Federal Bureau of Investigation: Weak Controls over Trilogy
Project Led to Payment of Questionable Contractor Costs and
Missing Assets (28-FEB-06, GAO-06-306).
The Trilogy project--initiated in 2001--is the Federal Bureau of
Investigation's (FBI) largest information technology (IT) upgrade
to date. While ultimately successful in providing updated IT
infrastructure and systems, Trilogy was not a success with regard
to upgrading FBI's investigative applications. Further, the
project was plagued with missed milestones and escalating costs,
which eventually totaled nearly $537 million. In light of these
events, Congress asked GAO to determine whether (1) internal
controls provided reasonable assurance that improper payment of
unallowable contractor costs would not be made or would be
detected in the normal course of business, (2) payments to
contractors were properly supported as a valid use of government
funds, and (3) FBI maintained proper accountability for assets
purchased with Trilogy project funds.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-306
ACCNO: A49337
TITLE: Federal Bureau of Investigation: Weak Controls over
Trilogy Project Led to Payment of Questionable Contractor Costs
and Missing Assets
DATE: 02/28/2006
SUBJECT: Accountability
Computer equipment contracts
Contract oversight
Contractor payments
Equipment upgrades
Federal funds
Government contracts
Information technology
Internal controls
Questionable payments
Technology modernization programs
Cost analysis
Financial management
FBI Trilogy Project
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GAO-06-306
* Report to Congressional Requesters
* February 2006
* FEDERAL BUREAU OF INVESTIGATION
* Weak Controls over Trilogy Project Led to Payment of Questionable
Contractor Costs and Missing Assets
* Contents
* Results in Brief
* Background
* FBI's Asset Accountability Procedures
* Internal Control
* Insufficient Invoice Review and Approval Process Increased FBI's
Vulnerability to Payment of Unallowable Contractor Costs
* Invoices Were Approved for Payment without Validation that
Goods and Services Were Received
* Invoice Review Responsibilities Were Not Clearly Defined
* Invoices Did Not Provide Adequate Support for All Charges
* Some Payments Made to Contractors Were for Questionable Costs
* First-Class Travel and Other Excessive Airfare Costs
* Excess Overtime Charges
* Questionable Labor Rates
* Other Questionable Costs
* Example 1-Subcontractor Labor Costs
* Example 2-Other Direct Costs/Training
* Example 3-Other Direct Costs/Equipment Disposal
* Example 4-Subcontractor Labor Invoice-Duplicate Payment
* Major Lapses in Accountability Resulted in Millions of Dollars of
Missing Trilogy Equipment
* FBI's Overreliance on Contractors Diminished Its Ability to
Properly Account for Trilogy Assets
* FBI Lacked Adequate Physical Control over Trilogy Assets
* FBI Is Unable to Locate Millions of Dollars of Trilogy
Assets
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Key Trilogy Milestones
* Scope and Methodology
* Validity of Payments
* Payments to SAIC
* Payments to CSC
* Payments to Mitretek
* FBI's Asset Accountability
* Comments from the Federal Bureau of Investigation
* Comments from the General Services Administration
* GAO Contacts and Staff Acknowledgments
Report to Congressional Requesters
February 2006
FEDERAL BUREAU OF INVESTIGATION
Weak Controls over Trilogy Project Led to Payment of Questionable
Contractor Costs and Missing Assets
Contents
Tables
Figures
February 28, 2006Letter
The Honorable Arlen Specter Chairman The Honorable Patrick J. Leahy
Ranking Minority Member Committee on the Judiciary United States Senate
The Honorable Richard J. Durbin United States Senate
The Honorable Charles E. Grassley United States Senate
The Honorable Orrin G. Hatch United States Senate
For several years Congress recognized that the Federal Bureau of
Investigation's (FBI) information technology (IT) systems were archaic and
inadequate for efficiently and effectively investigating criminal cases.
FBI recognized the need to modernize its IT systems before the September
11, 2001, terrorist attacks, but those events underscored FBI's need to
improve its ability to effectively retrieve, analyze, and share
investigative information necessary to carry out its mission. Initiated in
mid-2001, Trilogy-FBI's largest IT upgrade to date-was intended to
modernize FBI's IT infrastructure and systems and provide needed
applications to help FBI agents, analysts, and others do their jobs.
The Trilogy project consisted of two primary efforts: an IT infrastructure
update and an upgrade of FBI's investigative applications. While
ultimately successful in providing the infrastructure update, the project
was not a success with regard to upgrading the investigative applications.
Further, the project experienced numerous schedule delays and cost
increases.1 Project costs, which were originally estimated at
approximately $380 million, eventually escalated to approximately $537
million. Although the scheduled completion date for the overall Trilogy
project was June 2004, after September 11, 2001, FBI required an
accelerated deployment plan and moved up the expected completion dates.
The completion date for the portion of Trilogy related to upgrading FBI's
IT infrastructure was accelerated from May 2004 to July 2002. After
several delays, the upgrade was completed in April 2004, a month before
the original due date. While the overall scheduled completion date for the
investigative application upgrades, which became known as the Virtual Case
File (VCF), was originally June 2004, the due date for the first VCF
deliverable was accelerated to December 2003. However, in July 2004 the
VCF portion of the Trilogy project was scaled back after the completion of
the project was determined to be infeasible and cost prohibitive as
originally envisioned.
The Department of Justice (DOJ) Office of Inspector General (OIG) has
reported numerous issues that contributed to the cost increases and
delays, including poorly defined and slowly evolving design requirements,
contracting weaknesses, unrealistic task scheduling, and lack of
management continuity and oversight for tracking and overseeing costs
effectively.2 GAO also reported on weaknesses in FBI's IT systems
development and management capabilities, including contractor oversight.3
Because of these issues, you asked us to audit the costs of the Trilogy
project, the majority of which represented the purchase of goods and
services from contractors. Our objectives were to determine whether (1)
FBI's internal controls provided reasonable assurance that payment of
unallowable contractor costs would not be made or would be detected in the
normal course of business,4 (2) FBI's payments to contractors were
properly supported as a valid use of government funds, and (3) FBI
maintained proper accountability for assets purchased with Trilogy project
funds.
To address these objectives, we used various internal control standards
and guidance5 as a basis to assess FBI's internal controls over the
payments made with Trilogy funds. We also reviewed FBI policy and
procedure manuals; applicable federal regulations, including the Federal
Acquisition Regulation (FAR),6 Federal Travel Regulation,7 and Joint
Travel Regulations (JTR);8 prior GAO and DOJ OIG reports on Trilogy
issues; Trilogy contract documents and interagency agreements; contractor
invoices; and other documentation supporting goods provided and services
rendered. We performed data mining and forensic auditing techniques to
select transactions to determine whether payments to contractors were
properly supported as a valid use of government funds. We tested
accountable property to determine whether assets were entered in FBI's
property system and conducted a physical observation of selected assets to
validate their existence. In addition, we conducted interviews with
officials from FBI, General Services Administration's (GSA) Federal
Systems Integration and Management Center (FEDSIM), Department of the
Interior (DOI), and Trilogy contractors. We also performed walkthroughs to
gain an understanding of the processes used to review and approve invoices
and account for property. While we identified some payments for
questionable contractor costs,9 our work was not designed to identify all
questionable payments or to estimate their extent.
We provided FBI a draft of this report and GSA a draft of applicable
sections of this report for review and comment. FBI and GSA provided
written comments, which are reprinted in appendixes III and IV,
respectively. FBI and GSA also provided technical comments, which we have
incorporated as appropriate. We also discussed with Trilogy contractors
any findings that related to them. We performed our work in accordance
with generally accepted government auditing standards in Washington D.C.
and at two FBI field sites and various other GSA and contractor locations
in Virginia from May 2004 through December 2005. Our scope and methodology
are discussed in greater detail in appendix II.
Results in Brief
FBI's internal controls did not provide reasonable assurance that payments
to contractors for unallowable costs would not be made or would be
detected in the normal course of business. Our review found that FBI's
review and approval process for Trilogy contractor invoices, which
included GSA's review in its role as contracting agency, did not provide
an adequate basis to verify that goods and services billed were actually
received by FBI or that the amounts billed were appropriate. This occurred
in part because responsibility for the review and approval of invoices was
not clearly defined in the contracts and interagency agreements related to
Trilogy project oversight. In addition, certain contactor invoices lacked
certain detailed information required by the Trilogy task orders and other
additional information that would be needed to facilitate an adequate
invoice review process. Despite this, invoices were paid without requests
for additional supporting documentation necessary to validate the charges.
These weaknesses made FBI highly vulnerable to payments of unallowable and
questionable costs with Trilogy funds. Until significant improvements are
made, these vulnerabilities will continue for future projects where FBI
uses contractors for the delivery and deployment of goods and services.
We used forensic auditing techniques, including data mining and document
analysis, to assess the validity of selected payments and identified $10.1
million of questionable contractor costs paid by FBI. We found instances
of first-class travel and other excessive airfare costs, incorrect
billings for overtime hours worked, potential overcharging of labor rates,
and other questionable costs. For example, one contractor could not
provide adequate documentation to substantiate about $5.5 million of
subcontractor charges for other direct costs billed to FBI. Given FBI's
poor control environment over invoice payments and the fact that we
reviewed only selected FBI payments to Trilogy contractors, other
questionable costs may have been paid for that have not been identified.
Further, if these weaknesses go uncorrected, future contracts, including
those related to FBI's new electronic information management system
initiative, referred to as Sentinel, will be highly exposed to improper
payments.
FBI did not maintain adequate accountability for all computer equipment
purchased for the Trilogy project. FBI relied extensively on contractors
to account for Trilogy assets while they were being purchased, warehoused,
and installed. However, FBI did not have controls or data to verify the
accuracy and completeness of the contractor records it ultimately relied
on and to ensure that it received all the items purchased through its
contractors. Moreover, once FBI took possession of the Trilogy equipment,
it did not establish adequate physical control over the assets. FBI failed
to record accountable assets-equipment with a value of $1,000 or more, or
deemed by FBI to be susceptible to theft-into its property system in a
timely manner, did not properly use its bar codes to individually track
accountable assets, and did not effectively use its inventory process to
identify all potentially missing assets. These breakdowns in control over
Trilogy assets created an environment in which equipment could be lost or
stolen without detection.
Given the serious nature of these control weaknesses, we performed
additional test work to determine whether all accountable assets purchased
with Trilogy funds could be accounted for by FBI. FBI was unable to locate
over 1,200 of these assets, which we estimate are valued at approximately
$7.6 million, including items such as computer desktops, laptops,
printers, and servers. In addition to the items we found missing, as a
result of its physical inventory procedures, FBI reported 37 pieces of
contractor-purchased Trilogy equipment valued at about $167,000 that had
been lost or stolen. Due to the significant weaknesses we identified in
FBI's Trilogy property controls, the actual amount of missing or stolen
equipment could be even higher. Until FBI strengthens its asset
accountability controls it will remain highly vulnerable to continued loss
of existing assets, as well as those it may acquire in the future.
We are making 27 recommendations to address the issues identified in this
report. Regarding FBI's and GSA's processes for reviewing and approving
contractor invoices, we are making 6 recommendations to FBI and 5 to GSA
to develop or strengthen these types of internal control procedures. We
are making 4 additional recommendations to GSA in coordination with FBI,
to take actions to resolve certain of the questionable costs we
identified. And we are making 12 other recommendations to help FBI improve
its accountability over existing Trilogy assets and those that will be
purchased in connection with future projects such as Sentinel.
