TITLE: B-308944, Expired Funds and Interagency Agreements between GovWorks and the Department of Defense, July 17, 2007
BNUMBER: B-308944
DATE: July 17, 2007
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B-308944, Expired Funds and Interagency Agreements between GovWorks and the Department of Defense, July 17, 2007
Decision
Matter of: Expired Funds and Interagency Agreements between GovWorks and
the Department of Defense
File: B-308944
Date: July 17, 2007
DIGEST
GovWorks, a Department of the Interior franchise fund, entered into four
contracts on behalf of the Department of Defense (DOD). With one
exception, the Military Interdepartmental Purchase Requests (MIPRs) used
to finance these contracts did not identify the specific items or services
that DOD wanted GovWorks to acquire on its behalf. Lacking the necessary
specificity as to the items or services ordered, these MIPRs did not
properly obligate DOD's appropriation. Accordingly, in fiscal year 2005,
when GovWorks used these funds for three of the four contracts, GovWorks
improperly used prior year funds.
One MIPR, for laser printers, described the goods DOD sought with enough
specificity to create a valid interagency agreement and to properly
obligate DOD's appropriation. Although the laser printers ordered are a
readily available commercial item, GovWorks did not use the funds to
execute a contract on DOD's behalf until 17 months after the date of the
MIPR, and 11 months after the funds expired. Because GovWorks did not use
the funds within a reasonable time of their receipt, the contract did not
fulfill a bona fide need arising during the funds' period of availability.
DOD and GovWorks share responsibility for ensuring the proper use of DOD
funds transferred to and "parked" at GovWorks. DOD must adjust its
appropriations accounts to record obligations for these four contracts
against fiscal year 2005 appropriations. If DOD has insufficient
unobligated balances in these appropriations, DOD must report violations
of the Antideficiency Act.
To prevent future occurrences of the problems associated with the four
contracts, GovWorks should examine its accounts to identify interagency
agreements that lack the requisite specificity under the recording
statute. For those agreements that do not meet the requirements, GovWorks
should return the funds advanced by the ordering agency. GovWorks also
should develop internal controls to ensure that it does not accept
nonspecific, indefinite orders nor use expired funds to enter into
contracts on behalf of the ordering agency.
DECISION
The Inspector General for the Department of the Interior (Interior)
requests our decision under 31 U.S.C. sect. 3529 regarding issues raised
by four contracts that GovWorks, an Interior franchise fund, entered into
with private vendors in fiscal year 2005 using Department of Defense (DOD)
funds.[1] The Inspector General (IG) is concerned that certain Military
Interdepartmental Purchase Requests (MIPRs), used to document DOD's
interagency agreements with GovWorks, may not have identified DOD's needs
with the specificity required to create an obligation under 31 U.S.C.
sect. 1501(a). Devaney Letter. The IG expressed concern that most of the
DOD funds that GovWorks used to finance the four contracts were no longer
available to incur obligations when GovWorks executed the contracts in
fiscal year 2005. Id. The IG believes that DOD improperly "parked" funds
with GovWorks. Id. This decision examines the four contracts to determine
whether they fulfilled a bona fide need arising during the period of
availability of the funds that GovWorks used to finance the contracts.[2]
For the reasons discussed below, we conclude that, with one exception, the
MIPRs between DOD and GovWorks did not identify the specific items or
services that GovWorks was to acquire. As a result, the MIPRs did not
properly obligate DOD's funds. It was not until fiscal year 2005 that DOD
perfected its orders and established valid interagency agreements by
asking GovWorks to acquire specific goods or services. Consequently,
GovWorks improperly used expired funds, transferred by DOD's MIPRs, to
finance these three contracts. DOD may not extend the availability of its
appropriated funds by "parking" funds at GovWorks. DOD and GovWorks should
adjust their appropriations accounts, charging the obligations for these
three contracts to fiscal year 2005 DOD funds. If there is an insufficient
unobligated balance remaining in DOD's fiscal year 2005 expired
appropriation, DOD should report a violation of the Antideficiency Act
consistent with Office of Management and Budget Circular A-11.
One MIPR, for laser printers, funding one of the four contracts had the
requisite specificity to properly obligate DOD's funds. Because laser
printers are a readily available commercial item, GovWorks's use of the
transferred funds to acquire laser printers almost 17 months after DOD and
GovWorks entered into the interagency agreement and transferred the funds
to GovWorks, and 11 months after the funds expired, did not fulfill a bona
fide need arising during the funds' period of availability. Rather, the
contract satisfied a bona fide need of the following fiscal year. DOD and
GovWorks should adjust their accounts, deobligating the funds from fiscal
year 2004 and obligating instead funds from fiscal year 2005.
