SECNAV Acquisition Checks

American Society of Military Comptrollers – PDI

2008

28 MAY 2008

SECNAV Acquisition Checks and Balances Initiative

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Agenda Naval Audit Service SECNAV Acquistion Checks and Balances Initiative

SECNAV Task Force Review and Process Potential Oversight Mechanisms Potential Checks and Balances What’s Supposedly Working Vulnerabilities Recommendations

NAVAUDSVC (Preliminary) Audit Results

NAVAUDSVC Audit (Phase I) Questions/Comments

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NAVAUDSVC Internal Audit Organization for DoN

Headquartered at the Washington Navy Yard

2 Field Offices (Norfolk, VA; San Diego, CA)

About 300-350 Auditors

SECNAVINST 7510.7F, “DoN Internal Audit” Establishes DoN audit policy and our function Identifies Auditor General of the Navy/Naval Audit

Service as Senior DoN Advisor to SECNAV and UNSECNAV on audit-related matters

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NAVAUDSVC SECNAVINST 7510.7F, “DoN

Internal Audit” Establishes DoN audit policy and our

function

Identifies Auditor General of the Navy/Naval Audit Service as Senior DoN Advisor to SECNAV and UNSECNAV on audit-related matters

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NAVAUDSVC Management Structure

Au

g 0

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S am u el C h asonA sst A u d itor G en eral

P lan s , P o licy , & R esou rces

Joan H u gh esA sst A u d itor G en eral

R esearch , D evelop m en t,A cq u is ition, & L og istics A u d its

R on B oothA sst A u d itor G en eral

In sta lla tion s &E n viron m en t A u d its

Jon K lein w ak sA sst A u d itor G en eral

M an p ow er &R eserve A ffa irs A u d its

L u th er B raggA sst A u d itor G en eral

F in an cia l M an agem en t &C om p tro ller A u d its

G reg S in clitic oA sst A u d itor G en eral

In tern a l C on tro l &C om m an d S up p ort A u d its

R ich ard L eachA u d itor G en era l

R an d a ll E x leyD ep u ty A u d itor G en era l

S ecretary o f th e N avyU n d er S ecretary o f th e N avy

CNO/CMC Audit Interfaces

N2, N4, N6/N7, N091

Systems Commands

CFFC

DCMC (Aviation, PPO, I&L)

CG-MCCDC

Dir. C4

Dir. Intelligence

Other Audit Interfaces

NCIS (CI)

AIO


N3/N5, N4, N6F

CFFC

CNI

DCMC (PPO, I&L)

Safety Division

NAVFAC


N1, N093, N095

DCCMC (M&RA, PPO)

Med Officer, Med Svcs

CG-Recruiting Command

MARRESFOR

BUPERS

NETC


N8

DCMC (P&R)

N6


DONCIO


Major Claimants

CFFC

COMPACFLT

COMLANTFLT

MARFORLANT

MARFORPAC

DCNC (I&L)


NCIS

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SECNAV Initiative Background

Recent instances of fraud and corruption in joint expeditionary contracting operations in Iraq, Afghanistan and Kuwait (e.g., various audit reports, Gansler Report, etc.)

2007: Team of Flag Officers and SES personnel conducted review of statutes, regulations, policies and audit reports on acquisition and contract administration checks and balances and internal controls

October 2007: DON Acquisition Task Force visited NSA Bahrain and Dubai to identify vulnerabilities to fraud, waste, and abuse

November 2007: Task Force briefed SECNAV on preliminary issues

SECNAV requested an audit of OCONUS acquisition (contracting)

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Purpose of SECNAV Initiative

Identify the DON’s acquisition checks and balances intended to detect, deter, and prevent fraud, waste, and abuse

Identify vulnerabilities to fraud, waste, and abuse

Develop recommendations to ensure checks and balances are in place and working as intended

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Acquisition Review Project Phase I

OCONUS Acquisition

Phase II Echelon 3 & 4 Acquisition Remote Site Acquisition

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FY06 OCONUSDON Contract Actions Marine Corps $ .7M MSC 17.0M NAVFAC 780.0M NAVSEA 51.0M NAVSUP 581.0M