In written comments on a draft of this report, FBI stated that it
concurred with our recommendations and that it has made and continues to
make significant structural and procedural changes to address our
recommendations. FBI also provided additional information related to
Trilogy assets we identified as missing. In written comments on a draft of
applicable sections of this report, while GSA stated that it accepted our
recommendations, it did not believe that 1 of them was needed, and
described some of the improvements to its internal controls and other
business process changes already implemented. GSA also expressed concern
with some of our observations and conclusions related to the invoice
review and approval process and our analysis of airfare costs. We continue
to believe that our report is accurate and that all of the recommendations
should be implemented. Our responses to these comments are provided in the
Agency Comments and Our Evaluation section of this report and in appendix
IV, immediately following the reprinted GSA comments.
Background
Recognizing the need to modernize its IT systems, FBI proposed a major
technology upgrade plan to Congress in September 2000. FBI's Information
Technology Upgrade Project, which FBI subsequently renamed Trilogy, was
FBI's largest automated information systems initiative to date. Trilogy
consisted of three parts: (1) the Information Presentation Component (IPC)
to upgrade FBI's computer hardware and software, (2) the Transportation
Network Component (TNC) to upgrade FBI's communication network, and (3)
the User Application Component (UAC) to upgrade and consolidate FBI's five
most important investigative applications.
To expedite the contracting process, FBI entered into an interagency
agreement with GSA to support FBI's use of the FEDSIM Millennia
governmentwide acquisition contract10 for the implementation of Trilogy's
three functional components, IPC, TNC, and UAC. FEDSIM, serving as
contracting agency, was to provide all contract administrative services
necessary to support the task orders. Because the Trilogy project was so
large, DOJ required FBI to use two contractors for the three Trilogy
components. FBI combined the IPC and TNC portions of Trilogy into one task
order because both components involved physical infrastructure
enhancements. IPC provided for new desktop computers, servers, and
commercial-off-the-shelf automation software, including Web-browser and
e-mail to enhance usability by the agents. TNC upgraded the complete
communication infrastructure, including high-capacity wide-area and
local-area networks, authorization security, and encryption of data
transmission and storage. The IPC/TNC task order was awarded in May 2001
to DynCorp (now Computer Sciences Corporation (CSC)).11 The IPC/TNC
upgrades would provide the physical infrastructure needed to run the
applications developed under UAC, the third Trilogy component.
The third component of Trilogy-the UAC task order-was awarded in June 2001
to Science Applications International Corporation (SAIC). The goal of UAC
was to replace FBI's paper case files with electronic files and improve
efficiency. The heart of the UAC portion became the development of the VCF
system to replace the obsolete Automated Case Support system, FBI's
primary investigative application that uploads and stores case files
electronically.
The above two Trilogy contracts12 were awarded on a cost-plus-award fee
basis for labor charges, meaning that the contractor's costs incurred are
reimbursed and fees13 may be awarded to the contractor based on
performance. The FAR states that cost-reimbursement type contracts may
only be used if appropriate government surveillance during performance
will provide reasonable assurance that efficient methods and effective
cost controls are used. The aspects of these contracts related to the
purchase of equipment were based on fixed-price arrangements, meaning that
a set price for the equipment is agreed to up front.
In addition to the two primary contracts discussed above, FBI awarded two
additional contracts to assist with the technical oversight, monitoring,
and integration of the two primary Trilogy contracts described above. The
first of the two additional contracts was awarded in February 2001, also
through GSA FEDSIM, to Mitretek for Systems Engineering and Technical
Assistance (SETA) services.14 Under the SETA contract, Mitretek was
required to assist FBI with a wide array of tasks, including program and
contract management, fiscal and budgetary oversight, cost estimating, and
several other technical aspects of the Trilogy project. The second of the
two additional contracts was awarded to SAIC for the integration15 of the
three Trilogy components.16
In July 2004, the VCF was scaled back to the Initial Operating Capability
and the remaining deliverables were cancelled after the (1) initial
deliverable was rejected by FBI and (2) VCF was determined to be
infeasible and cost prohibitive to implement as originally envisioned.
After a 90-day limited pilot that ended in March 2005, VCF offline and the
pilot results were then to be analyzed by FBI for requirements development
of its new electronic information management system initiative. In August
2005, FBI released a solicitation for proposals to develop FBI's new
electronic information management system, referred to as Sentinel. The
solicitation was sent to more than 40 eligible companies under a National
Institutes of Health governmentwide acquisition contract. Similar to VCF,
the goal of Sentinel is to replace FBI's legacy case management
capabilities with an integrated, paperless file management and workflow
system.
FBI's Asset Accountability Procedures
According to FBI policy, assets valued at $1,000 or more, as well as
certain sensitive items, such as firearms, laptop computers, and central
processing units, are considered to be "accountable" assets, regardless of
cost, and must be accounted for individually in FBI's Property Management
Application (PMA). PMA is an automated management system that allows FBI
to track the cost, location, and history of its accountable assets. PMA
includes a variety of data fields to identify each item, including the
acquisition date, received date, acquisition cost, last inventory date,
bar code number, serial number, cost center for the office where the item
is located, description of the item, and other information.
Ongoing deficiencies in FBI's management of property have been identified
by DOJ's OIG and FBI's independent financial statement auditor. In August
2002, the DOJ OIG issued a report that revealed significant problems with
FBI's management of laptop computers, including findings that FBI did not
reconcile its property management data with purchase data from its
accounting system, did not have an inventory record for accountable assets
not in PMA that were lost or stolen, and could not verify whether the
number of items purchased agreed with the number of items recorded in
PMA.17 Additionally, in September 2004, the DOJ OIG reported on weaknesses
in FBI's controls over nonaccountable property at FBI's Baltimore field
office after an employee pleaded guilty to the theft and sale of FBI
photography equipment.18 Annually, since fiscal year 1999, FBI's
independent financial statement auditors have identified internal control
weaknesses in the area of property management. They specifically reported
that FBI needed to improve its procedures related to the timely and
accurate recording, reconciling, and reporting of property and equipment
in PMA.
Internal Control
Internal control is a major part of managing any organization. As required
by 31 U.S.C. 3512(c),(d), commonly referred to as the Federal Managers'
Financial Integrity Act of 1982, the Comptroller General issues standards
for internal control in the federal government.19 These standards provide
the overall framework for establishing and maintaining internal control
and for identifying and addressing major performance and management
challenges and areas at greatest risk of fraud, waste, abuse, and
mismanagement. According to these standards, internal control comprises
the plans, methods, and procedures used to meet missions, goals, and
objectives. Internal control is the first line of defense in safeguarding
assets and preventing and detecting fraud and errors. Internal control,
which is synonymous with management control, helps government program
managers achieve desired results through effective stewardship of public
resources.
Control activities are the policies, procedures, techniques, and
mechanisms that enforce management's directives and help ensure that
actions are taken to address risks. Control activities are an integral
part of an entity's planning, implementing, reviewing, and accountability
for stewardship of government resources and achieving effective results.
They include a wide range of diverse activities. Some examples of control
activities include (1) establishing physical controls over vulnerable
assets to reduce the risk of loss or unauthorized use and periodically
counting and comparing such assets to control records; (2) ensuring that
documentation and records are properly managed and maintained and that
transactions are appropriately documented and readily available for
examination; (3) assigning accountability for the custody and use of
resources and records to help reduce the risk of errors, fraud, misuse, or
unauthorized alteration; and (4) implementing management level reviews at
the functional level to ensure that appropriate control activities are
being employed, such as reconciliations of summary information to
supporting detail.
Insufficient Invoice Review and Approval Process Increased FBI's
Vulnerability to Payment of Unallowable Contractor Costs
FBI's review and approval process for Trilogy contractor invoices, which
was carried out by a review team consisting of officials from FBI, GSA,
and Mitretek, did not provide an adequate basis to verify that goods and
services billed were actually received by FBI or that payments were for
allowable costs. This occurred in part because responsibility for the
review and approval of invoices was not clearly defined in the Mitretek
contract and in the interagency agreements related to Trilogy project
oversight. In addition, contactor invoices frequently lacked detailed
information required by the contracts and other additional information
that would be needed to facilitate an adequate invoice review process.
Despite this, invoices were paid without requests for additional
supporting documentation necessary to determine the validity of the
charges. These weaknesses in FBI's review and approval process made the
agency highly vulnerable to payment of unallowable or questionable
contractor costs.
Invoices Were Approved for Payment without Validation that Goods and
Services Were Received
While the review and approval process differed for each contractor and
type of invoice charge, in general the process carried out by the review
team lacked key procedures to reasonably ensure that goods and services
billed were actually received by FBI or that the amounts billed and paid
were for allowable costs. Internal control guidance requires agencies to
establish controls that reasonably ensure, among other things, that funds,
property, and other assets are safeguarded against waste, loss,
unauthorized use, or misappropriation.20
Contractor invoices included costs for labor, including related overhead
costs; travel; other direct costs (ODC); subcontractor labor; and
purchased equipment. Table 1 provides a summary of total payments made to
Trilogy contractors for these categories, as well as total Trilogy costs
in each category.
Table 1: Payments for Trilogy by Contractor and Category (in millions)
Source: GAO analysis of contractor invoices, Mitretek Spend Plan, and FBI
records.
aSubcontractor charges for travel were included in CSC and SAIC travel
invoices and are included under the travel category.
bSubcontractor charges for ODC were included in CSC's ODC invoices and are
included under the ODC category.
cFor CSC, the "other" category represents miscellaneous maintenance
charges and $10 million in awards and fees. For SAIC, the "other" category
represents $5 million in awards and fees. For Mitretek, the "other"
category represents $1.1 million in fees. We did not assess the propriety
of these payments.
dTrilogy costs beyond those billed by contractors primarily related to
direct purchases of equipment by FBI.
Each member of the review team-which included personnel from FBI; GSA, the
contracting agency; and Mitretek-was to perform some level of review of
the invoices submitted by the contractors for payment. During the project,
each of the review team members, at times, worked on-site with the
contractors. As is discussed later, the specific roles of each party were
not clearly defined, which limited the effectiveness of the invoice review
and approval process. Figure 1 illustrates this invoice review and
approval process.
Figure 1: Invoice Review and Approval Process
aGSA facilitated the payment of contractor invoices and was subsequently
reimbursed by FBI with funds appropriated for the Trilogy project.
Our review disclosed serious gaps in the review process for each of the
major categories of contractor costs, as follows.
Labor-According to GSA, it typically reviewed labor charges by looking
for unusual or excessive hours worked or rates charged and recalculating
some amounts to ensure mathematical accuracy. GSA also stated that its
personnel generally compared average fully burdened labor rates (labor,
overhead, fringe benefits, and general and administration costs) charged
to ceiling rates (maximums) established in the Trilogy contracts. However,
GSA was not able to provide us with an explanation for or evidence of how
they resolved clearly questionable labor charges we identified, including
hours billed far in excess of a normal pay period. For example, we
identified one individual who charged 371 hours for one 4-week period (an
average of 93 hours per week) and 359 in the following 5-week period (an
average of 70 hours per week). There was no evidence that GSA had
questioned whether these seemingly excessive hours were valid. GSA stated
that these types of issues were usually resolved on the telephone and
therefore they usually did not maintain any documentation of their
inquiries.
On-site members of the review team indicated that they generally knew the
contractor employees working on the project and reviewed the hours billed
for reasonableness. However, the review team did not have a systematic
process in place to help ensure that individuals listed on invoices had
actually worked on Trilogy the number of hours being billed or that the
job classifications and related billing rates were appropriate. In
addition, there was no documented assessment of whether the overall hours
being billed for a particular activity were in line with expectations.
Subcontractor Labor-The review team paid contractor invoices for
subcontractor labor without any attempt to assess the validity of the
charges. The GSA official responsible for paying the invoices stated that
the review team relied on the contractors to properly bill for the costs
related to their subcontractors and to validate the subcontractor
invoices. However, the review team had no process in place to assess
whether or not the contractors were properly validating their
subcontractor labor charges or to assess the allowability of those
charges. In addition, we found that CSC, which billed the bulk (i.e.,
about $116 million) of the subcontractor labor costs,21 did not always
have sufficient documentation of subcontractor charges to enable CSC, or
anyone else, to perform any assessment of the allowability of those costs.