Our practice when rendering decisions is to obtain the views of the
relevant federal agencies. GAO, Procedures and Practices for Legal
Decisions and Opinions, GAO-06-1064SP (Washington, D.C.: Sept. 2006),
available at http://www.gao.gov/legal.htm. In this regard, Interior and DOD
responded to questions from our office about the four contracts. Letter
from David L. Bernhardt, Solicitor, Department of the Interior, to Thomas
H. Armstrong, Assistant General Counsel for Appropriations Law, GAO, Apr.
20, 2007 (Bernhardt Letter); Letter from Roger F. Pitkin, Acting Deputy
General Counsel (Fiscal), DOD, to Thomas H. Armstrong, Assistant General
Counsel for Appropriations Law, GAO, June 6, 2007 (Pitkin Letter).
Interior provided requested information but declined to provide its legal
views in response to the questions we asked. Bernhardt Letter.
BACKGROUND
GovWorks is a franchise fund originally established as a pilot program in
1996. Department of the Interior and Related Agencies Appropriations Act,
Pub. L. No. 104-208, div. A, title I, sect. 113, 110 Stat. 3009, 3009-200
(Sept. 30, 1996). Congress has reauthorized GovWorks through fiscal year
2007. Revised Continuing Appropriations Resolution, 2007, Pub. L. No.
110-5, sect. 2, 121 Stat. 8, 57 (Feb. 15, 2007).
As a franchise fund, GovWorks is a revolving fund designed to provide
common administrative services to Interior and other agencies on a
competitive basis. Government Management Reform Act of 1994, Pub. L. No.
103-356, title IV, sect. 403, 108 Stat. 3410, 3413 (Oct. 13, 1994)
(authorizing franchise fund pilot programs). GovWorks is "a full service
acquisition center" that procures goods and services from vendors on
behalf of federal agencies. GovWorks, Frequently Asked Questions, General
Questions, para. 1, available at http://www.govworks.gov/home/faqs.asp (last
visited July 2, 2007).
An agency wishing to acquire products or services through GovWorks tells
GovWorks the goods or services the agency would like GovWorks to acquire
on its behalf. GovWorks, Getting Started Details, available at
http://www.govworks.gov/home/getting_started_details.asp (last visited July 2,
2007) (Getting Started Details). The ordering agency then transfers funds
from its appropriation to GovWorks for acquisition of the goods or
services sought. Id. DOD uses MIPRs both to identify its needs and to
transfer funds to GovWorks. Pitkin Letter; Robert McNamara, Acting Deputy
Chief Financial Officer, Office of the Under Secretary of Defense,
Comptroller, Memorandum for the Secretaries of the Military Departments,
et al., Non-Economy Act Orders, Oct. 16, 2006. If GovWorks believes it can
procure the goods or services sought by DOD as specified in the MIPR,
GovWorks replies to DOD with an "Acceptance of MIPR." Bernhardt Letter at
tab 1A. Upon GovWorks's acceptance of the MIPR, GovWorks and DOD have
cemented an interagency agreement, and DOD records an obligation in the
amount it transferred to GovWorks. Pitkin Letter. GovWorks then locates a
vendor who can provide the goods or services DOD seeks and enters into a
contract with the vendor for the goods or services using the funds
transferred by DOD. See Getting Started Details. GovWorks charges ordering
agencies a service fee of 4 percent of the contract award. Id. These fees,
once earned, are available to GovWorks without fiscal year limitation to
cover GovWorks's administrative costs. Pub. L. No. 104-208, sect. 113.
In January 2007, the Interior IG reported its audit of the GovWorks
transactions made using DOD funds in fiscal year 2005, including contracts
made with vendors on behalf of DOD. Interior IG Report. The Interior IG
determined that in many cases GovWorks had accepted MIPRs from DOD that
did not indicate the goods or services sought with the level of
specificity necessary to incur an obligation against DOD's funds. Id. at
4. In addition, GovWorks had entered into contracts with vendors using DOD
funds whose period of availability for obligations had expired.[3] Id.
The Interior IG is concerned that these practices may have violated fiscal
law and may indicate that DOD "parked" funds at GovWorks. See Devaney
Letter at 1--2. To address these concerns, the Interior IG asked that we
examine four contracts that GovWorks entered into in fiscal year 2005
using DOD funds. Id.