TOTAL $1,429.7M

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Review Process Reviewed Statutes, Regulations and Policies Obtained for Analysis

NAVAUDSVC Audit Reports GAO and DODIG Reports NCIS Criminal Investigations Gansler Report Procurement Performance Management Assessment Program (PPMAP) Reports and Performance

Management and Assistant Program (PMAP) Reports

Collected Data on OCONUS Acquisition Activity Task Force visited Bahrain, Dubai, Jebel Ali,

Naples & Djibouti

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Potential Oversight Mechanisms Acquisition strategies for non-Program services (MOPAS) PPMAP FedBizOps (Public Notice of Requirement/Strategy) Small and Disadvantaged Business Utilization (SADBU)

Reviews Competition Advocate Internal Audits and investigations Legal Review Protests Acquisition Certification, Ethics Training, Post-

Government Employment Restrictions, etc. Independence of Contracting Officer and Counsel

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PotenUall

Potential Checks & Balances

Over 50 FAR, DFARS, NMCARS & NMCAG Sections

14 DoD Policies, Instructions & Memoranda Numerous DoN, Command and Activity

Instructions PPMAPS/PMAPS Managers’ Internal control Plans NAVAUDSVC Audits IG Reviews Technology (e.g., Standard Procurement

System (SPS), etc.)

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What Appeared to be Working

Tone at the Top OCONUS Navy Customers Seem Satisfied Records Available for Audit OCONUS Personnel Engaged Self-Assessments Positive Overarching Husbanding Contracts Provide

Global Support Automated Contract Writing Tool lncorporates

Checks and Balances (e.g., Standard Procurement System, etc.)

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Vulnerabilities People

Procurement Actions Up; Staffing Down Oversight Function Reduced

Recruiting for OCONUS Applicant Quality Time to fill positions: 6 to 9 months on average Unaccompanied Tours Lack of Civilian Incentive

Inadequate Training DAU Priority System challenging for Foreign National

(FN) employees Length of Tours

Constant Churn or Repetitive Extensions Leads to Instability or “go to” FN Staff

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Vulnerabilities (continued) People (continued)

Reliance on Local Nationals and Third Country Nationals (TCNs) Provide corporate Knowledge Salary Differentials

TCNs cost activity roughly one-third of U.S. Citizen Lack of Training Opportunities Questionable Ethics Requirements Inconsistent Security Checks Uncertain Loyalties Language Issues SOFA Requirements

Application of Individual Augmentation Policies Inadequate Legal Support

Time to Fill Positions: 14+ months in Bahrain May Not Be in Best Geographic Location

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Vulnerabilities (continued)

Mission Priority Trumps Acquisition Controls “Must Support War Effort”

Acquisition Process Undervalued Acquisition Community Focused on Contract Award; not Contract

Administration Distant Oversight

Infrequent Oversight visits No “Surprise” Visits Logistical Issues Time Zone Differentials Commercial Bill Paying--Limited External Assessment

Naples Disbursing Officer -- $65M at Personal Risk Bahrain Disbursing Officer -- $1OM at Personal Risk Djibouti Disbursing Officer -- $2M at Personal Risk

Inadequate Technology E-initiatives not Always Working People Avoid Using Technology — May Be Training Issue

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Vulnerabilities (continued) Reporting Process

FN Staff Reliant on Supervisor for Job Business Culture Against Critical Self-Reporting Multiple Unstaffed Hotlines

Africa Immature System Short Tours “Tyranny of Turnover”

No continuing corporate Memory Most Lack Sufficient Experience Cash Transactions Unmonitored Transferring of Responsibilities

Paying Agent vs Field Ordering Officer duties Infrequent Oversight Logistical Issues NAVEUR African Partnership Station initiative in Gulf of Guinea

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Preliminary Recommendations DASN (A&LM) Conduct Staff Analysis to Determine Proper

Staffing Requirements Numbers Appropriate Mix of Civilians/Military

Reassess Reliance on Local and Third Country Nationals Proactively Assign Qualified Acquisition Professionals in

