oversight

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)

 
                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