GSA Federal Supply Schedule Contracting: Best Practices for Surviving GSA OIG Audits

2. GSA Federal Supply Schedule Contracting: Best Practices for Surviving GSA OIG Audits Breakout Session # 606 Presenters: Tony Fuller and Bill Bressette Date: Tuesday, July 20, 2010 Time: 4:00 – 5:15 pm 1

3. Objectives Understand the types of reviews and audits associated with GSA Schedule contracts and the difference between each Learn about recent trends in pre- and post-award audits Understand common data requests and areas of government focus Learn best practices to ensure that you are adequately prepared for an audit or review when it’s your turn

4. Agenda Introduction to GSA OIG Types of Audits and Reviews Contractor Assistance Visits Pre- and Post-award Audits General Trends What to Expect How to Prepare Managing an Audit – Best Practices Closeout – Next Steps Recent Settlements, Fines and Penalties Mandatory Disclosures Questions

5. Introduction to GSA OIGOverview General Services Administration (GSA) Office of Inspector General Mission: To promote economy, efficiency, and effectiveness within GSA and to prevent and detect fraud, waste, and abuse in the agency's programs and operations.  Conduct pre- and post-award audits Authorized by the Inspector General Act of 1978 Conduct independent audits and investigations Prevent and identify fraud, waste and abuse Promote economy, effectiveness and efficiency

6. Introduction to GSA OIGAudit Authority Two clauses in your GSA Schedule contract provide audit authority: Pre-award Audit Authority FAR 52.215-20 – “By submission of an offer in response to this solicitation, the Offeror grants the Contracting Officer or an authorized representative the right to examine, at any time before initial award, books, records, documents, papers, and other directly pertinent records to verify the pricing, sales and other data related to the supplies or services proposed in order to determine the reasonableness of price(s).”

7. Introduction to GSA OIGAudit Authority Two clauses in your GSA Schedule contract provide audit authority: Post-award Audit Authority EXAMINATION OF RECORDS BY GSA (GSAR 552.215-71) – The Contractor agrees that the Administrator of General Services or any duly authorized representative shall have access to and the right to examine any books, documents, papers and records of the Contractor involving transactions related to this contract for over billings, billing errors, compliance with the Price Reduction clause and compliance with the Industrial Funding Fee and Sales Reporting clause of this contract. This authority shall expire 3 years after final payment. The basic contract and each option shall be treated as separate contracts for purposes of applying this clause.

8. Types of Audits and ReviewsOverview Contractor Assistance Visit (CAV) Cursory compliance assessment intended to identify potential administrative and compliance issues (NOT considered an audit) Pre-award Audit Intended to verify that the contractor’s pricing disclosures are current, accurate and complete and that controls are sufficient to ensure compliance May occur prior to initial contract award or at option extension Post-award Audit Designed to help contracting officials administer contracts and ensure that the Government gets what it pays for Reviews for compliance in several key areas: Price Reductions Clause (PRC) compliance 72A Sales Reporting and Industrial Funding Fee (IFF) remittance Others including labor mapping compliance, contract scope, etc.

9. Types of Audits and ReviewsDifferences Between OIG Audits and CAVs

10. Contractor Assistance Visits (CAV)Overview CAV’s are performed by Industrial Operations Analysts (IOA) generally two times for every five year contract period Documentation request may include: GSA Contract Final Proposal CSP Format Contract Modifications Current and Historical Pricelists Key areas of focus: 72A Sales Reports and IFF Remittance Scope of Contract Pricelist and GSA Advantage! Basis of Award (BOA) customer(s) tracking and PRC compliance Economic Price Adjustments (EPA) Trade Agreements Act (TAA)

11. Contractor Assistance Visits (CAV)Contractor Report Card Ratings Exceptional Very Good Satisfactory Marginal Serious Concerns Exist Question Categories Category 1: Critical (10 questions/topics) Failure to meet any 1 results in a rating of “Serious Concerns Exist” Category 2: Mandatory (11 questions/topics) Category 3: Above and Beyond (6 questions/topics)