Emerging Mission Areas Develop Acquisition Workforce for OCONUS

Succession Planning Finding Proper Skillset

Revise Individual Augmentation Practices Work with DAU for FN/TCN Training Review Technology Needs and Capabilities

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Diverse Review Team Reps OGC, Navy Acquisition Integrity

Office (co-lead) AGC (RD&A) (co-lead) NAVAUDSVC ASN (RD&A) NAVINSGEN NCIS

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Gansler Report Recommendations

Increase Stature, Quantity and Career Development on Acquisition Workforce

Restructure Organization Provide Training and Tools Obtain Legislative, Regulatory and

Policy Assistance

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Next Steps

Integrated NAVSUP/NAVFAC Djibouti PPMAP Review Team Provided Oversight and

Assessment

NAVAUDSVC Control Testing Bahrain Dubai Djibouti Naples Western Pacific AFRICOM

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Audit Objective

Verify that DON checks and balances for acquisitions (contracting) by selected activities are in place to detect, deter and prevent fraud, waste and abuse, IAW Federal, DoD and DON acquisition requirements.

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Criteria

SECNAVINST 7510.7F, “Department of the Navy Internal Audit,” dated 27 Dec 05

Generally Accepted Government Auditing Standards (GAGAS), dated Jul 07

Federal Acquisition Regulations (FAR) Defense Federal Acquisition Regulations

(DFARS) Current Internal Operating Procedures at

[Selected and associated activities]

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Scope Reviewed Validity of Requirements

Bona fide need/requirement for goods/services Documented Acquisition Planning Appropriate procurement approvals and

authorizations

Verified Source Selection Documented market research Price reasonableness Adequate competition Goods/services procured most conveniently or

economically

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Scope (continued) Verified Contract Admin/Mgmt

Monitored contractor performance Received goods or services paid for Maintained key contract documents Used Proper type funding Trained contracting personnel (DON and Foreign Nationals)

Reviewed Ethics Program Policies Program Design Program established and working IAW Exec Order 12674

and FAR 3.104

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Methodology Audit Universe

FY06-07 Contracts/Contract Actions [Two Selected Activities] Naval Audit Data Mining Division 6,442 actions, $125M

Compared for material differences (e.g., total obligations/award amts, number of actions, etc.)

Sample Selection Criteria High-dollar value obligations Action/Order award dates (FY06–FY07)

Type of goods or services procured

Sample [for Selected Activities] 39 contract actions, $28M

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Audit Results Positive Findings

Contracting personnel received required training to perform assigned responsibilities

[Selected Activities] performed in-house acquisition training and continuously kept employees abreast on updates to policies and procedures related to the acquisition process

No Indications of fraud or other irregularities

RequirementsChecks and balances to ensure that funds are obligated for the particular

service/products before the contracts were awarded needed improvements

Management oversight of products/services a ship orders and ultimately receives when visiting the port needs improvements

[Selected Activity] contracting office does not verify who, as supply officer, is authorized to order/certify on behalf of the ship

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Audit Results (Continued) Contract Admin/Mgmt

Source Selection Improvement needed*

[Selected Activity1] – 2 contracts/actions, $210K [Selected Activity 2] – 6 contracts/actions, $3.5M

Legal reviews not consistently performed for contracts/actions over $100K

Contracts/actions not consistently closed-out timely IAW FAR

As of FY07, 1,060 contracts/actions pending complete closeout

*No documentary evidence to support performance for price reasonableness, market research and sole source justification

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Audit Results (Continued)

Contract Officer (CO) exceeded CO authority. Delegated CO authority to unwarranted and unqualified

contract specialist 3 contract actions, $1.6M

Proper procedures for unauthorized commitments not consistently followed, IAW DoD Regulations.

1 contract, $13K

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Audit Results (Continued)

Separation of Duties - Contract Specialist at [Selected Activity]

Office Certified invoices for payment for [Non-Navy Activity] No supporting documentation of receipt of

service/product by user Two Contracts - 21 of 46 invoices, $175K One Contract - One of two invoices, $12K

Quality Assurance - 28 of 39 contract actions, $19.4M No QASP or documented evidence of monitoring

contractor performance) (e.g., no ratings or evaluation methods, etc.)

