Potential abuse of funds at GSA stretches back years

As an ongoing investigation has revealed the misuse of millions of dollars in federal funds by a division of the General Services Administration, government documents show that potential abuse and mismanagement of funds stretches back several years and has imperiled GSA's financial stability.

GSA's inspector general is auditing several contracts managed by the Federal Technology Service, a fee-for-service unit that performs contracts work on other agencies' behalf. An FTS office in Bremerton, Wash., was closed in May after investigators learned employees used technology-related contracts to purchase construction services and had misused almost $40 million from an FTS fund established to pay for the agency's work.

But an audit by GSA's inspector, conducted from 2000 to 2001, shows another contracting shop within FTS also engaged in questionable practices and that its behavior jeopardized the stability of the fund.

The Office of Information Security, which served national security, defense and diplomatic agencies, "continually [provided] goods and services to its customers without obtaining adequate funding" from them to cover costs, according to reports from November 2000 and March 2001, which Government Executive obtained under the Freedom of Information Act.

OIS, now known as the Center for Information Security Services (CISS), overspent by more than $6.3 million from 1993 to 2000, the reports said. Investigators concluded that the agency's "business practices pose a significant risk to the cash levels" of the FTS fund.

FTS controls that account, called the Information Technology Fund, which consists of appropriated money deposited by its agency customers for use in later years. The fund lets agencies avoid returning unspent dollars to the Treasury. It also obliges them to use FTS' contracting services.

OIS, which had been a part of GSA for several decades, began using the IT Fund after the agency was reorganized and placed under FTS' management during the mid to late-1990s. Before that, it had paid for work with money collected from customers. But by tapping the IT Fund, the shop had access to billions more dollars collected across the FTS operation.

FTS and its divisions have spent tens of billions of dollars from the IT Fund over the past several years, GSA documents show. In the process, the fund has come close to running a negative balance, a fact that troubled senior leaders for years, according to GSA annual reports. In the late 1990s, the fund dipped so low that FTS used money transfers from the Public Building Service, another GSA agency, to keep the fund solvent, the inspector general said.

By overspending with money from the fund, OIS/CISS jeopardized its balance, the report said. The shop's weak internal accounting practices failed to raise "red flags" about delinquent customer payments, and many accounts couldn't be collected, resulting in a possible "material misstatement of past years' income," investigators found.

FTS counts sales of services as "revenue" on its books, and employees are rewarded with bonuses for increasing the agency's income. The current investigation by the inspector general has faulted that practice for encouraging the Bremerton employees "to provide [their] client with any product" to obtain bonuses and FTS' management fee.

The inspector general found a similar drive to increase revenue at OIS/CISS. The agency counted customer orders as revenue before work actually began. Employees presumed their customers would quickly pay for the services, but often they didn't, the report said.

About 85 percent of work came on such an "advance bill basis," the investigation showed. FTS officials told the inspectors that customer payments become part of the IT Fund and are "generally available for FTS' use for up to five years."

FTS contracting shops have marketed the fund to their customers. A piece of promotional literature from the FTS Denver office, for instance, tells customers, "When you obligate funds . . . with GSA FTS, the funds lose their fiscal year identity." The promotional document is titled "Use it or Lose It? Not with GSA FTS!"

"Federal financial regulations prohibit obligating funds before obtaining adequate funding," the inspector general noted in its OIS/CISS report. "Sound management practices dictate that an organization must keep expenses in line with expected revenues or go out of business."

In one example of OIS/CISS' weak accounting controls, nearly $1 million in spending on behalf of the Air Force was "mistakenly applied" to a Justice Department order from the 1990s, the inspectors said. This resulted in the Justice order being underfunded by about $800,000 sometime around November 1999.

The audit also revealed many OIS/CISS customers had money in the IT Fund that went unused. The excess funds totaled about $7.9 million, the report said.

For example, an Air Force order from November 2000 had almost $540,000 in available funds, but the value of orders issued for work was only about $25,000. The account was funded primarily from deposits that were up to three years old, the report said. "OIS personnel explained that this order served as the customer's 'checkbook' account, with funds continually transferred to other Air Force orders."

"We believe that carrying these excess balances, with no apparent need for the funds, does not represent the best use of government funds," the investigators said.

"Many orders appear to have been forgotten," the investigators said. "OIS personnel we spoke to often had no idea that excess funds existed."

FTS Commissioner Sandra Bates concurred with the inspector general's recommendations that OIS/CISS should identify inactive or excessively funded accounts. If the customer no longer needs the funds for work, FTS "should de-obligate the excess funds and return the funds to the customer agency or the U.S. Treasury," the inspector general said.

In a written response dated March 23, 2001, Bates said "a preliminary action plan" had been developed in response to the findings, but that officials later determined "a more comprehensive plan of action" was needed.

FTS officials didn't respond in time for publication about what actions they've taken since March 2001.

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