For example, the only supporting documentation CSC could provide us for
about $2 million in subcontractor labor charges we selected for review
were subcontractor invoices that lacked some of the basic information
needed to assess the labor costs, such as the names of the subcontractor
employees, hours billed, or individual labor rates.
Travel-These charges were reviewed differently by the review team for SAIC
and CSC invoices. For SAIC travel, GSA told us they compared invoiced
amounts to travel authorizations and verified the per diem and lodging
rates in the authorizations to those prescribed under the Federal Travel
Regulation. However, travel authorizations were not always submitted and
approved before travel occurred and in some cases were based on actual
amounts. The review team told us that they reviewed SAIC travel vouchers
or receipts in a few instances over 4 years when amounts billed were
higher than expected to verify the amounts charged on the travel invoices.
However, there was no systematic process to review travel costs billed to
the Trilogy project. For CSC travel, because CSC's travel authorizations
did not include details by employee or the estimated cost for each trip
and frequently covered several trips, the GSA official who paid the
invoices told us she relied on members of the review team that worked
on-site to review the travel invoices. These on-site review team officials
indicated that their review process was based on their general
understanding of who was traveling. However, we determined that no one on
the review team obtained travel vouchers or receipts to verify that
amounts billed by CSC were a necessary and proper charge to the Trilogy
project and were reasonable based on the location and length of travel
required.
Other Direct Costs (ODC)-These charges were paid without validation of the
actual amounts included in the invoices. The review team relied on
contractors to obtain purchase orders for ODC charges. For SAIC ODC
invoices, the review team generally tracked actual charges billed on
invoices compared to purchase order amounts. However, there was no review
of receipts or other documentation to validate the actual charges on
invoices. CSC ODC invoices were paid without matching the charges to a
purchase order or documentation of the actual cost incurred. Therefore,
the review team had no basis for confidence that CSC ODC charges were
approved ahead of time or appropriately billed. CSC ODC charges also
included subcontractor ODC. We asked CSC for supporting documentation for
selected subcontractor ODC and found that CSC's only support was
subcontractor invoices that included only a brief description of the
nature of the charge and the amount. No supporting receipts or other
documentation necessary to verify the charges was provided. For example,
CSC billed FBI for ODC of $456,211 on an invoice submitted in November
2003. The only description on the invoice for these charges was "other
direct costs." We requested from CSC any documentation they had in their
files to support this charge from its subcontractor, CACI Inc. - Federal
(CACI). CSC was able to provide an invoice with one line entitled
"facilities/materials" and a spreadsheet with a general summary of the
charges. Further, the e-mail exchange presented in figure 2 shows that CSC
recognized that they did not have enough detail to review the ODC charge,
but approved the invoice anyway. As noted below, the final entry in the
exchange is, "It's not what we asked for but at this point it doesn't
really matter. Approve it."
Figure 2: CSC E-mail Approval of Subcontractor ODC Charge
Equipment-Charges for equipment purchased by contractors and billed to
FBI were reviewed merely by tracking the total cost of equipment invoices
to ensure that the total amount did not exceed the approved amount on
purchase orders. However, neither GSA, FBI, nor Mitretek performed
procedures to ensure that individual equipment items billed by the
contractors were actually received before payment. Discussions with the
contractors revealed that this was a high-risk area because some of the
invoices they submitted were for equipment that had not yet been delivered
to FBI. The review team approved and paid these invoices without question.
In addition, FBI purchased some IPC/TNC equipment directly from vendors
and delivered the equipment to contractor locations, but did not have a
mechanism in place to physically verify receipt of that equipment at FBI
sites before paying the related invoices. There was also no subsequent
verification by the review team that all equipment purchased through
contractors and vendors was ultimately received by FBI.
Invoice Review Responsibilities Were Not Clearly Defined
The insufficient invoice review and approval process was at least in part
the result of a lack of clarity in the interagency agreement between FBI
and GSA FEDSIM, as well as in FBI's oversight contract with Mitretek. We
have identified the management of interagency contracting as a high-risk
area, in part because it is not always clear with whom the responsibility
lies for critical management functions in the interagency contracting
process, including contract oversight.22
The lack of clarity in roles and responsibilities was evident in our
interviews with the review team, where each party indicated that they
believed another party was responsible for a more detailed review. While
contract management and oversight teams were identified in the interagency
agreements, key roles and responsibilities for the review and approval of
invoices were not clearly defined. For example, the terms and conditions
of the interagency agreement with GSA only vaguely described GSA's role in
contract administration. However, the agreement did not specify the
invoice review and approval steps to be performed. Likewise, the Mitretek
contract provided a general description of its oversight duties, but did
not specifically mention its responsibilities related to the invoice
review and approval process. We did note, however, that FBI did not
approve an invoice for payment until after it was notified by Mitretek
that it had reviewed the invoice. Based on our discussions with the review
team, Mitretek would review its own invoices before sending them forward
to FBI for payment approval.
Invoices Did Not Provide Adequate Support for All Charges
The failure to establish an effective review process was compounded by the
fact that not all invoices provided detailed information required by the
contracts and other information that would be needed to perform adequate
reviews. Trilogy contractors were required to comply with various
invoicing provisions of the FAR and the Trilogy contracts, including
requirements to provide labor and various overhead rates, travel costs by
trip, transaction detail for ODC, and purchase orders for equipment
purchases. However, we found that the contractors, particularly CSC, often
did not meet these requirements. For example:
o CSC labor invoices did not include information related to individual
labor rates or indicate which overhead rates were applicable to each
employee-information needed to verify mathematical accuracy and to
determine that the components of the labor charges were valid.
o CSC invoices provided a summary of travel charges by category (airfare,
lodging, etc.), but did not provide required information related to an
individual traveler's trip costs. The travel invoices also did not provide
cost detail by travel authorization number. Therefore, there was no way to
determine that the trips billed were approved in advance or that costs
incurred were proper and reasonable based on the location and length of
travel.
o CSC and SAIC invoices for ODC provided a summary of charges by category
(shipping, office supplies, etc.); however, CSC did not provide required
cost detail by transaction. In some cases, the category of charges was not
even identified. For example, as shown in figure 3, within the ODC
invoice, a subcategory entitled "other direct costs" made up $1.907
million of the $1.951 million invoice current billing total. No additional
information was provided in the invoice to explain what made up these
"other direct costs."
Figure 3: Example of CSC ODC Invoice
o For purchased equipment, CSC invoices included a summary
sheet-indicating the total price billed, a brief description of items
purchased, and the quantity of each item purchased-and a copy of the
related "Bill of Material" (BOM).23 However, they did not individually
identify each asset being billed by bar code, serial number, or some other
method that would allow verification of assets billed to assets received.
SAIC invoices also lacked the detailed information necessary to
individually identify assets. This severely impeded FBI's ability to
determine whether it had actually received the assets included on invoices
and to subsequently track individual accountable assets on an item-by-item
basis.
We also found that Mitretek, a member of FBI's review team, submitted
invoices that did not include detailed information needed to perform
adequate reviews. For example, Mitretek's invoices did not include
individual labor rates needed to verify rates charged with salary
information or overhead rates needed to recalculate labor costs.24 As
previously noted, Mitretek reviewed its own invoices before sending them
forward to FBI for payment approval.
Even though contractor invoices, particularly those from CSC, frequently
lacked key information needed to review charges, we found through
inquiries with the review team and the contractors that invoices were
generally paid without requesting additional supporting documentation.25
Some Payments Made to Contractors Were for Questionable Costs
Because of the lack of fundamental internal controls over the process used
to pay Trilogy invoices, FBI was highly vulnerable to payment of
unallowable contractor charges. In an attempt to determine the validity of
FBI's payments, we used forensic auditing techniques, including data
mining and document analysis, to select certain contractor costs and
requested supporting documentation from the contractors. We identified
about $10.1 million of questionable contractor costs paid by FBI. These
included payments for first-class travel and other excessive airfare
costs, incorrect billings for overtime hours, potentially excessive labor
rates, and other questionable subcontractor costs.
The following sections provide additional information on the payments for
questionable costs we found. Given FBI's poor control environment and the
fact that we only reviewed selected FBI payments to Trilogy contractors
that we identified with data mining and other forensic auditing
techniques, other payments for questionable costs may have been made that
have not been identified.
First-Class Travel and Other Excessive Airfare Costs
During our review of CSC's supporting documentation for selected travel
charges we found 19 first-class airline tickets purchased26 costing a
total of $20,025, many of which exceeded the basic coach-class fares by
significant margins.27 For example, in one case a traveler flew first
class round trip between Providence, Rhode Island and San Francisco,
California for $2,159. We estimated that a coach-class ticket for this
same trip would have cost $1,119. In addition, 1 day after returning to
Providence, this traveler flew back to San Francisco. The documentation
provided by CSC did not explain or justify this first-class travel or
unusual travel itinerary. The CSC contract called for airfare to be
reimbursed to the extent allowable pursuant to the Joint Travel
Regulations (JTR), which state that travelers must use basic economy or
coach class unless the use of first-class travel is properly authorized
and justified.28 Because the documentation provided by CSC for the 19
first-class tickets costing $20,025 that we identified did not contain
authorizations or justifications, the cost of this travel in excess of a
coach-class ticket is potentially unallowable. Table 2 provides specific
examples of these potentially unallowable first-class travel costs.
Table 2: Examples of CSC's Potentially Unallowable First-Class Travel
Source: GAO analysis of supporting documentation provided by CSC.
aBecause historical costs for coach-class tickets were not available, we
estimated the costs of coach-class tickets based on an average of current
prices for a similar itinerary purchased 3 days in advance (which was
CSC's average based on the trips we reviewed) and adjusted for inflation
applicable to airfare.
During our review of FBI's payments for travel costs, we also identified
75 unusually expensive coach-class tickets that were purchased by the
contractors for $100,847, which exceeded basic coach-class fares by
approximately $49,848. Upon further inquiry with several airlines, we
determined that most of these tickets were for "full fare" coach-class
tickets. We noted that the airlines used most often by the contractors
indicated that it is possible to obtain a free upgrade to first class with
the purchase of the more expensive full-fare coach ticket. We found that
in some instances, the current price of a full-fare coach ticket was
higher than the current price of a first-class ticket. As discussed above,
the JTR requires travelers to use basic economy or coach class unless the
use of first-class travel is properly authorized and justified. The JTR
defines economy class as basic accommodations that include a service level
available to all passengers regardless of fare paid. Since full-fare coach
tickets allow a traveler to upgrade to first class at no additional cost,
full-fare coach class does not appear to be basic accommodations available
to all passengers regardless of fare paid. As such, the purchase of
full-fare coach-class tickets is a questionable cost. While the contracts
incorporated the JTR, we determined that the JTR applies to civilian
employees of the Department of Defense and is not considered appropriate
"travel regulations" for contractors. The FAR, which would be appropriate
for contractors, requires the use of the lowest customary standard, coach,
or equivalent airfare29 and indicates that costs in excess of the lowest
standard, coach, or equivalent airfare are unallowable. Had these
provisions of the FAR been applied, the excessive cost of these tickets
would have been potentially unallowable.