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Audit Results (Continued) Data Integrity

FPDS-NG Contract data not reliable 4 contract actions, $742K

DUNS Numbers Dummy/default DUNS/CAGE numbers used to bypass

Central Contractor Register (CCR) database requirement for foreign contractors/vendors

Contractors/vendors “P.O. Box” and “Bill to” addresses defaulted to Crystal City, VA.

7 contracts, $1M

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Audit Results (Continued) [Selected Activity] performed work

outside scope of [Command] authority Real Estate Leases – 1 contract, $708K Construction – 1 contract, $95K

Missing Documents (not in contract files)

38 of 39 contract actions/mods, as req’d by FAR 4.803(b) and 43.204(a)

[Selected Activity], 24 contract actions, $20M [Selected Activity], 14 contract actions, $4M

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Audit Results (Continued) Funding

3 of 39 contract actions, $599K, missing documents

2 of 39, $174k, funding document did not reconcile to contract award amount. No evidence funding was approved before contract awarded

12 of 39, $14.3M, no mod in file to support deobligations (Procedures, Guidance and Information 243.171, “Obligations or Deobligation of Funds”)

4 of 39, $2.3M, authorized official’s name “typed” on funding document does not match name of official who signed document

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Audit Results (Continued) Ethics Program – was in place at [Selected Activities]

Staff current on required ethics training Management continuously expressed their views on ethical

behavior Bulletin board in-house

Email address to report any unethical and/or fraudulent behavior Hotline number posted Discrimination notice including in-house training

Foreign Nationals at [Selected Activities] Met training requirements to perform assigned responsibilities Clearances performed by NCIS & FBI DON adheres to Bahrain labor laws

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DocumentsRequested and Not Provided Missing Invoices IGEs Acquisition Planning Documents SOWs Modifications QASPs Funding Documents Delegation Memorandums Ratification Document RFP/RFQ

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Lessons Learned(Potential Recommendations)

[Selected Activities] Need to Establish and Implement Controls

Maintain complete contract files in accordance with FAR

4.801 (a) to ensure that all contract documents including delegation memorandums, are prepared, properly filed, and maintained (files should contain/tell a complete story)

Ensure contracts are closed out IAW FAR 4.804-2 and FAR 4.804-5

Process unauthorized commitments per ratification authority (FAR 1.602 & NAVSUPINST 4200.81E)

Ensure contracts are awarded by warranted contracting officers (FAR 1.6)

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Lessons Learned(Potential Recs) (Continued)

Ensure contracts and mods have appropriate signatures (FAR 4.803)

Ensure COs do not exceed warranted authority Comply with FAR 1.6, DFARS 201.6, DoD FMR,

NAVSUPINST 4200.99, DON and DoD acquisition guidance for ratification of unauthorized commitment.

Develop acquisition plans IAW FAR 7.1 and [Navy Command] Instruction [abcd.56D]

Engage customers early in development of acquisition to allow sufficient advance notice of requirements to facilitate acquisition planning

Ensure legal reviews are consistently performed

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Contracting personnel receive proper oversight and necessary training to prevent potential Antideficiency Act violations (ADA) (DoD FMR Vol 14, Chap 10, Par 100)

Appropriate procurement approvals and authorizations are obtained and documented (FAR 42.2 & DFARS 201.6)

Ensure signatures on funding documents are of authorized officials

Separation of Duties for initiating, authorizing, processing, recording, and reviewing transactions

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Appropriate procurement authority should exists before awarding contracts for construction or real property

Ensure data inputs in FPDS-NG are accurate and periodic reviews of data are conducted (FAR 4.6)

Monitor use of dummy/default DUNS numbers Ensure information on ALL foreign vendors is entered

in FPDS-NG and Central Contractor Registration

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Reporting Suspected Fraud

Naval Inspector General Hotline Phone: 1-800-522-3451 Email: [email protected]

DoD Inspector General Hotline Phone: 1-800-424-9098 Email: [email protected] Website:

http://www.dodig.osd.mil/hotline

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Wrap-up

Questions Comments Concerns

Alvin Lowe

202-433-6270

[email protected]