Contract 44435 for Laser Printers
On April 9, 2004, DOD transferred $40,283.46 of fiscal year 2004 Operation
and Maintenance Army funds to GovWorks for the purchase of "XEROX 3400
Printers." MIPR 4GINTMM054, Apr. 9, 2004. Sixteen months later, DOD sent
an e-mail to GovWorks requesting that GovWorks use these funds to acquire
20 HP 1300 laser printers and 20 HP 4350n network printers, or printers of
equal specifications and value, to be delivered to the Pentagon within 30
days of contract award. E-mail from Georgette Sumpter, DOD, to Donald
Clifton, GovWorks, Subject: Project Number 5229-0002 Printers, Aug. 17,
2005. Using these funds, GovWorks entered into Contract 44435 with
CounterTrade Products, Inc. on August 29, 2005, for 40 HP laserjet
printers at a cost of $37,643.10. Contract 44435, Aug. 29, 2005. The funds
GovWorks used to finance this contract expired 11 months before GovWorks
entered into the contract and were only available to liquidate obligations
properly incurred during fiscal year 2004.
Contract 43270 for Body Armor
On March 24, 2004, DOD transferred $1.1 million of 3-year Other
Procurement Navy funds, which were available for fiscal years 2002--2004,
to GovWorks for "the procurement and fielding of AT/FP shipboard equipment
utilized for the protection of Navy afloat assets." MIPR N6553804MP00018,
Mar. 24, 2004. Almost 14 months later, DOD sent an e-mail to GovWorks
requesting that GovWorks place an order with Point Blank Body Armor, Inc.,
for 50 sets of T1 Special Body Armor and 100 Gamma Plates.[4] E-mail from
Eugene M. DuCom, John J. McMullen Associates (JJMA), to Donald Clifton,
GovWorks, Subject: HSV-X1 Body Armor PKG Point Blank Justification, May
16, 2005 (DuCom E-mail 1).[5] On May 18, 2005, DOD e-mailed GovWorks with
instructions to use the funds transferred by the March 24, 2004, MIPR for
this purchase. E-mail from Eugene M. DuCom, JJMA, to Donald Clifton,
GovWorks, Subject: Re: FW: Quote with shipping, May 18, 2005 (DuCom E-mail
2). Using these funds, GovWorks entered into Contract 43270 with Point
Blank Body Armor, Inc., on May 20, 2005, in the amount of $61,112 to
purchase body armor and gamma plates. Contract 43270, May 20, 2005. The
funds GovWorks used to finance this contract expired over 6 months before
GovWorks entered into the contract and were only available to liquidate
obligations properly incurred during fiscal years 2002--2004.
Contract 41181 for Computer Hardware
DOD made the following funds transfers to GovWorks:
o $50,000 of 2001 Operation and Maintenance Army funds, "for the
acquisition of toner cartridges." MIPR 1JDIT0N046, July 10, 2001.
o $70,000 of 2001 Operation and Maintenance Army funds, "for the
acquisition of [automated data processing] and supply." MIPR
1KINTWS058, July 24, 2001.
o $40,783 of 2001 Operation and Maintenance Army funds, "for the
acquisition of [automated data processing] and supplies." MIPR
1MINTPR070, Sept. 14, 2001.
o $1.8 million of 2004 Operation and Maintenance Army funds, "for
equipment through the Pentagon IT Store." MIPR 4MINTMM125, Sept. 17,
2004.
On November 9, 2004, DOD sent GovWorks an e-mail requesting that GovWorks
acquire 160 items of various computer hardware using the funds transferred
via the September 17, 2004 MIPR. E-mail from Michael Bucceroni, DOD, to
Andrew Carrington, GovWorks, Subject: FW: Project Number 4303-0002
Decision Agent Network Equipment, Nov. 9, 2004 (Bucceroni E-mail). On
December 21, 2004, GovWorks entered into Contract 41181 with Norseman,
Inc. for "Decision Agent Network Equipment"[6] in the amount of $108,196.
Contract 41181, Dec. 21, 2004. To finance this contract, GovWorks, at
DOD's direction, used a portion of the funds DOD transferred on September
17, 2004. See Bucceroni E-mail. GovWorks also used, apparently on its own
initiative, funds from the three other MIPRs listed above. Contract 41181.
On January 18, 2005, GovWorks modified Contract 41181 to remove the fiscal
year 2001 funds[7] that DOD had transferred on July 10, 2001, and replaced
them with the following:
o $3,600 of 2000 Operation and Maintenance Army funds, "for the
acquisition of [automated data processing] and services." MIPR
0MGSAIT092, Sept. 29, 2000.
o $94,351 of 2001 Operation and Maintenance Army funds, "for the
acquisition of [automated data processing] and supplies." MIPR
1MITST0074, Sept. 24, 2001.
o $158,273.50 of 2004 Operation and Maintenance Army funds, "for
equipment through the Pentagon IT Store." MIPR 4LINTMM111, Aug. 18,
2004.
o $1.4 million of 2004 Operation and Maintenance Army funds, for
"[defense messaging system] equipment." MIPR 4MINTMM130, Sept. 24,
2004.