We noted 62 full-fare coach tickets billed by CSC for $85,336, compared to
an estimated cost of $41,978 for the basic fully refundable coach-class
fares. We also identified 6 full-fare coach tickets billed by SAIC. In
addition, we noted 5 trips billed by SAIC for subcontractor travel with
excessive airfare costs for which the airfare class was not included in
the supporting documentation provided by SAIC. Therefore, we could not
determine whether these 5 trips were first class, full-fare coach, or some
other class of travel that exceeded basic coach-class fares. These 11
tickets cost $11,610, compared to an estimated cost of $7,897 for the
basic fully refundable coach-class fare. We further found 2 excessive
airfare coach tickets billed by Mitretek that were upgraded to first
class. These 2 tickets cost $3,901, compared to an estimated cost of
$1,123 for the basic restricted coach-class fares.30 In total, the
additional cost of $49,848 for the full-fare coach tickets and other
excessive airfare are considered questionable. Table 3 provides examples
of the excessive airfare travel costs of CSC, SAIC, and Mitretek.
Table 3: Examples of Questionable Excessive Airfare Travel Costs
Source: GAO analysis of supporting documentation provided by contractors.
aBecause historical costs for coach-class tickets were not available, we
estimated the costs of coach-class tickets based on an average of current
prices for a similar itinerary purchased 3 days in advance (which was the
average based on the trips we reviewed) and adjusted for inflation
applicable to airfare.
bThe fare basis code for this ticket indicated that a first-class upgrade
was obtained. We could not verify whether this ticket was purchased as a
full-fare coach or some other class of travel that exceeded the basic
coach-class fares.
cWe could not determine the airfare class of the ticket purchased because
the supporting documentation provided did not include the fare basis code.
Excess Overtime Charges
During our review of labor charged by SAIC, we found that SAIC billed the
Trilogy project for overtime hours worked by employees that exceeded the
hours that would have been charged if SAIC followed the overtime policy
informally agreed to by SAIC and FBI.31 Our calculations indicate that FBI
may have overpaid an estimated $400,000 for these excess overtime charges.
SAIC's task order, awarded in June 2001, stated that if work beyond the
standard 40-hour work week was necessary to support the requirements of
the task order, the government would not object to SAIC employees working
an extended work week (EWW) (hours in excess of 40 per week). For
designated EWW periods, exempt staff (professional staff normally not
eligible for overtime compensation) would be paid a pro rata share
(straight time) of their weekly salary based on the extended hours worked.
EWW periods required SAIC management approval and were used when exempt
staff were required to work extended hours for short periods of time due
to special circumstances, such as accelerated project schedules or
circumstances where employees could not dictate their work schedule.
The first EWW period started August 31, 2002, and throughout the Trilogy
project SAIC management approved 11 EWW periods for employees working on
various Trilogy tasks. In March 2003, after the fourth EWW period started,
SAIC implemented an EWW policy, agreed to with FBI, which decreased the
amount of hours that would be billed to FBI. This policy stated that
exempt staff would be compensated for hours worked that were greater than
90 hours in a 2-week pay period on an hour-for-hour basis. That meant that
the first 10 hours of overtime would be uncompensated. In addition, a
ceiling of 120 hours was established, meaning that employees would not be
compensated for hours worked in excess of 120 in a pay period. SAIC agreed
that it would not bill FBI for this uncompensated overtime.
During our review of employee labor billings for the Trilogy project, we
found that SAIC employees who charged EWW time after the March 2003 policy
frequently charged for all hours worked beyond 80 in a pay period and that
the cost of these hours was billed to and paid by FBI. We also noted some
instances where employees charged EWW beyond the 120-hour ceiling per pay
period, which were also billed. We discussed this issue with SAIC
management and they agreed that their billing of EWW costs was not
consistent with the policy that was established in March 2003 and
indicated that they would research the issue further to determine whether
corrections are necessary.32
Based on our review of the labor charges, it appears that FBI may have
overpaid for more than 4,000 hours of EWW labor charges.33 Using average
fully burdened labor rates for employees incorrectly billing EWW, we
estimated that FBI may have overpaid EWW costs by approximately
$400,000.34
Questionable Labor Rates
During our review of labor charged by CSC/DynCorp, we found that DynCorp
Information Systems (DynIS), a subsidiary of DynCorp that billed about $42
million or 94 percent of DynCorp's direct labor, charged actual labor
rates that may have exceeded rates that GSA asserts were established
ceiling rates pursuant to the task order. CSC asserts that ceiling rates
were never established. If ceiling rates were established, we estimated
that FBI overpaid CSC by approximately $2.1 million.
When DynCorp entered into the GSA FEDSIM Millennia contract, it agreed to
ceiling rates that would be charged for its various labor categories, such
as clerical and senior technician. The Millennia contract also stated that
ceiling rates applicable to subcontractors would be negotiated separately
for each task order awarded under the Millennia contract. After entering
into the Millennia contract, DynCorp acquired a company that was renamed
DynIS. Because DynIS' labor rates were not considered when DynCorp's
ceiling rates were established under Millennia, DynCorp's proposal for the
Trilogy task order listed DynIS as a subcontractor.
In May 2001, GSA issued a Trilogy task order award document to DynCorp
that had a section entitled "Ceiling Rates Applicable to DynIS" that
included the following statement: "Ceilings are placed on all labor
category and indirect rates used to establish the total cost for this task
order...These ceiling rates are subject to negotiation pending the results
of [Defense Contract Audit Agency] DCAA's35 audit."
GSA officials told us they believed that DynIS labor category hourly rates
in DynCorp's Trilogy proposal represented established labor category
ceiling rates. GSA officials stated that they negotiated DynIS labor
category ceiling rates with DynCorp.36 However, CSC stated that labor
category ceiling rates were never established because they were never
negotiated with GSA.37
In March 2003, CSC/DynCorp submitted and GSA approved a modification to
the task order that, according to GSA, increased labor rates for several
categories.38 However, CSC claims that this modification did not affect
the ceiling rates because the ceilings were never established.
Based on our review of DynCorp's labor invoices, we noted that several of
DynIS' rates charged exceeded the labor rates that GSA contended were
ceiling rates. For example, DynIS billed over 14,000 hours for work
performed during 2001 for senior IT analysts working on the Trilogy
project based on an average hourly rate of $106.14. However, if ceiling
rates were established, the DynCorp proposal indicated that the Trilogy
project would be charged a maximum of $68.73 per hour for a senior IT
analyst working in the field or $96.24 per hour for a senior IT analyst
working at headquarters. If ceiling rates were established, we estimated
that FBI overpaid CSC/DynCorp by approximately $2.1 million for DynIS
labor costs.39
Other Questionable Costs
We identified certain other payments to contractors that were for
questionable costs. These costs were not supported by sufficient
documentation to enable an objective third party to determine if each
payment was a valid use of government funds.40 We further identified costs
that were questionable as to whether they were necessary. Table 4
summarizes these questionable costs, which totaled about $7.5 million.
Table 4: Other Questionable Costs Paid by FBI
Source: GAO analysis of contractor and subcontractor invoices and
supporting documentation.
Note: Examples 2 and 3, combined, represent $5.5 million of inadequately
supported CSC ODC.
A discussion of each of these questionable costs is provided below.
Example 1-Subcontractor Labor Costs
CSC did not provide us adequate supporting documentation for almost $2
million of about $3.3 million of subcontractor labor charges we selected
to review. The only documentation CSC could provide us for these charges
were subcontractor invoices that lacked some of the basic information
needed to assess the labor charges, such as the names of the subcontractor
employees, hours billed, or individual labor rates. Therefore, CSC could
not fully substantiate that the costs for services provided by the
subcontractors that were charged to FBI's Trilogy project were
appropriate.
Example 2-Other Direct Costs/Training
CSC hired a subcontractor, CACI, to schedule and conduct training related
to the Trilogy project. CACI billed more than $17 million ($13 million for
labor and $4 million for facilities, equipment rentals, and other direct
costs) to provide FBI agents and employees basic, intermediate, and
advanced training in Microsoft Office applications, including Word, Excel,
PowerPoint, and Outlook. FBI officials stated that FBI decided to conduct
off-site, hands-on training for employees (instead of internal or CD-based
training) because of the number of employees who had limited experience
using computers and because FBI had insufficient space to set up training
labs at their existing facilities.
During our review of CSC ODC, we selected $4.7 million of these training
charges from CACI and found that CSC was unable to provide us with
adequate support for these charges. Subsequently, we requested supporting
documentation from CACI for selected charges totaling about $3.5 million
of these training costs. Our examination identified the following issues:
o CACI could not adequately support almost $3 million that it paid to one
event planning company. Since FBI decided to conduct their training
off-site, CACI hired an event planner, which it paid almost $3.2 million
to reserve hotel conference rooms, rent computer equipment for training
sessions, and set up the conference rooms for the training. The bulk of
the $3.2 million related to one purchase order for training at 72 sites
over 3 months, which stated that costs could not exceed $2,992,526. This
purchase order provided for payment of 50 percent of this amount to the
event planner at the time the purchase order was issued (to cover costs
that include prepayments for obtaining training facilities) and four equal
monthly payments for the remaining balance. CACI provided us with the
purchase order, which included a description of the services to be
performed by the event planner. They also provided us copies of invoices
from the event planner that included general descriptions of the services
billed. CACI could not provide any further evidence of the actual costs of
goods or services that were provided by the event planner, such as hotel
invoices for the rental of conference rooms.41 CACI stated that
documentation supporting actual costs of the event planner was not
applicable because its agreement with the event planner was "fixed
priced." CACI stated that the payment terms in the purchase order required
only that CACI pay the event planner a series of payments in fixed
amounts. However, CACI's assertion that supporting documentation of actual
costs was not applicable was not supported by the terms of the purchase
order, which included a related statement of work that specifically
required documentation to support costs claimed by the event planner.
According to the statement of work, the event planner was required to (1)
provide data on actual costs incurred twice a month, (2) make every
attempt to obtain the best pricing with respect to all costs, and (3)
charge CACI only for services rendered, allowing for any cost savings from
advance payments to be returned to CACI upon request.42
o CACI purchased about 30,000 ink pens and 30,000 highlighters for
training sessions, at a cost of $19,705 and $32,314, respectively. The
pens were custom made for the Trilogy training program. While there was
supporting documentation for these costs and FBI officials stated that
they preapproved the purchases as part of their acceptance of the Trilogy
Pre-Training Education Plan, we question whether these purchases were
necessary.
Example 3-Other Direct Costs/Equipment Disposal
CSC was unable to provide us adequate supporting documentation for
$762,262 in equipment disposal costs billed by two subcontractors. The
documentation provided consisted of a spreadsheet that summarized costs of
the subcontractors, but did not include receipts or other support to prove
that these costs were actually incurred.
Example 4-Subcontractor Labor Invoice-Duplicate Payment
Our review of SAIC's subcontractor labor charges found that FBI was billed
twice for the same subcontractor invoice totaling $26,335. SAIC officials
agreed that they double billed and stated that they would make a
correction.
Major Lapses in Accountability Resulted in Millions of Dollars of Missing
Trilogy Equipment
FBI did not adequately maintain accountability for computer equipment
purchased for the Trilogy project. FBI relied extensively on contractors
to account for Trilogy assets while they were being purchased, warehoused,
and installed. However, FBI did not establish controls to verify the
accuracy and completeness of contractor records it was relying on, to
ensure that only the items approved for purchase were acquired by the
contractors, and to ensure that it received all those items acquired
through its contractors. Moreover, once FBI took possession of the Trilogy
equipment, it did not establish adequate physical control over the assets.
Consequently, we found that FBI could not locate over 1,200 assets
purchased with Trilogy funds, which we valued at approximately $7.6
million. In addition, during its physical inventory counts for fiscal
years 2003 through 2005, FBI identified over 30 pieces of Trilogy
equipment valued at about $167,000 that it reported as having been lost or
stolen. Due to the significant weaknesses we identified in FBI's property
controls, the actual amount of lost or stolen equipment could be even
higher.
