020 6
Lessons Learned for CARES Act Awards
Published by the Department of the Interior, Office of Inspector General on 2020-05-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)