12. Contractor Assistance Visits (CAV)Contractor Report Card

13. Pre- and Post-award AuditsGeneral Trends GSA OIG audit activity is on the rise: Pre-award audits of 115 contracts in FY09 covering $11.8 billion in estimated value (vs. 68 conducted in FY07) – majority conducted at contract extension 75 criminal and 23 civil case referrals to the Department of Justice (not limited to MAS program) The lines have become blurred between pre- and post-award audits Inconsistent interpretations of the PRC and price/discount relationship Inconsistent definitions of commerciality An area of focus for GSA OIG will be to determine if Acquisition Centers are consistently identifying the commerciality of items offered under Multiple Award Schedules

14. Pre- and Post-award Audits:What to Expect Notification letter or email from GSA OIG Generally advance notice of several weeks to months Initial data request Commercial Sales Practice (CSP) format, disclosures and pricelist Company profile Organizational chart Most recently audited financial statements Policies, procedures and process flowcharts Segment line, product line and service offering descriptions

15. Pre- and Post-award Audits:What to Expect Initial data request (cont.) Sales data spanning the period of time cited in the CSP Format Include a data dictionary of contents including all codes and abbreviations Reconciliation of the sales data to the firm’s audited financial statements List of all commercial, state and local government, GSA and other Federal Government contracts Summaries that identify all task orders with corresponding values and dollar amounts placed under the GSA contract Photocopy of at least one annotated invoice to show where recorded sales data appears

16. Pre- and Post-award Audits:Before the Audit - How to Prepare Upon receiving notification of an audit or review, ask for the auditor’s information request as soon as possible Perform an internal, pre-audit to identify potential issues in advance of the review or audit Attempt to address any issues before start of fieldwork – develop internal policy if necessary Have originals pulled and ready for review Make copies of requested documents for the auditors to take (may limit time spent onsite) Be prepared for management involvement or escalation process should auditors be adamant about examining unnecessary documents

17. Pre- and Post-award Audits:Managing the Audit – Best Practices Entrance Conference Request an entrance conference to agree upon the audit scope and objectives, establish a request protocol, and introduce the team Ensure that the audit scope is well defined Limit access to company facilities and employees Clearly establish expectations Communication Control communications and audit requests by designating a single POC Get all requests/questions in writing; limit constant flow of questions by asking auditors to collect and provide once or twice daily Introduce some sort of PM tool to track outstanding requests Consider daily/weekly status updates BE RESPONSIVE

18. Pre- and Post-award Audits:Managing the Audit – Best Practices Document Management Ensure that all relevant documents are available to auditors Save all communications with auditors Do NOT destroy audit documents even if part of a routine document management plan Employee Interviews Review questions that will be asked at the interview before it occurs Ensure management is present at employee interviews Exit Conference Request an exit conference upon completion of the audit/review to formally close out the audit/review process and ensure that all requests have been adequately addressed Request a high-level explanation of any auditor concerns to begin proactively addressing these issues Determine when the audit report will be issued and whether or not the company will be granted the opportunity to review the draft report

19. Pre- and Post-award Audits:Closeout - Next Steps Next steps Government should present a draft audit report – if not, request to receive a copy Management should be afforded the opportunity to respond to any findings Respond to findings in a timely fashion Begin addressing any issues and notify the auditors of the steps being taken to do so ( e.g. remediation plan w/ well-defined steps, milestones and estimated completion) Going forward, perform periodic (semi-annual / annual) internal reviews to mitigate future compliance risk.

