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The Federal Retirement Thrift Investment Board erred when it chose not to charge TSP members two years ago for millions of dollars paid to American Management Systems Inc. for a failed systems modernization project, according to the General Accounting Office.

The board hired AMS in 1997 to provide a new automated record keeping system, but slips in schedule and rising costs led the board to fire AMS in 2001 and file a lawsuit against the contractor for $350 million. At the time, TSP officials opted not to assess member accounts for the $41 million the board had already paid the company, contending that proceeds from the lawsuit could be used to offset the debt. More than 3 million federal employees and retirees have $115.6 billion invested in the TSP.

"Allocating the $41 million to account balances when the loss occurred would have been more prudent, as well as being acceptable treatment under generally accepted accounting practices," GAO said in a July 22 letter to House Government Reform Chairman Tom Davis, R-Va., Rep. Danny Davis, D-Ill., and Rep. Dave Weldon, R-Fla.

"Not allocating the loss to individual participant accounts when it occurred was based on a premise of recovery for which there was no certainty," the letter continued.

TSP Executive Director Gary Amelio agreed with GAO's finding.

"I believe it was a mistake that those assets weren't allocated to the participants when they were spent, and I totally agree with the Department of Labor, GAO and our external auditors, all of whom made the recommendation that I believe, which is the money should have been allocated when it was spent three years ago," said Amelio, who took over leadership of the agency in June.

Working with a new contractor, the board launched its record keeping system in June, and days later agreed to a settlement with AMS, which had lodged its own $58.5 million breach of contract claim against the board. Under the settlement, AMS paid the TSP $15 million and the board paid AMS $10 million. The remaining $36 million was assessed pro-rata to participant accounts on June 23.

But regardless of the settlement, Amelio said he would have assessed member accounts for the money and cleared the two-year-old debt from the ledger.

"I did a thorough investigation with all of the attorneys and managers and executives who were involved . . . and based upon all of that, I thought my conclusion could only be one way and that was to settle," Amelio said pointing to the tenuous nature of the lawsuit. "The fact that we had the potential to be liable for an additional $58 million was, in fact, a very serious risk to the plan."

Amelio also mentioned the financial and staffing resources the agency expended on the lawsuits, which had turned ugly over the past year as TSP officials wrangled with the Justice and Labor departments over whether the board had the authority to sue AMS.

"Very heavy on my mind was how much pressure and resources this agency has already borne as a result of this protracted litigation process," Amelio said. "Dealing with any kind of major litigation like this just sucks the energy and life out of an organization, and I think all of the senior people here would have just been so absorbed in taking time away from what we're all getting paid to do, and that is to run this plan. So, I simply thought there was no other recourse but to settle."

Sen. Susan Collins, R-Maine, is examining the TSP's records on the failed AMS contract.

COMMENTS

• With so much irony around the TSP "situation" it is hard to know what to address. The end of the GAO report that chides the Board for not "sticking" TSP participants quickly enough contains their standard Fraud, Waste and Abuse (with 800 phone number) boilerplate; however, Mr. Amelio's comments about major litigation sucking the energy & life out of an organization are equally ironic. While entertaining, pointing out such ironies have little value - none. What does have value is the combined retirement saving of all the TSP participants, somewhere around $115 billion. ONE HUNDRED AND FIFTEEN BILLION DOLLARS ... not just money but plans, dreams and things done without by those saving for their future. Well, so much for those doing without now for a better later because other people (take your pick of who) have sniffed what is arguably one of the last and likely largest untapped honey-pots of money since Social Security was tagged as the program to routinely bleed for a little extra pocket money. Please, protect your future - save until it hurts, just be careful who you let safeguard it. At best, the TSP Board (senior people) is/are foolish, so too the GAO auditors, at worst... well, given this whole fiasco, I hate to imagine just how bad it may become. Gamble five precent of your pre-tax pay to obtain the max matching government benefit but do not put an extra penny into this system. Save the rest of your retirement monies in after tax dollars that YOU control. It's obvious none of the players making all these decisions for us have our best interests at heart, only their own. GovExec.com reader Posted August 27, 2003 1:23 PM
• Let me see if I've got this right. The Gov't hired a contractor to perform a service that the contractor did not complete yet the Gov't continued to pour taxpayer money into it. The Gov't sues the contractor and a settlement is reached. The finger pointing goes both ways and the shareholders are suppose to foot the bill? GAO weighs in with yet another in a series of highly questionable, lamebrain, incompetent... decisions. In the contracting world AMS should have been terminated for default and assessed liquidated damages that could have been used to offset the $41 million bill. The performance appraisals of the Gov't administrators of the AMS Contract should reflect what a bad job they did. archie Posted August 27, 2003 7:30 AM
• I'm in the wrong job! I need to start a business and contract with the government for a job I cannot do, get paid $41 million, accomplish nothing, agree to a settlement where I pay back $5 million, and net a cool $36 million in profit thanks to the incompetence of government-appointed overseers. The government, GAO, and its appointed incompetents can then tell federal employees that the settlement was in their best interest and they will pay for the crime. Hey, they are getting off easy right! - it will cost them only a few dollars each! (Even though they had no say in the matter.) Then those Feds involved should get a big bonus. John Luongo Posted August 26, 2003 12:22 PM