FBI's Overreliance on Contractors Diminished Its Ability to Properly
Account for Trilogy Assets
FBI relied on contractors to maintain records related to the purchasing,
warehousing, and installation of about 62 percent of the equipment
purchased for the Trilogy project.43 FBI's primary contractor responsible
for delivering computer equipment to FBI sites was CSC. FBI officials told
us they met regularly with CSC and its subcontractors to discuss FBI's
equipment needs and a deployment strategy for the delivery of equipment.
Based on these meetings, CSC instructed its subcontractors to purchase
equipment, which was subsequently shipped to and put under the control of
the subcontractors. Once equipment arrived at the subcontractors'
warehouses, they were responsible for affixing bar codes on accountable
items-all items valued above $1,000 and certain others considered
sensitive that are required by FBI policy to be tracked individually. In
addition, FBI directly purchased about $19.1 million of equipment for the
Trilogy project that was shipped directly to CSC or its subcontractors.
When equipment was shipped from subcontractor warehouses to FBI sites, the
shipment included two CSC subcontractor-prepared reports. The first
report, similar to a bill of lading, included all items shipped, including
nonaccountable items such as cables. However, there was no requirement for
FBI officials receiving the items to verify that the items included on
this report were actually received. The second report listed accountable
assets that were delivered such as desktop computers, scanners, printers,
and network equipment that were available for installation at that
location. This report was then used by the subcontractor during the
installation of equipment at each FBI location to prepare the "Site
Acceptance Listing" documenting equipment that had been accepted and
installed at the site. At the completion of the site installation, both
FBI and subcontractor officials were required to sign this Site Acceptance
Listing. According to FBI headquarters officials, verification of the
subcontractor-prepared Site Acceptance Listings represented a key control
over Trilogy equipment, providing assurance that FBI received what it
should have. However, based on our inquiries at two field offices we
visited, we found that FBI officials who received equipment and signed the
Site Acceptance Listing, may not have always verified the accuracy and
completeness of these lists.
An official from the Baltimore field office acknowledged that he signed
these lists without verifying that the items included had actually been
delivered and installed at his site. In addition, officials from the
Newark field office said they felt comfortable that they had received all
the items they were supposed to because of their close working
relationship with the subcontractor who performed the installation;
however, they acknowledged that they did not independently verify
equipment included on the contractor lists that they had signed. FBI did
not prepare its own independent lists of ordered, purchased, or paid-for
assets, and therefore, it had no choice but to rely solely on the
contractor lists to account for its Trilogy assets.
Furthermore, when FBI received shipments from contractors, it did not
compare purchasing and billing documentation to receiving documentation to
verify that all items purchased were received as required by FBI's
accountable asset manual. According to FBI policy, when shipments are
received, a designated property custodian is responsible for ensuring that
the items received are the same as those that were ordered and for
determining whether a complete or partial shipment was received. However,
FBI did not require that these procedures be followed for the Trilogy
project because purchasing and billing documentation for the project was
not site specific; instead, the program office instructed FBI staff to
only verify the number of boxes received and not to open the boxes to
verify the assets received until the deployment team arrived. In addition,
FBI did not perform an overall reconciliation of total assets ordered and
paid for to those received. Such a reconciliation would have been made
difficult by the fact that invoices FBI received from CSC did not include
item-specific information-such as bar codes, serial numbers, or shipping
location. However, failure to perform such a reconciliation left FBI with
no assurance that it had received all of the assets it paid for.
FBI Lacked Adequate Physical Control over Trilogy Assets
Assets that were delivered to FBI sites by contractors were not entered
into FBI's Property Management Application (PMA) in a timely manner,
increasing the risk that assets could be lost or stolen without detection.
FBI policy requires property management personnel to identify accountable
items and enter them into PMA within 30 days of receipt. However, FBI
officials acknowledged that Trilogy equipment had not been entered into
PMA within 30 days, as required. We compared installation dates recorded
in CSC's database44 of assets deployed to dates assets were recorded in
PMA. As shown in table 5, we found that 71.6 percent of the CSC items that
were recorded in PMA, representing 84 percent of the dollar value, were
entered more than 30 days after receipt, contrary to FBI policy. In
addition, 16.9 percent of the assets, representing 37 percent of the
dollar value, were entered more than a year after receipt. When an asset
is not recorded in the property system, there is no systematic means of
identifying where it is located or when it is moved, transferred, or
disposed of and no record of its existence when physical inventories are
performed. This severely limits the effectiveness of the physical
inventory in detecting missing assets.
Table 5: Analysis of Time Taken by FBI to Enter CSC-Purchased Assets into
PMA
Source: GAO analysis of PMA records and FBI's deployment schedule.
In an effort to identify the assets that should have been entered into
PMA, FBI attempted to create, in 2005, an after-the-fact inventory listing
of accountable and nonaccountable assets deployed. Because FBI had not
prepared its own independent inventory listing of Trilogy assets ordered
and paid for, it used the CSC-prepared list of equipment deployed as its
basis to determine accountable assets.45 According to FBI, this list was
supposed to include all CSC-deployed equipment that had been affixed with
a bar code. However, FBI's ability to accurately identify accountable
assets was hampered by its loss of control over bar codes. FBI policy
identifies the use of bar codes as "the key control"46 for maintaining
individual asset accountability and requires that bar codes be affixed to
all accountable assets. Despite the importance of maintaining a reliable
bar code system, FBI relied on contractors to affix the bar codes, but
then did not track the bar code numbers given to contractors, the bar code
numbers they used, or the bar code numbers returned. Moreover, FBI
provided incorrect instructions to contractors, initially directing them
to bar code certain types of nonaccountable computer pieces.47
An FBI official stated that when creating its after-the-fact listing of
accountable and nonaccountable assets from the CSC listing, FBI tried to
identify and list as nonaccountable those items that had been mistakenly
bar coded. However, we found that FBI's accountable asset listing still
included some nonaccountable assets that had been bar coded in error.
Further, we noted that FBI's listing of nonaccountable assets incorrectly
included some accountable items such as uninterruptible power supplies and
network switches.48 As a result, FBI could not reliably determine the
complete universe of Trilogy assets that should have been bar coded and
designated as accountable property to be tracked separately by PMA.
We also compared FBI's after-the-fact listing of accountable assets
identified from the CSC-prepared listing to the asset records in FBI's
PMA. We found that FBI's listing and or PMA included several errors and
omissions in the listings, including:
o accountable assets for which there was no listed bar code or serial
number;
o incorrect bar codes (for example, text bar codes or bar codes with too
many digits);
o items for which locations were listed as "unknown";
o assets with the same bar code with different serial numbers and/or
locations;
o incomplete and inaccurate asset descriptions;
o items that matched to PMA by bar code but not by serial number; and
o items that matched to PMA by serial number but not by bar code.
The FBI official who prepared the accountable asset listing said he gave
this listing to each site with instructions to ensure that all of the
assets had been entered into PMA in preparation for a 2005 physical
inventory count. However, FBI did not follow up to determine whether all
of the records in the inventory listing were actually entered into PMA.
For site officials using the listing, the lack of complete and accurate
information included in the inventory listing may have limited their
ability to track some of the assets and ensure they were accounted for in
PMA.
FBI policy requires complete physical inventories of all accountable
assets at least once every 2 years. Annually, a complete physical
inventory of all accountable assets that are also capitalized assets
(i.e., those with an acquisition cost of $25,000 or more) and "sensitive"
property (e.g., laptop computers and weapons which are susceptible to
theft) is performed. FBI's most recent biennial inventory of accountable
assets occurred in the spring of 2005. To complete its inventory, FBI used
scanner technology, directing employees responsible for performing the
inventory to scan all items found at FBI locations that contained a bar
code. PMA was updated to reflect the items that were located and scanned
during the inventory and generated reports to identify new accountable
assets that were not previously entered in the system.49 However, FBI did
not compare the results of its inventory to its listing of accountable
assets purchased under Trilogy to ensure that all of these assets were
actually located during the inventory. Failing to perform this elemental
step undermines the fundamental purpose of conducting physical
inventories.
FBI Is Unable to Locate Millions of Dollars of Trilogy Assets
Given that FBI did not ensure that all accountable Trilogy assets that
should have been in its possession (i.e., those it paid for) were located
during the physical inventory, we undertook several procedures in an
attempt to do so. To perform this test work, we used FBI's inventory
listing of CSC-purchased accountable equipment as well as similar FBI
listings of assets FBI purchased directly (government furnished equipment
or GFE) and that were purchased by SAIC. Although FBI's inventory listing
of CSC-purchased accountable equipment included inaccurate and incomplete
information, as previously discussed, we were able to reconcile the total
number of items for selected types of equipment from its listing of
accountable CSC-purchased equipment to the number of these assets invoiced
by CSC. This provided some assurance that the listing of accountable
CSC-deployed equipment purchased by both CSC and FBI for those asset types
includes all accountable assets FBI paid for and that should be in FBI's
possession. This was done for selected CSC-purchased accountable assets,50
which represented approximately 76 percent of the total number of
CSC-purchased equipment, and all SAIC-purchased assets. Therefore, we used
these asset listings to determine whether accountable assets were located
during FBI's most recent physical inventory.
We obtained several iterations of PMA listings and inventory reports from
FBI and attempted to trace the assets to these reports. Collectively,
these listings and reports should have included all accountable Trilogy
assets in FBI's possession at the time of its 2005 inventory. Based on
this comparison, we identified 1,205 accountable Trilogy assets, with an
estimated value of approximately $7.6 million that FBI has been unable to
locate or otherwise account for. We estimated this value using the lowest
per-unit-cost based on the Trilogy equipment-pricing sheets that were
prepared by FBI and used in recording the cost of the same types of assets
in PMA. If we could not identify a price for a certain type of accountable
asset in FBI's equipment-pricing sheets, we identified the lowest price on
the accountable and capitalized assets spreadsheet prepared by FBI's
finance division. When the cost was not available on either of these
documents, or when the item was unknown, we did not attempt to estimate
the asset's value. As a result, our estimated value of lost or stolen
equipment does not include 103 of the 926 CSC-purchased items we
identified, such as Paradyne frame savers and Optical HBA drivers, and
therefore is understated. Table 6 provides a description and estimated
value for the assets for which we could identify unit cost.
Table 6: Trilogy-Purchased Items Not Located by FBI
Source: GAO analysis of FBI listings of accountable assets and PMA
reports.
aThis equipment includes electronic testing tools used to ensure proper
installation of network equipment.
bAn uninterrupted power source is a constantly charging battery pack which
powers the computer.
As of November 30, 2005, FBI was unable to sufficiently explain why these
items were not accounted for in PMA and/or could not provide adequate
documentation that the assets had been located. An FBI official stated
that some of the assets included in the listing of CSC-purchased equipment
would not be expected to be in PMA because some were replaced. For
example, according to the official, some of the CSC-purchased switches
were replaced due to a heating malfunction. However, FBI did not provide
us with documentation related to replaced items, and therefore we could
not determine which units if any were replaced and/or which units should
still be on hand.
The FBI official also told us that, even though he attempted to remove all
nonaccountable items from the listing of CSC-purchased equipment, some
nonaccountable items may still have been included. For example, FBI told
us some purchased components that were a part of an accountable asset unit
may have been bar coded even though the item by itself was not an
accountable item. Using FBI guidance on accountable property,51 we
determined that 103, or about 11.1 percent, of the missing 926
CSC-purchased assets may represent nonaccountable units. Because FBI was
unable to provide us with location information for these items, we could
not definitively determine whether they represent nonaccountable
components or are separate accountable assets that were not in PMA and
could not be located. FBI had no further explanation for why it could not
locate the missing assets we identified or whether the missing assets we
identified may expose confidential and sensitive information and data to
unauthorized users.