The funds GovWorks used to finance this contract expired over 50 months,
38 months, and 2 months, respectively, before GovWorks entered into the
contract and were only available to liquidate obligations properly
incurred during fiscal years 2000, 2001, and 2004.
Contract 43387 for Telecommunications Support
GovWorks entered into Contract 43387 with Northrop Grumman in the amount
of $3,908,420 for "technical and functional support to the Pentagon
Telecommunications Center" consisting of systems and security management,
maintenance, and operation of hardware and software. Contract 43387, June
30, 2005. This was a sole source contract, intended as a bridge contract
pending award of a final contract. Letter from Paul Martin, Contracting
Officer, GovWorks, to Allen Sauck, Northrop Grumman, Subject: Request for
Proposal 43387, Pentagon Telecommunications Center, Decision Agent and
Enhanced Communication Gateway System, June 8, 2005. The duration of the
contract was 6 months, from July 1, 2005, to December 31, 2005. Contract
43387, Statement of Work at para. 5.0. To fund this contract, GovWorks
used Operation and Maintenance Army funds that DOD had transferred to
GovWorks via 17 separate MIPRs. Id. Of these 17 MIPRs, 1 transferred
fiscal year 2003 funds in fiscal year 2003, 13 transferred fiscal year
2004 funds in fiscal year 2004, and 3 transferred fiscal year 2005 funds
in fiscal year 2005. Id.
The 17 MIPRs used to fund this contract also had four different
descriptions of the services DOD wished GovWorks to procure on its behalf:
o "[Decision Agent/Defense Messaging System] Core Product," 13 MIPRs.
E.g., MIPR 4GINTMM058, Apr. 26, 2004.
o "[S]upport of the Decision Agent," 2 MIPRs. E.g., MIPR 5CINTMM013,
Dec. 15, 2004.
o "Secondary site [Defense Messaging System] requirements," MIPR
3LINTMM101, Aug. 29, 2003.
o "Support [for] the [network] Printers," MIPR 4HINTMM069, May 26, 2004.
GovWorks executed this contract on June 30, 2005, pursuant to a Statement
of Work from DOD dated June 15, 2005 ,[8] and GovWorks, at DOD's
direction, funded this contract with funds transferred to GovWorks through
the 17 MIPRs listed above. E-mail from Georgette Sumpter, DOD, to Michael
Bucceroni, DOD, Subject: Project Number 5095-0001 DA, May 31, 2005
(Sumpter E-mail 2). [9] The fiscal year 2003 and fiscal year 2004 funds
GovWorks used to finance this contract expired 19 months and 7 months,
respectively, before GovWorks entered into the contract.
DISCUSSION
The overarching issue presented by the Interior IG is whether DOD and
GovWorks used the correct appropriation to finance the four contracts. The
IG raises the issue because GovWorks, on behalf of DOD, entered into the
four contracts in fiscal year 2005 but used expired DOD funds, not fiscal
year 2005 funds,[10] to finance the contracts. Expired funds are only
available to liquidate obligations properly incurred during their period
of availability. To answer the question, we must first determine when DOD
incurred obligations against its appropriations: either when it
transferred the funds to GovWorks with the MIPRs or at some later time.
Second, having established when DOD incurred an obligation, we must
determine whether DOD incurred an obligation within the funds' period of
availability and, if so, whether GovWorks promptly used the funds to
execute a contract on DOD's behalf. We also respond to the IG's concern
that DOD and GovWorks may have improperly parked funds with GovWorks.
Incurring Obligations
An interagency transaction like that authorized by Interior's franchise
fund authority is, in some ways, not unlike a contractual transaction.
[11] See, e.g., B-286929, Apr. 25, 2001. Similar to a contractual
transaction, at the time the agencies involved in the transaction enter
into an interagency agreement, the ordering agency incurs an obligation
for the costs of the work to be performed. See B-302760, May 17, 2004.
However, to incur an obligation, an ordering agency must have documentary
evidence of a binding agreement between the two agencies for specific
goods or services.
The specificity requirement is a long-standing principle of appropriations
law, supported by decisions of the Comptroller General and by the
recording statute, 31 U.S.C. sect. 1501(a). For example, in 44 Comp. Gen.