20. Pre- and Post-award AuditsSettlements, Fines and Penalties Recent examples: NetApp (formerly Network Appliance) has agreed to pay $128 million to settle a lawsuit alleging that it violated the False Claims Act (FCA), by failing to offer the Government its best commercial pricing in violation of the terms of its General Services Administration (GSA) schedule contracts. (4/15/2009) EMC Corporation announced it will pay $87.5 million to the government to settle lawsuits alleging the company provided kickbacks to business partners and misrepresented its pricing practices during negotiations with the U.S. General Services Administration (GSA). (5/5/2010) Oracle agreed to pay $98.5 million to settle allegations of defective MAS contract pricing disclosures by PeopleSoft prior to its acquisition by Oracle.4 The PeopleSoft disclosures allegedly understated the discounts it provided to commercial customers. (10/10/2006)

21. Mandatory Disclosures Final Rule Effective December 12, 2008 Amends FAR 3.10, 9.4, 52.203-13 to require: Ongoing business ethics and compliance program and internal control system within 90 days of contract award (not required for small business or commercial item contracts) Mandatory disclosure if principal has credible evidence of: Criminal law violations involving fraud, conflict of interest, bribery, or gratuity violations Civil False Claims Act violations Significant overpayments Suspension or debarment for knowing failure to timely disclose

22. Mandatory Disclosures Who is affected: Applies to all contracts over $5M and >120 days Applies in the U.S. and overseas Must be flowed down to subcontracts that meet the same size and duration thresholds What to disclose: Information sufficient to identify the nature and extent of the offense and the individuals responsible A description of the overpayment, including the circumstances of the overpayment, affected contract number, affected line item and contractor point of contact To whom do you disclose: Agency’s Office of Inspector General Contracting Officer

23. Mandatory Disclosures Risks of non-compliance: Risk of Prosecution Existing DOJ guidelines that address corporate prosecution standards, while certainly not providing amnesty, suggest that if a company discloses such violations, the prosecution will be of the individuals responsible for the violation, not the entire organization Risk of Debarment It is unlikely that any contractor would be suspended or debarred absent the determination that a violation had actually occurred. Present responsibility is the ultimate basis of suspension or debarment Federal Register Vol. 73, No. 219

24. Questions?

25. About Baker Tilly Founded in 1931 as a certified public accounting firm Currently operate in six states with over 1,400 professionals Member of Baker Tilly International, the world’s 8th largest network of accounting firms Headquartered in Chicago East Region is located in Washington, D.C. with over 275 professionals East Region provides a range of professional services including: Financial statement audit Tax planning and compliance Consulting services to private and publicly traded companies across many industries Government contract and grant consulting Forensic and litigation services Mergers and acquisitions Technology management

26. Speakers Tony Fuller, Principal Tony leads the Government Contractor Advisory Services practice in the East Region of Baker Tilly. He has over 17 years experience providing a broad range of business consulting services to government contractors in many industries. Tony has helped government contractors with accounting, financial and contract compliance issues in many areas of their government business operations. He has deep expertise in all aspects of commercial item acquisition and GSA Schedule contracting, including pricing analysis, proposal preparation, contract administration, compliance and audit support, and he has authored numerous articles and frequently speaks on GSA related matters. Tony is an active member of several professional organizations, and currently serves on the advisory board for BNA’s Federal Contracts Report. He also serves as Vice Chair of the Commercial Products and Services Committee of the ABA’s Section of Public Contract Law. Tel: (703) 923 8688, tony.fuller@bakertilly.com

27. Speakers Bill Bressette, Principal, CPCM Bill has over 13 years experience in government contracting and corporate compliance including contract analysis and administration, rate development and analysis, development and management of contracts and compliance organizations, corporate policies and procedures, organizational risk management, cost estimating and proposal development. Bill has extensive experience helping contractors with virtually all aspects of GSA Schedule contracting, including feasibility assessments, strategic pricing analysis, proposal preparation, contract administration, compliance and audit support. He has both consulting and industry experience in these areas, has authored many articles, and speaks often on matters related to contract compliance. Bill is a NCMA Fellow, President-Elect of the Board of Directors for the Tysons Chapter, and he is Vice Chair of the Commercial Products and Services Committee of the ABA’s Section of Public Contract Law. Tel: (703) 923 8624, bill.bressette@bakertilly.com

28. Appendix Sample Contractor Report Card: https://vsc.gsa.gov/reportcard/reportcard.pdf