In addition to the missing items discussed above, FBI could not initially
locate another 25 purchased assets-highly-sensitive encryption
equipment-in its PMA system. Subsequently, FBI officials were able to
provide the bar codes, locate the encryption equipment,52 and provide
evidence that all of the items were now in its PMA system.53 The officials
stated the equipment was not originally required to be bar coded or
tracked in PMA, but that it was tracked several different ways by serial
number. The officials also explained that the problem resulted mostly from
FBI modifications to the equipment that required revisions to the serial
numbers listed in the invoices. Regardless of the fact that the equipment
was subsequently located after research and inquiries, such highly
sensitive equipment needs to be properly and timely accounted for to
ensure the precise location of the equipment can be immediately determined
at all times.
In addition to the items we found missing, FBI's property management
division reported 37 CSC-purchased Trilogy assets, totaling approximately
$167,000, that were determined to be lost or stolen during its physical
inventory counts for fiscal years 2003 through 2005.54 The assets reported
as lost or stolen included computers and servers, which may have contained
sensitive and confidential information. According to FBI policy, for items
in PMA that cannot be located during the inventory, a "Report of Lost or
Stolen Property" must be submitted to FBI headquarters. Due to security
concerns, FBI did not provide us copies of these reports for the property
items that were not located during the 2003, 2004, and 2005 inventories.
Therefore, it is unclear what type of security risk if any these
lost/stolen assets represent.
Conclusions
FBI's Trilogy IT project spanned 4 years and the reported costs exceeded
$500 million. Our review disclosed that there were serious internal
control weaknesses over the process used by FBI and GSA to approve
contractor charges related to Trilogy, which made up the vast majority of
the total reported project cost. While our review focused specifically on
the Trilogy program, the significance of the issues identified during our
review may be indicative of more systemic contract and financial
management problems at FBI and GSA, in particular when using
cost-reimbursable type contracts and interagency contracting vehicles.
These weaknesses resulted in the payment of millions of dollars of
questionable contractor costs, which may have unnecessarily increased the
overall cost of the project. Unless FBI strengthens its controls over
contractor payments, its ability to properly control the costs of future
projects involving contractors, including its new Sentinel project, will
be seriously compromised. Additionally, to the extent that GSA enters into
similar interagency agreements, it will continue to be exposed to
oversight lapses until it reassesses its procedures. Further, weaknesses
in FBI's controls over the equipment acquired for Trilogy resulted in
millions of dollars in missing equipment, and call into question FBI's
ability to adequately safeguard its equipment, as well as confidential and
sensitive information that could be accessed through that equipment from
unauthorized use.
Recommendations for Executive Action
We are making the following 27 recommendations to the Director of FBI and
the Administrator of General Services to (1) facilitate the effective
management of interagency contracting, (2) mitigate the risks of paying
unallowable costs in connection with cost-reimbursement type contracts,
and (3) improve FBI's accountability for and safeguarding of its computer
equipment.
To improve FBI's controls over its review and approval process for
cost-reimbursement type contract invoices, we recommend that the Director
of FBI instruct the Chief Financial Officer to establish policies and
procedures so that:
o Future interagency agreements establish clear and well-defined roles and
responsibilities for all parties included in the contract administration
process, including those involved in the invoice review process, such as
contracting officers, technical point of contacts, contracting officer's
technical representatives, and contractor personnel with oversight and
administrative roles.
o Appropriate steps are taken during the invoice review and approval
process for every invoice cost category (i.e., labor, travel, other direct
costs, equipment, etc.) to verify that the (1) invoices provide the
information required in the contract to support the charges, (2) goods and
services billed on invoices have been received, and (3) amounts are
appropriate and in accordance with contract terms.
o The resolution of any questionable or unsupported charges on contractor
invoices identified during the review process is properly documented.
o Labor rates, ceiling limits, treatment of overtime hours, and other key
terms for cost determination are clearly specified and documented for all
contracts, task orders, and related agreements.
o Future contracts clearly reflect the appropriate Federal Acquisition
Regulation travel cost requirements, including the purchase of the lowest
standard, coach, or equivalent airfare.
o An appropriate process is in place to assess the adequacy of
contractor's review and documentation of submitted subcontractor charges
before such charges are paid by FBI.
In light of the findings in this report, we recommend that the
Administrator of General Services instruct the director of FEDSIM to
reassess its procedures in connection with (1) interagency contracts and
(2) delegated contract administration responsibilities, including the
following:
o Clearly defining the roles and responsibilities of each party in
interagency agreements, and particularly those related to reviewing and
approving invoices.
o Assessing the adequacy of its invoice review and approval polices,
including specific steps to be performed by each party so that (1)
invoices provide the information required in the contract to support the
charges, (2) goods and services billed on invoices have been received, (3)
amounts are appropriate and in accordance with contract terms, and (4) the
resolution of any questionable or unsupported charges on contractor
invoices identified during the review process is clearly documented.
o Clearly documenting labor rates, ceiling limits, treatment of overtime
hours, and other key terms for cost determination for all contracts, task
orders, and related agreements.
o Clearly reflecting in future contracts the appropriate Federal
Acquisition Regulation travel cost requirements, including the purchase of
the lowest standard, coach, or equivalent airfare.
o Confirming that contractors properly review and support submitted
subcontractor charges.
To address issues on the Trilogy project that could represent
opportunities for recovery of costs, we recommend that the Administrator
of General Services, in coordination with the Director of FBI:
o Confirm SAIC's informal Extended Work Week policy and work with SAIC to
determine and resolve any overpaid amounts.
o Further investigate whether DynIS' labor rates exceeded ceiling rates
and pursue recovery of any amounts determined to have been overpaid.
o Determine whether other contractor costs identified as questionable in
this report should be reimbursed to FBI by contractors.
o Consider engaging an independent third party to conduct follow-up audit
work on contractor billings, particularly areas of vulnerability
identified in this report.
To improve FBI's accountability for purchased assets, we recommend that
the Director of FBI instruct the Chief Financial Officer to:
o Establish policies and procedures so that (1) purchase orders are
sufficiently detailed so that they can be used to verify receipt of
equipment at FBI sites, and (2) contractor invoices are formatted to tie
directly to purchase orders and facilitate easy identification of
equipment received at each FBI site.
o Reinforce existing policies and procedures so that when assets are
delivered to FBI sites, they are verified against purchase orders and
receiving reports. Copies of these documents should be forwarded to FBI
officials responsible for reviewing invoices as support for payment.
o Establish policies and procedures so that invoices are paid only after
all verified purchase order and receipt documentation has been received by
FBI payment officials and reconciled to the invoice package.
o Establish a policy to require that, upon receipt of property at FBI
sites, FBI personnel immediately identify all accountable assets and affix
bar codes to them.
o Revise FBI's policies and procedures to require that all bar codes are
centrally issued and tracked through periodic reconciliation of bar codes
issued to those used and remaining available. Assigned bar codes should
also be noted on a copy of the receiving report and forwarded to FBI's
Property Management Unit.
o Revise FBI policies and procedures to require that accountable assets be
entered into PMA immediately upon receipt rather than within the current
30-day time frame.
o Require officials inputting data into PMA to enter (1) the actual
purchase order number related to each accountable equipment item bought,
(2) asset descriptions that are consistent with the purchase order
description, and (3) the physical location of the property.
o Establish policies and procedures related to the documentation of
rejected or returned equipment so that the (1) equipment that is rejected
immediately upon delivery is notated on the receiving report that is
forwarded to FBI officials responsible for invoice payment; and (2)
equipment that is returned after being accepted at an FBI site (e.g.,
items returned due to defect), is annotated in PMA, including the serial
number and location of any replacement equipment, under the appropriate
purchase order number.
o Reassess overall physical inventory procedures so that all accountable
assets are properly inventoried and captured in the PMA system and that
all unlocated assets are promptly investigated.
o Expand the next planned physical inventory to include steps to verify
the accuracy of asset identification information included in PMA.
o Establish an internal review mechanism to periodically spot check
whether the steps listed above-including verifications of purchase orders
and receiving reports against received equipment, immediate identification
and bar coding of accountable assets, maintenance of accurate asset
listings, prompt entry of assets into PMA, documentation of rejected and
returned equipment, and improved bar coding and inventory procedures-are
being carried out.
o Investigate all missing, lost, and stolen assets identified in this
report to (1) determine whether any confidential or sensitive information
and data may be exposed to unauthorized users; and (2) identify any
patterns related to the equipment (e.g., by location, property custodian,
etc.) that necessitates a change in FBI policies and procedures, such as
assignment of new property custodians or additional training.
Agency Comments and Our Evaluation
In written comments reprinted in appendix III, FBI stated that it
concurred with our recommendations and that it has made and continues to
make significant structural and procedural changes to address our
recommendations, taking critical steps to strengthen internal controls.
FBI also provided additional information related to Trilogy assets we
identified as missing. In written comments reprinted in appendix IV, GSA
stated that it accepted our recommendations, did not believe that 1 of
them was needed, and described some of the improvements to its internal
controls and other business process changes already implemented. GSA also
expressed concern with some of our observations and conclusions related to
the invoice review and approval process and our analysis of airfare costs.
FBI and GSA also provided technical comments, which we have incorporated
as appropriate.
In its comments, FBI stated that executive management at FBI has directed
a sustained effort to address and correct weaknesses identified in our
report and other Trilogy reviews. FBI further stated that attention is
being focused on four areas: (1) audit capability, (2) property
management, (3) contracting services, and (4) IT investments. If properly
implemented, the activities outlined in FBI's letter should help improve
FBI accountability for future IT acquisitions and other contract services.
In this regard, vigilant oversight will be needed to ensure controls are
correctly designed and operating effectively to protect assets and prevent
improper payments.
Further, in its comments, FBI stated that more than 44,000 pieces of
accountable property were successfully deployed and tracked in the FBI's
PMA during the Trilogy project. FBI also stated that the 1,404 items we
initially reported as missing or improperly documented represented
approximately 3 percent of the accountable assets. We question both of
these statements. Because of the control weaknesses discussed in our
report, FBI does not have a reliable basis to know the number of Trilogy
assets it purchased or how many should have been tracked as accountable
assets. Further, since we did not test all the assets purchased, more may
be missing.
FBI also stated that as of January 2006, it had accounted for more than
1,000 of the 1,404 items we reported as missing or improperly documented.
During our agency comment period, FBI indicated that it found 237 items we
previously identified as missing and provided evidence, not made available
during our audit, to sufficiently account for 199 of these items. We
adjusted the missing assets listing in our report to reflect 1,205 (1,404
- 199) assets as still missing. In February 2006, FBI informed us that the
approximately 800 remaining items noted in its official agency response
included (1) accountable assets not in PMA because they were either
incorrectly identified as nonaccountable assets or mistakenly omitted, (2)
defective accountable assets that were never recorded in PMA and
subsequently replaced, and (3) nonaccountable assets or components of
accountable assets that were incorrectly bar coded.
We considered these same issues during our audit and attempted to
determine their impact. For example, as stated in our report, FBI told us
that components of some nonaccountable assets that were part of a larger
accountable item may have been mistakenly bar coded. Using FBI guidance on
accountable property, we determined that 103 or about 11 percent of the
926 missing assets purchased by CSC may have represented nonaccountable
components. Because FBI could not provide us with the location
information, we could not definitively determine whether the items were
accountable assets or not. During the course of our audit, FBI was not
able to provide us with any evidence to support their other statements
regarding the reasons the assets could not be located. While we are
encouraged by FBI's current efforts to account for these assets, its
ability to definitively determine their existence has been compromised by
the numerous control weaknesses identified in our report. Further, the
fact that assets have not been properly accounted for to date means that
they have been at risk of loss or misappropriation without detection since
being delivered to FBI-in some cases for several years.