695 (1965), we considered fiscal year 1964 purchase orders placed by the
United States Travel Service (USTS) with the Government Printing Office
(GPO) for the printing of sale and promotion materials. 44 Comp. Gen. at
696. The purchase orders stated that manuscripts of the materials to be
printed and specifications of the work to be performed by GPO would
follow. Id. at 698. USTS provided these materials to GPO several months
later in fiscal year 1965. Id. We concluded that a USTS purchase order for
printing services for manuscript material to be provided later did not
constitute a firm and complete order needed to create a binding
obligation. Id. Instead, USTS incurred an obligation in fiscal year 1965
when it provided the manuscripts to GPO. Id. An order that lacks a
specific, definite description of the goods or services to be provided is
not firm and complete.[12] B-196109, Oct. 23, 1979 (National Park Service
did not incur an obligation against fiscal year 1978 appropriations with
purchase order lacking specificity; the Service incurred an obligation
when it provided specifications to vendor in fiscal year 1979).
The recording statute provides additional support for this proposition. As
pertinent here, it requires that an interagency agreement be evidenced by
a written document, executed during the period of availability of the
appropriation used, for "specific goods to be delivered . . . or work . .
. to be provided." 31 U.S.C. sect. 1501(a) (emphasis added). The statute's
obvious purpose is to ensure that the parties understand and accept their
rights and duties under the agreement and that Congress, as part of its
oversight role, knows how agencies are obligating their funds. See 71
Comp. Gen. 109, 110 (1991). See generally Senate Committee on Government
Operations, Financial Management in the Federal Government, S. Doc. No.
87-11, at 85 (1961). In other words, Congress did not want agencies to
record obligations against current appropriations based on inchoate
agreements--whether with vendors or other agencies. See 31 U.S.C. sect.
1501(a)(1).
Here, only one MIPR was sufficiently specific to establish an obligation
against DOD's appropriation--the April 2004 MIPR for "XEROX 3400 Printers"
that GovWorks used to finance contract 44435. MIPR 4GINTMM054, Apr. 9,
2004. The remaining MIPRs, used to finance contracts 41181, 43387, and
43270, were too vague in their descriptions to establish DOD's and
GovWorks's rights and duties. For example, several MIPRs sought "equipment
through the Pentagon IT Store." E.g., MIPR 4MINTMM125, Sept. 17, 2004.
Without further advice from DOD, GovWorks would not know whether any
particular equipment purchase at the Pentagon IT Store satisfied DOD's
needs. Several other MIPRs sought "secondary site [defense messaging
system] requirements," without specifying the details needed for GovWorks
to address DOD's needs. E.g., MIPR 3LINTMM101, Aug. 29, 2003.
Not until DOD e-mailed GovWorks identifying specific items did DOD perfect
its orders and incur obligations. 44 Comp. Gen. 695. For Contract 41181,
DOD incurred an obligation against its appropriation on November 9, 2004,
when it e-mailed GovWorks descriptions of specific goods it sought.
Bucceroni E-mail. For Contract 43387, DOD incurred an obligation against
its appropriation when it transmitted its Statement of Work to
GovWorks.[13] For Contract 43270, DOD incurred an obligation in May 2005,
when it perfected its order for body armor and gamma plates.[14] DuCom
E-mail 1; DuCom E-mail 2. DOD and GovWorks, therefore, must use fiscal
year 2005 funds for Contracts 41181, 43387, and 43270. See B-302760, May
17, 2004. To the extent that DOD has recorded obligations against its
prior fiscal year funds, DOD should adjust its accounts, deobligating
those fiscal year funds and obligating fiscal year 2005 funds. Should DOD
lack sufficient fiscal year 2005 funds, it must report Antideficiency Act
violations to the President and Congress, with a copy of the report to the
Comptroller General. 31 U.S.C. sect. 1351.
Bona Fide Needs Rule
An appropriation is available for obligation only to fulfill a genuine
need of the period of availability for which it was made. B-308010, Apr.
20, 2007. This maxim, the bona fide needs rule, applies to all uses of
federal funds, including contracts and interagency transactions. B-286929,
Apr. 25, 2001. The bona fide needs rule is rooted in 31 U.S.C. sect.
1502(a). This statute provides that a fixed-term appropriation is
available only for payment of expenses "properly incurred" during the
appropriation's period of availability and to complete contracts "properly
made" during that period.
In other words, if an agency with an identified bona fide need does not
act to fill that need before the end of an appropriation's period of
availability, that appropriation is no longer available to fill that need.
