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American Society of Military Comptrollers – PDI 2008

American Society of Military Comptrollers – PDI 2008. SECNAV Acquisition Checks and Balances Initiative. 28 MAY 2008. Agenda. Naval Audit Service SECNAV Acquistion Checks and Balances Initiative SECNAV Task Force Review and Process Potential Oversight Mechanisms

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American Society of Military Comptrollers – PDI 2008

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  1. American Society of Military Comptrollers – PDI 2008 SECNAV Acquisition Checks and Balances Initiative 28 MAY 2008

  2. 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

  3. 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

  4. 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

  5. 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 CNO/CMC Audit Interfaces N1, N093, N095 DCCMC (M&RA, PPO) Med Officer, Med Svcs CG-Recruiting Command MARRESFOR BUPERS NETC CNO/CMC Audit Interfaces N8 DCMC (P&R) N6 Other Audit Interfaces DONCIO CNO/CMC Audit Interfaces Major Claimants CFFC COMPACFLT COMLANTFLT MARFORLANT MARFORPAC DCNC (I&L) Other Audit Interfaces NCIS CNO/CMC Audit Interfaces N3/N5, N4, N6F CFFC CNI DCMC (PPO, I&L) Safety Division NAVFAC NAVAUDSVC Management Structure Aug 07

  6. 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)

  7. 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

  8. Acquisition Review Project • Phase I • OCONUS Acquisition • Phase II • Echelon 3 & 4 Acquisition • Remote Site Acquisition

  9. FY06 OCONUSDON Contract Actions • Marine Corps $ .7M • MSC 17.0M • NAVFAC 780.0M • NAVSEA 51.0M • NAVSUP 581.0M TOTAL $1,429.7M

  10. 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

  11. 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

  12. PotenUallPotential 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.)

  13. 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.)

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. Diverse Review Team Reps • OGC, Navy Acquisition Integrity Office (co-lead) • AGC (RD&A) (co-lead) • NAVAUDSVC • ASN (RD&A) • NAVINSGEN • NCIS

  20. Gansler Report Recommendations • Increase Stature, Quantity and Career Development on Acquisition Workforce • Restructure Organization • Provide Training and Tools • Obtain Legislative, Regulatory and Policy Assistance

  21. Next Steps • Integrated NAVSUP/NAVFAC Djibouti PPMAP • Review Team Provided Oversight and Assessment • NAVAUDSVC Control Testing • Bahrain • Dubai • Djibouti • Naples • Western Pacific • AFRICOM

  22. 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.

  23. 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]

  24. 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

  25. 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

  26. 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

  27. 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 • Requirements • Checks 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

  28. 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

  29. 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

  30. 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.)

  31. 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

  32. 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

  33. 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

  34. 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

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

  36. 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)

  37. 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

  38. Lessons Learned(Potential Recs) (Continued) • 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

  39. Lessons Learned(Potential Recs) (Continued) • 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

  40. Reporting Suspected Fraud • Naval Inspector General Hotline • Phone: 1-800-522-3451 • Email:NAVIGHotlines@navy.mil • DoD Inspector General Hotline • Phone: 1-800-424-9098 • Email:Hotline@dodig.osd.mil • Website: http://www.dodig.osd.mil/hotline

  41. Wrap-up • Questions • Comments • Concerns Alvin Lowe 202-433-6270 alvin.lowe@navy.mil

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