While GSA said it accepted all of our recommendations, it expressed
reservations regarding our recommendation that GSA should clearly reflect
appropriate FAR travel cost requirements in future contracts. GSA stated
in its comment letter that it believed that the requirements outlined in
the applicable FAR section 31.205-46 and stipulated in the task orders
were more than adequate. In a subsequent conversation, we asked the GSA
contracting officer why the language in the CSC and SAIC task orders and
the Mitretek contract, which stated that long-distance travel would be
reimbursed to the extent allowable pursuant to the JTR, was considered
appropriate by GSA. The GSA contracting officer stated that, while not
specified in the contract language, the reference to the JTR related only
to per diem rates and allowances when determining the reasonableness of
the travel costs, such as lodging and mileage reimbursements. She further
stated that the FAR would apply to all other travel reimbursement
determinations.
We do not agree that our recommendation is unnecessary. In our view, the
references to the JTR create ambiguity. The FAR cost allowability clause
52.216-7 states that when determining allowability, in addition to FAR
cost principles, the terms of the contract also apply. Therefore, the
reference to the allowability under the JTR could have caused confusion
with the contractors regarding what long-distance travel costs were
allowed, including airfare costs. We continue to believe that the task
orders should have more clearly described the applicable travel
requirements.
Regarding the invoice review and approval process, GSA stated that each
member of the review team-FBI, GSA, and Mitretek-played a unique and
mutually understood role. In particular, GSA stated that Mitretek's role
in the invoice review and approval process was significant and that it was
reasonable for GSA to have relied on input from FBI, via Mitretek, in
approving invoices for payment. GSA also referred to procedures to
preapprove ODC and equipment purchases. Further, GSA stated that it
believed that the procedures to process invoices were generally sound and
that contractors are required to maintain records to adequately
demonstrate that costs claimed have been incurred, and are reasonable,
allowable, and allocable. GSA also stated that it will have DCAA audit the
contract costs to determine if any costs are unallowable, unreasonable, or
unallocable and will use the audit results as a basis to pursue remedies
to recoup funds and assess penalties as may be applicable.
We disagree with GSA regarding review team roles and the review process.
Based on discussions with members of the review team, our review of
supporting documentation, and our assessment of the outcomes of the review
process, it is clear that the invoice review and approval process was
inadequate. The roles and responsibilities of the review team members were
not clearly defined or documented and this led to confusion among the
review team members about each member's role. Regarding Mitretek's role,
Mitretek officials stated that they performed a limited review of only
labor invoices. Before relying on others, GSA should have verified its
understanding of each member's roles and responsibilities and confirmed
that the appropriate functions were being performed. In addition, while
there were procedures to preapprove ODC and equipment purchases, the
review team did not effectively link the preapproval and the invoice
review and approval processes, especially in relation to CSC, in part
because CSC invoices lacked detailed information needed to verify that
charges billed were in fact preapproved.
Further, while contractors are required to maintain records to adequately
support costs, we found that the review team generally did not request
additional documentation such as travel vouchers or subcontractor invoices
to support amounts billed. If the review team had a systematic process in
place to review costs, it may have questioned some of the excessive
airfare we identified and found, as we did, that CSC lacked documentation
to adequately support subcontractor charges. It is a management function
and sound business practice to have a process in place to ensure that
contractors have such documentation. Having such processes and questioning
amounts billed would also allow for corrective measures to be implemented
as, and if, problems were found. In addition, while we agree that a DCAA
audit of contract costs can provide a detective control to help determine
whether contractor costs were proper, reliance on an after-the-fact audit
is not an acceptable replacement for the type of real-time monitoring and
oversight of contractor costs-preventative controls-we recommend in this
report. Further, a DCAA audit of civilian contractor costs is not
automatic and would require an additional cost to the government to
procure. The review team largely operated in an environment of trust
without an adequate basis for knowing whether the contractor billings were
reasonable and costs claimed were allowable. Effective internal control
calls for a sound, on-going invoice review and approval process as the
first line of defense in preventing unallowable costs.
Regarding our analysis of travel costs, GSA stated that our conclusions
did not account for the ever-changing travel schedules and itineraries
necessitated by changes in FBI requirements. GSA also stated that a
hypothetical standard coach-class ticket does not provide a benchmark to
make a valid price comparison, even if adjusted for inflation, because the
airline travel industry has had significant changes with respect to
pricing of airline tickets. GSA also stated that they believe it is
impossible at this date to look back over 5 years and estimate what may
have been a reasonable airfare price.
We disagree. Our analysis and conclusions related to travel did take into
account the possible conditions that could justify airfare costs in excess
of the lowest customary coach-class fare. The FAR requires supporting
documentation for first-class and other excessive airfare costs of the
nature we identified to justify the higher airfare costs. No such
documentation was provided to us to justify the excessive costs we
identified. To estimate the cost of the coach-class tickets, we assumed
that tickets were purchased 3 days in advance (which was the average based
on the trips we reviewed) and did not include a Saturday night stay over.
Specifically, we (1) used the Web sites of the airlines used by each
traveler, (2) searched for standard fully-refundable55 coach-class tickets
with the same destinations, (3) calculated an average cost based on the
lowest and highest ticket prices available at the time of our search, and
(4) adjusted the average cost for inflation applicable to airfare. We
believe that this approach, which closely approximated what travelers were
doing at that time, resulted in reasonable estimates as to how much the
travel should have cost. We also believe that adjusting current fares for
inflation applicable to airfare results in a reasonable benchmark to
compare to historical prices, since it does take into account price
changes as a result of changes in the airline industry, including the
effects of competition. Lastly, we fully agree with GSA that the passage
of time makes it difficult to determine historical airfare costs, which is
another reason that costs should be reviewed real time instead of as part
of an after-the-fact audit. An after-the-fact analysis is no substitute
for the contemporaneous monitoring and oversight that we recommend in this
report.
More specific discussions are provided following GSA's comments, which are
reprinted in appendix IV.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its date. At that time, we will send copies of this report to the Director
of the FBI, the Acting Administrator of GSA, and interested congressional
committees. Copies will also be made available to others upon request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov .
If you or your staffs have any questions about this report, please contact
me at (202) 512-9508 or calboml@gao.gov . Contact points for our offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Major contributors to this report are acknowledged in
appendix V.
Linda M. Calbom Director, Financial Management and Assurance
Key Trilogy Milestones Appendix I
The Federal Bureau of Investigation's (FBI) Trilogy project experienced
several delays, as shown in figure 4.
Figure 4: Key Trilogy Milestones
Scope and Methodology Appendix II
To determine whether the Federal Bureau of Investigation's (FBI) internal
controls provided reasonable assurance that improper payments to
contractors would not be made or would be detected in the normal course of
business, we used the Standards for Internal Control in the Federal
Government, Guide for Evaluating and Testing Controls Over Sensitive
Payments, and The Executive Guide on Strategies to Manage Improper
Payments: Learning from Public and Private Sector Organizations as a basis
for assessing FBI's internal control structure over its Trilogy program.
We also reviewed our prior reports, as well as those by the Department of
Justice's Office of Inspector General on Trilogy issues; Trilogy contracts
and interagency agreements; and contractor invoices and other
documentation supporting goods provided and services rendered. In
addition, we conducted interviews with officials from FBI, the General
Services Administration, the Department of the Interior, and the
contractors, and performed walkthroughs to gain an understanding of the
processes used to review and approve invoices.
Validity of Payments
To determine whether FBI's payments to contractors were properly supported
as a valid use of government funds, we performed data mining, document
analysis, and other forensic auditing techniques to select transactions to
test. We reviewed documentation maintained by the review team,
contractors, or subcontractors to assess the allowability of costs based
on Trilogy contract documents and applicable federal regulations, such as
the Federal Acquisition Regulation, Federal Travel Regulation, and Joint
Travel Regulations. While we identified some payments for questionable
costs, our work was not designed to identify all questionable payments or
to estimate their extent. The following provides more details on our
testing of payments to FBI's contractors-Science Applications
International Corporation (SAIC), Computer Sciences Corporation (CSC), and
Mitretek-for labor, subcontractor labor, travel, and other direct costs
(ODC).
Payments to SAIC
o To test payments for labor costs, we obtained from SAIC a database of
hours charged to the Trilogy project by employee and pay period. Using
this database and labor invoice detail, we selected 21 employees based on
either (1) a high number of hours worked, (2) a high dollar amount billed,
or (3) billing in more than one labor category. For these 21 employees, to
test the labor rates billed, we compared rates billed to salary
information. In addition, for subsets of these 21 employees, we compared
the hours billed to hours reported in SAIC's labor database and tested the
mathematical accuracy of the labor costs billed. To determine the
reasonableness of extended work week (EWW) hours charged to the Trilogy
project, using the database we analyzed the total, EWW, and uncompensated
hours charged by employee. We also compared the average fully burdened
labor rates charged to ceiling rates to determine whether the rates were
below the ceilings.
o To test payments for subcontractor labor costs, we obtained from SAIC a
database of all subcontractor labor charges. In order to determine whether
the database was complete, we verified that the database reconciled with
SAIC's subcontractor billings. We then selected subcontractor invoices to
review based on a high dollar amount billed or unusual billing patterns.
We analyzed supporting documentation such as subcontractor invoices and
time sheets from SAIC for about $17.2 million, or 37 percent, of payments
for SAIC subcontractor labor.
o To test payments for travel costs, using detail included in SAIC's
travel invoices and copies of travel authorizations provided by SAIC, we
selected transactions to review based on (1) high airfare costs, (2)
actual costs that exceeded authorized amounts, and (3) unusual billing
patterns. We analyzed supporting documentation, such as travel vouchers,
receipts, and subcontractor invoices, from SAIC for about $154,000, or 45
percent, of payments for SAIC travel costs.
o To test payments for ODC, using detail included in SAIC's ODC invoices,
we selected transactions with unusually large amounts within a category or
with an unusual category description. We analyzed supporting
documentation, such as invoices or other documentation, from SAIC for
about $307,000, or 61 percent, of payments for SAIC ODC.
Payments to CSC
Because CSC was unable to readily provide us transaction-level detail for
all labor, travel, and ODC charges, we selected 11 invoices based on the
amounts billed and the time periods covered. CSC was able to provide us
transaction-level detail for these 11 invoices, which represented $14.7
million or about 33 percent of labor costs;1 $3.1 million or about 33
percent of travel costs; and $2.4 million or about 27 percent of ODC
charges. Using these 11 invoices as our data source we performed the
following tests of CSC labor, travel, and ODC.
o We recalculated the total labor charged for three labor categories in 7
of the 11 invoices to verify that the invoice amounts were calculated
correctly.2 We also selected 11 employees based on either (1) high number
of hours worked, (2) a high dollar amount billed, or (3) billing in more
than one labor category. For these 11 employees, we compared the hours
billed to time sheets and verified hourly rates by reviewing each
employee's salary history. In total, the 11 selected employees billed
around $850,000 on the 11 invoices we reviewed. We tested the reliability
of the detail provided by comparing the hours and amounts to labor
invoices. We compared the average fully burdened rates charged to ceiling
rates.
o We selected travel charges that were high in amount or exhibited unusual
billing patterns. We reviewed travel vouchers for these selected charges.