B-286929, Apr. 25, 2001. If the agency acts in a subsequent fiscal year to
meet its continuing need, it must obligate the subsequent fiscal year's
appropriation, notwithstanding that the bona fide need was first
identified, but not satisfied, in a prior fiscal year. Id.
As discussed above, for Contracts 43270, 41181, and 43387, DOD incurred
obligations in fiscal year 2005, but DOD and GovWorks used expired funds
to cover these obligations. As previously discussed, although DOD
transferred these funds to GovWorks during their period of availability,
the MIPRs did not obligate these funds and they were no longer available
for obligation at the time they were used. Consequently, GovWorks
improperly used the expired funds to enter into these three contracts in
violation of the bona fide needs rule.
For Contract 44435, although DOD and GovWorks had entered into a valid
interagency agreement obligating funds, DOD and GovWorks improperly used
the fiscal year 2004 funds to finance a fiscal year 2005 contract. Like a
contract with a private vendor, funds obligated for an interagency
agreement with a franchise fund are used to pay for the supplies or
services ordered.[15] However, the fact that GovWorks did not execute
Contract 44435 until almost 17 months after executing the interagency
agreement, and 11 months after the end of fiscal year 2004, indicates that
Contract 44435 did not satisfy a bona fide need of fiscal year 2004.
Of course, a performing agency should have a reasonable period of time to
use transferred funds, depending on the nature of the order.[16] Here, DOD
incurred an obligation against its fiscal year 2004 appropriation on
April 9, 2004, when it transferred fiscal year 2004 funds to GovWorks with
a MIPR seeking "XEROX 3400 Printers." GovWorks did not execute Contract
44435 to acquire printers for DOD until almost 17 months later and 11
months after the end of fiscal year 2004. Contract 44435. We have been
provided no information suggesting that the printers GovWorks purchased on
DOD's behalf are anything but readily available commercial items that
GovWorks could have purchased on DOD's behalf with little lead time. As
such, we find it unreasonable that GovWorks took 17 months to execute
Contract 44435. Rather than fulfilling a bona fide need of fiscal year
2004, Contract 44435 at best filled a need of fiscal year 2005. GovWorks
improperly used fiscal year 2004 funds to purchase the printers.
As with the other three contracts, GovWorks and DOD should adjust their
accounts to deobligate DOD's fiscal year 2004 appropriations and record
the obligation for Contract 44435 against fiscal year 2005 appropriations.
See B-307137, July 12, 2006. Should DOD lack sufficient fiscal year 2005
funds, it must report Antideficiency Act violations to the President and
Congress, with a copy of the report to the Comptroller General. 31 U.S.C.
sect. 1351. GovWorks should return to DOD any expired DOD funds that
GovWorks retains that are not properly obligated. See B-288142, Sept. 6,
2001.
Parking
For almost 4 years, DOD's Comptroller has expressed concern about the
possibility of DOD components "banking," or "parking," DOD funds with
other agencies in the course of interagency agreements. In a 2003
memorandum issued departmentwide, the Comptroller alerted DOD to media
attention focusing "on the impropriety of using interagency agreements to
`bank' funds that would otherwise expire at the end of the fiscal year."
Dov S. Zakheim, Office of the Under Secretary of Defense, Comptroller,
Memorandum for the Chairman of the Joint Chiefs of Staff, et al., Fiscal
Principles and Interagency Agreements, Sept. 25, 2003.
Distinguishing Economy Act orders from non-Economy Act orders, the
Comptroller explained that with some federal agencies, such as GovWorks,
who have legal authority separate from the Economy Act, DOD need not
retrieve DOD funds advanced to the servicing agency but not yet used by
the servicing agency.[17] Id. The Comptroller noted, however, that "an
interagency agreement must be based upon a legitimate, specific and
adequately documented requirement representing a bona fide need of the
year in which the order is made." Id. The Comptroller advised, "If these
basic conditions are met, these servicing agencies may retain . . . the
funds in the following fiscal year." Id. (emphasis in original). The
Comptroller admonished DOD officials to "resist the misguided desire to
bank government funds through improper use of interagency agreements," and
warned that "[m]isuse of interagency agreements may result in disciplinary
action, adverse media attention and additional congressional limitations
and oversight Department-wide." Id.
The Comptroller's Office reiterated its concern in 2005 and provided
additional guidance. Teresa McKay, Deputy Chief Financial Officer, Office
of the Under Secretary of Defense, Comptroller, Memorandum for the
Assistant Secretary of the Army (Financial Management and Comptroller), et
al., Proper Use of Interagency Agreements for Non-Department of Defense
Contracts Under Authorities Other Than the Economy Act, Mar. 24, 2005
("[I]t appears that some interagency agreements continue to be used in an
attempt to keep funds available for new work after the period of
availability for those funds expired.").