Because we identified possible first-class and unusual coach-class travel
in these selections, we obtained and reviewed additional supporting
documentation for CSC-purchased airline tickets beyond the initial 11
invoices selected for review.
o We selected ODC transactions with unusually large amounts within a
category or in an unusual category (such as computer hardware). Because of
anomalies we identified in our initial review, we selected additional
transactions to review beyond the initial 11 invoices. In total, we
analyzed supporting documentation for about $7.0 million, or about 80
percent, of payments for CSC ODC during the Trilogy project.
o To test payments for subcontractor labor costs, we obtained from CSC
transaction-level detail for 12 of its subcontractors during the Trilogy
project. From the transaction-level detail, we selected charges to review
based on (1) high number of hours worked, (2) a high amount billed, and
(3) other unusual billing patterns. We obtained and analyzed supporting
documentation, such as subcontractor invoices, from CSC for about $3.3
million, or 4 percent, of the $75 million charged by CSC as subcontractor
labor costs during the Trilogy project.3
Payments to Mitretek
o To test payments for labor costs, we obtained transaction detail for
three labor invoices, which represented $1.5 million or 8 percent of the
payments for Mitretek labor. We tested the mechanical accuracy of the
invoice calculation and selected one of the invoices and verified hours
billed compared to time cards and hourly rates charged compared to salary
histories.
o To test payments for travel costs, we obtained and analyzed the
supporting documentation, such as travel vouchers, for all travel costs on
two invoices. These invoices represented $11,211 or about 13 percent of
payments to Mitretek for travel costs.
o To test payments for ODC,4 we obtained and analyzed the supporting
documentation, such as invoices and receipts, for all ODC costs on two
invoices. These invoices represented $139,083 or about 8 percent of
payments to Mitretek for ODC.
FBI's Asset Accountability
To determine whether FBI maintained proper accountability for assets
purchased with Trilogy project funds, we used our Standards for Internal
Control as a basis to assess FBI's control structure over its Trilogy
assets. We interviewed FBI, contractor, and subcontractor staff to
identify and assess the controls in place over the ordering, purchasing,
and receipt of Trilogy equipment. The following provides more details on
our testing of Trilogy equipment purchased for FBI by CSC and SAIC, or
directly by FBI:
o To determine whether FBI approved for purchase all assets acquired for
the Trilogy project, we obtained FBI consents to purchase, Bills of
Material, and invoices and compared the total assets approved to be
purchased to assets actually purchased.
o To determine whether FBI Trilogy accountable assets listed in PMA were
recorded in a timely manner, we obtained documentation from FBI and
contractors for accountable assets purchased by CSC that identified the
bar codes assigned to accountable assets and the date the equipment was
received by FBI. We did not perform this test for SAIC-purchased assets
because the assets represented only .8 percent of the total assets
purchased with Trilogy funds. We also did not perform this test for FBI
direct purchases since the supporting documentation did not provide bar
codes or serial numbers for individual assets. We compared the bar codes
on the listings to FBI's Property Management Application (PMA) which
included the date the asset was entered into PMA.
o To assess the accuracy and completeness of the FBI-prepared listings of
CSC- and SAIC-purchased assets, we (1) analyzed the listings to identify
any irregularities such as duplicate bar codes or missing information; (2)
obtained the CSC equipment invoices and compared the total number of
pieces billed on the CSC invoices for four selected accountable asset
types that represented about 76 percent of the total CSC assets purchased
to FBI's listing; and (3) obtained the SAIC listings of Trilogy equipment
returned to FBI, SAIC's equipment invoices, and FBI's listing of VCF
assets and compared for each item the amount of equipment per the invoices
to the SAIC listing and then to FBI's VCF listing.
o To determine whether FBI had in its possession all accountable assets
purchased for it by CSC and SAIC, we compared the complete listing of bar
codes from FBI's VCF and CSC listings to PMA to identify any bar codes not
recorded in PMA.
o To test the accuracy of the data included in the PMA accountable asset
records, we compared the data for each accountable asset, such as bar code
number, serial number, asset description, and asset location, to FBI's
listing and followed up on any discrepancies.
o To identify Trilogy assets that had been reported as lost or stolen by
FBI, we obtained a listing of all assets identified as lost or stolen by
FBI during its annual inventories for years 2003, 2004, and 2005. We then
compared this listing, by bar code, to FBI's CSC and VCF equipment
listings to determine which of these assets had been acquired for the
Trilogy project.
The scope of our review covered all assets purchased from the inception of
the Trilogy contracts (May 2001) through December 2004 and included
Trilogy assets that were either purchased directly by FBI or by one of the
two primary Trilogy contractors, CSC and SAIC.
We provided FBI a draft of this report and GSA a draft of applicable
sections of this report for review and comment. The FBI Finance Division
Acting Assistant Director and General Services Acting Administrator
provided written comments, which are reprinted in appendixes III and IV,
respectively. FBI and GSA also provided technical comments, which we have
incorporated as appropriate. We also discussed with Trilogy contractors
any findings that related to them. We performed our work in accordance
with generally accepted government auditing standards in Washington, D.C.
and at two FBI field sites and various other GSA and contractor locations
in Virginia from May 2004 through December 2005.
Comments from the Federal Bureau of Investigation Appendix III
Comments from the General Services Administration Appendix IV
1.We referred to the Department of Justice Office of Inspector General
report only to provide background information related to previously
reported issues with the Trilogy project.
2.See "Agency Comments and Our Evaluation" section.
3.Processing invoices timely as envisioned by the Prompt Payment Act does
not lessen the government's responsibility to verify costs billed by
contractors. It is conceivable that the essential validation work could
have been performed immediately after payment and any adjustments to
correct prior billing errors could have been made to future invoices.
4.No documentation of any such inquiries was provided to support the
General Services Administration's (GSA) comment. Documenting such
inquiries allows a subsequent reviewer to draw similar conclusions and
would be beneficial to any subsequent audit, including by the Defense
Contract Audit Agency (DCAA).
5.Contrary to GSA's comment, the review team-Federal Bureau of
Investigation (FBI), GSA, and Mitretek-approved CSC's invoices that lacked
information required by its task order, including employee billing rates
and detail for subcontractor labor. We were not provided documentation
indicating that any Computer Sciences Corporation (CSC) invoice had been
rejected.
6.While the review team compared billed labor rates against Millennia
ceiling rates for certain labor costs, it did not evaluate labor rates
compared to ceiling rates for subcontractor labor, which represented about
$163 million of Trilogy costs. Had the review team reviewed labor charges
more thoroughly, it may have identified the potential overcharging of
labor rates discussed in this report related to DynCorp Information
Systems (DynIS).
7.According to the Federal Acquisition Regulation (FAR), it is the
contractor's responsibility to maintain supporting documentation for costs
billed, including subcontractor labor costs.
8.Based on our discussion with on-site members of the review team, CSC
travel vouchers were not obtained to review amounts billed on travel
invoices. Had the vouchers been reviewed, the review team would have had a
basis for questioning the first-class and excessive airfare costs we
identified.
9.The travel administrator's obligation to obtain the best fare does not
relieve the government of its responsibility to review travel costs. In
addition, we noted instances where the itinerary from the travel
administrator indicated that a full-fare ticket was obtained at the
traveler's request, even though the ticket cost more than twice as much as
the lowest logical fare that was also noted on the itinerary.
10.The approval process discussed by GSA relates to the travel
authorization, which was the request to travel. We found that the review
team lacked an adequate process to review travel vouchers that include the
traveler's receipts to confirm that the authorized trips were taken and
that the costs were in accordance with applicable travel regulations. Also
see comments 8 and 9.
11.The next sentence of the relevant section of the FAR cited by GSA
states, "However, in order for airfare costs in excess of the above
standard airfare to be allowable, the applicable condition(s) set forth
above must be documented and justified." No such documentation was
provided to us for any of the first class or other excessive airfares we
identified.
12.Our report stated that other direct costs (ODC) were paid without
validation of the actual amounts included in the invoices and that the
review team relied on the contractors to obtain purchase orders for ODC
charges. It further stated that neither GSA, FBI, nor Mitretek performed
procedures to ensure that equipment billed by the contractors was actually
received before payment.
13.CSC ODC invoices lacked sufficient detail to validate amounts billed
compared to what was approved and we were not provided documentation
indicating that such information was requested by the review team.
Further, the CSC invoices did not include the detail necessary for the
review team to specifically identify the items purchased. We also found
that some assets were paid for before they were received and that the FBI
did not perform an overall reconciliation of total assets ordered and paid
for to those received.
14.A GSA contracting officer representative told us that he was aware of
the informal extended work week policy agreement, but could not provide
documentation of the policy.
15.Our report stated that DynIS charged labor rates that may have exceeded
rates that GSA asserts were established ceiling rates pursuant to the task
order.
16.Based on GSA's acceptance of our recommendations on page 1 of its
comments, we assume that the intent was to state that "GSA accepts each of
GAO's recommendations."
GAO Contacts and Staff Acknowledgments Appendix V
Linda Calbom, (202) 512-9508, or calboml@gao.gov
Staff members who made key contributions to this report include Steven
Haughton (Assistant Director), Marie Ahearn, Brooks Bare, Ed Brown, Marcia
Carlsen, Richard Cambosos, Lisa Crye, Tyshawn Davis, Bonnie Derby, Abe
Dymond, Lori Ryza, Kara Scott, Brooke Whittaker, and Matt Wood.
(190140)
www.gao.gov/cgi-bin/getrpt? GAO-06-306 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Linda Calbom at (202) 512-9508 or
calboml@gao.gov.
Highlights of GAO-06-306 , a report to congressional requesters
February 2006
FEDERAL BUREAU OF INVESTIGATION
Weak Controls over Trilogy Project Led to Payment of Questionable
Contractor Costs and Missing Assets
The Trilogy project-initiated in 2001-is the Federal Bureau of
Investigation's (FBI) largest information technology (IT) upgrade to date.
While ultimately successful in providing updated IT infrastructure and
systems, Trilogy was not a success with regard to upgrading FBI's
investigative applications. Further, the project was plagued with missed
milestones and escalating costs, which eventually totaled nearly $537
million. In light of these events, Congress asked GAO to determine whether
(1) internal controls provided reasonable assurance that improper payment
of unallowable contractor costs would not be made or would be detected in
the normal course of business, (2) payments to contractors were properly
supported as a valid use of government funds, and (3) FBI maintained
proper accountability for assets purchased with Trilogy project funds.
What GAO Recommends
GAO makes 27 recommendations to help improve (1) FBI's and GSA's controls
over their invoice review and approval processes and to address
questionable billing issues, and (2) FBI's accountability for assets. FBI
concurred with our recommendations. While GSA accepted our
recommendations, it did not believe that 1 of them was needed and
expressed concern with some of our findings. GAO reaffirms its position on
all of its findings and recommendations.
FBI's review and approval process for Trilogy contractor invoices, which
included a review role for the General Services Administration (GSA) as
contracting agency, did not provide an adequate basis to verify that goods
and services billed were actually received and that the amounts billed
were appropriate, leaving FBI highly vulnerable to payments of unallowable
costs. This vulnerability is demonstrated by FBI's payment of about $10.1
million in questionable contractor costs we identified using data mining,
document analysis, and other forensic auditing techniques. These costs
included first-class travel and other excessive airfare costs, incorrect
charges for overtime hours, potentially overcharged labor rates, and
charges for which the contractors could not provide adequate supporting
documentation to substantiate the costs purportedly incurred.
FBI also failed to establish controls to maintain accountability over
equipment purchased for the Trilogy project. These control lapses resulted
in more than 1,200 missing pieces of equipment valued at approximately
$7.6 million that GAO identified as part of its review. In addition, in
its own inventory counts, FBI identified 37 pieces of Trilogy equipment
valued at approximately $167,000 that had been lost or stolen. The table
below summarizes questionable contractor costs and missing assets that GAO
identified.
Questionable Costs and Missing Assets
Source: GAO.
Given the poor control environment and the fact that GAO reviewed only
selected FBI payments to Trilogy contractors, other questionable
contractor costs may have been paid that have not been identified. If
these control weaknesses go uncorrected, future contracts, including those
related to Sentinel-FBI's new electronic information management system
initiative-will be highly exposed to improper payments. In addition, the
lack of accountability for Trilogy equipment calls into question FBI's
ability to adequately safeguard its existing assets as well as those it
may acquire in the future.
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