In October 2006, the Comptroller's Office issued detailed policy and
procedures, amending the DOD Financial Management Regulation, for
non-Economy Act interagency agreements. Robert McNamara, Acting Deputy
Chief Financial Officer, Office of the Under Secretary of Defense,
Comptroller, Memorandum for the Secretaries of the Military Departments,
et al., Non-Economy Act Orders, Oct. 16, 2006. The Comptroller required
that DOD components execute such interagency agreements using MIPRs,
accepted by the servicing agency, including, among other things, "a firm,
clear, specific, and complete description of the goods or services
ordered," "[a] statement of work that is specific, definite, and certain
both as to the work encompassed by the order and the terms of the order
itself," and "[s]pecific performance or delivery requirements." Id. paras.
C.2, C.4. The Comptroller specified that the interagency agreement "must
serve a bona fide need arising, or existing, in the fiscal year (or years)
for which the appropriation is available for new obligations." Id. para.
C.7. The Comptroller provided instructions for components to retrieve from
a servicing agency expired DOD funds to ensure that they are not used for
new obligations.[18] Id. para. D.2.d.
Unfortunately, the Comptroller's fears, in this case at least, were
realized. Clearly, DOD parked funds at GovWorks. An agency may not extend
the availability of its appropriated funds by transferring them to another
agency. B-288142, Sept. 6, 2001. DOD transferred funds to GovWorks using
indefinite, nonspecific MIPRs, and GovWorks held these funds, in some
cases for as long as 50 months. DOD improperly directed GovWorks to use
expired DOD funds for these contracts. GovWorks, for one contract,
improperly substituted expired funds from previous fiscal years. DOD and
GovWorks officials share responsibility for the transactions at issue here
and should be accountable. Because DOD funds were used to finance the
agreements and subsequent contracts, DOD's responsibility is obvious.
GovWorks, acting as DOD's contracting agent, also is responsible for
ensuring proper use of the funds entrusted to it. In this case, officials
of both agencies acted in disregard of the recording statute and the bona
fide needs rule, parking DOD funds at GovWorks and possibly violating the
Antideficiency Act.
DOD has already advised GovWorks "that any funds in excess of $100,000
provided . . . to GovWorks before [May 31, 2007] that have not already
been placed on contract by GovWorks must be returned to [DOD]
immediately." Letter from Shay D. Assad, Director, Defense Procurement and
Acquisition Policy, Office of the Undersecretary of Defense, Acquisition,
Technology and Logistics, to Nina Rose Hatfield, Deputy Assistant for
Business Management and Wildland Fire, Department of the Interior, May 31,
2007. DOD also has stopped the practice of advancing funds to GovWorks,
with any future payments to be based on billings for completed services or
delivered goods. Letter from Robert P. McNamara, Office of the
Undersecretary of Defense, Comptroller, to Nina R. Hatfield, Deputy
Assistant for Business Management and Wildland Fire, Department of the
Interior, Feb. 7, 2007. In addition, as we noted earlier, DOD must adjust
its appropriations accounts to record obligations for these four contracts
against its fiscal year 2005 appropriations. If DOD has insufficient
unobligated balances in these appropriations, DOD must report violations
of the Antideficiency Act. 31 U.S.C. sect. 1351.
CONCLUSION
For the reasons discussed above, DOD and GovWorks should review and adjust
their accounts for the four contracts reviewed here. We further suggest
that GovWorks examine its accounts to identify interagency agreements that
lack the requisite specificity. For those agreements that do not
constitute firm and complete orders, GovWorks should so inform the
ordering agency and return any funds advanced. GovWorks should also
develop adequate internal controls to ensure that it does not accept
orders lacking the requisite specificity to constitute firm and complete
orders nor use expired funds to enter into contracts on behalf of the
ordering agency.
Gary L. Kepplinger
General Counsel
------------------------
[1] Letter from Earl E. Devaney, Inspector General, Office of the
Inspector General, Department of the Interior, to David M. Walker,
Comptroller General of the United States, Jan. 22, 2007 (Devaney Letter).
This request arose out of the Inspector General's report on an audit of
transactions between DOD and Interior. U.S. Department of the Interior
Office of Inspector General, FY 2005 Department of the Interior Purchases
Made on Behalf of the Department of Defense, Report No. X-IN-MOA-0018-2005
(Jan. 9, 2007), available at http://www.doioig.gov/upload/2007-G-0002.txt (last
visited July 2, 2007) (Interior IG Report). The Inspector General for the
Department of Defense also audited many of these transactions and reported
results in U.S. Department of Defense Office of Inspector General, FY 2005
DOD Purchases Made Through the Department of the Interior, Report No.
D-2007-044 (Jan. 16, 2007), available at
http://www.dodig.osd.mil/Audit/reports/07report.htm (last visited July 2, 2007)
(DOD IG Report).
[2] In response to the IG's request, we issued a decision related to
obligation of funds under an indefinite delivery, indefinite quantity
contract. B-308969, May 31, 2007. A third decision in response to the IG's
request, B-309181, relating to authority to enter into a lease, will be
issued in the near future.
[3] The DOD Inspector General reached conclusions similar to those of the
Interior IG. DOD IG Report.
[4] We understand that body armor is used to protect personnel on board
ships. Each set of body armor is fitted, front and back, with gamma
plates, ceramic plates manufactured to protect personnel from projectiles.
[5] These instructions did not come from DOD directly, but from John J.
McMullen Associates, a private contractor working on DOD's behalf.
[6] The Decision Agent is a suite of software applications that
automatically identifies, filters, and distributes electronic messages.
Interior IG Report at 4 n. 3.
[7] The July 10, 2001, MIPR sought "toner cartridges" and the GovWorks
contracting officer servicing Contract 41181 believed that Contract 41181,
for Decision Agent Network Equipment, did not fill this need. Bernhardt
Letter at tab 1H.
[8] DOD originally submitted a Statement of Work to GovWorks on April 14,
2005. E-mail from Kimberly Elmore, Interior Office of Inspector General,
to Wesley Dunn, Senior Staff Attorney, GAO, Subject: Fw: GAO Request #2,
May 7, 2007. This Statement of Work was revised on June 15, 2005. Id.
[9] We have no documents showing GovWorks's acceptance of the funding
instructions in this e-mail. However, we may infer acceptance of these
terms, as GovWorks followed them. Contract 43387.
[10] GovWorks used fiscal year 2005 funds to partially fund Contract
43387.
[11] Both DOD and GovWorks consider MIPRs to be obligating documents.
Bernhardt Letter; Pitkin Letter.
[12] The specificity required of interagency agreements under the
recording statute is similar, even if not necessarily identical, to the
specificity required of solicitations under the Federal Acquisition
Regulation (FAR). For example, the FAR requires that solicitations, even
for indefinite-quantity contracts, describe the "scope, nature,
complexity, and purpose of the supplies or services the Government will
acquire." 48 C.F.R. sect. 16.504(a)(4). See also B-277979, Jan. 26, 1998
(agency's solicitation was invalid because it did not "reasonably
describ[e] the general scope, nature, complexity, and purpose of the
services or property to be procured under the contract").
[13] Neither DOD nor GovWorks provided us with documentation of when DOD
transmitted the Statement of Work to GovWorks. It is clear, however, that
DOD did this sometime between April 15, 2005 (the date of the original
Statement of Work) and June 30, 2005 (the date GovWorks signed the
contract).
[14] Neither DOD nor Interior provided us with documentation of an exact
date that DOD perfected the order that resulted in Contract 43270.
Nevertheless, the circumstances surrounding Contract 43270 show that DOD
perfected its order sometime between May 11 and May 20, 2005.
[15] Under the Economy Act, 31 U.S.C. sect. 1535, an ordering agency must
deobligate any fixed year funds at the end of their period of availability
to the extent that the performing agency has not performed or incurred
valid obligations under the agreement. 31 U.S.C. sect. 1535(d); B-289380,
July 31, 2002. When an agency validly obligates its funds through an
interagency agreement not governed by the Economy Act, the ordering agency
does not have to deobligate its funds at the end of their period of
availability. B-302760, May 17, 2004; B-286929, Apr. 25, 2001.
[16] In 1984, we concluded that because Army regulations required use of
transferred funds within 90 days from receipt of an order, DOD industrial
funds had not begun work ordered by other DOD components within a
reasonable period of time when work began more than 90 days after receipt.
GAO, Improper Use of Industrial Funds by Defense Extended the Life of
Appropriations Which Otherwise Would Have Expired, GAO/AFMD-84-34
(Washington, D.C.: June 5, 1984).
[17] See footnote 15.
[18] See also 1 TFM Bulletin No. 2007-03, Attachment I, para. III.B.2,
Oct. 1, 2006 (ordering agencies should monitor the activity and age of an
order and where there has been no activity for more than 180 days, the
ordering agency "shall determine the reason for the lack of activity on
the order").