SEC’s Use of Justifications and 

Approvals in Sole-Source

Contracting

March 28, 2012

 Report No. 507
OFFICE OF 

INSPECTOR GEN ERAL 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

MEMORANDUM 

March 28, 2012 

To: 

From: 

Subject: SEC's Use of Justifications and Approvals in Sole-Source 

Contracting, Report No. 507 

This memorandum transmits the U.S. Securities and Exchange Commission 

OIG's final report detailing the results on our audit of the Commission's use of 

justifications and approvals in sole-source contracting. This audit was conducted 

as part of our continuous effort to assess management of the Commission's 

programs and operations and as a part of our annual audit plan. 

The final report contains six recommendations which if fully implemented should 

strengthen �AS' use of justifications and approvals in sole-source contracting. 

OAS concurred with all the recommendations. Your written response to the draft 

report is included in Appendix V. 

Within the next 45 days, please provide the OIG with a written corrective action 

plan that is designed to address the recommendations. The corrective action 

plan should include information such as the responsible official/point of contact, 

timeframes for completing required actions, and milestones identifying how you 

will address the recommendations. 

SEC's Use of Justifications and Approvals in Sole-Source Contracting 

Report No. 507 

Page i 

March 28, 2012 
SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

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Should you have any questions regarding this report, please do not hesitate to 

contact me. We appreciate the courtesy and cooperation that you and your staff 

extended to our auditor.

Attachment

cc: James R. Burns, Deputy Chief of Staff, Office of the Chairman

Luis A. Aguilar, Commissioner

Troy A. Paredes, Commissioner

Elisse B. Walter, Commissioner

Daniel Gallagher, Commissioner

Jeff Heslop, Chief Operating Officer, Office of Chief of Operations

Vance Cathell, Deputy Director, Office of Administrative Services
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Report No. 507

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SEC’s Use of Justifications and Approvals in

Sole-Source Contracting

Executive Summary

Background. During his testimony on July 6, 2011, before the House 

Transportation and Infrastructure Committee, Subcommittee on Economic 

Development, Public Buildings and Emergency Management, the former U. S. 

Securities and Exchange Commission’s (SEC or Commission) Inspector General 

informed the committee that the Office of Inspector General (OIG) would conduct 

an audit of the SEC’s use of justifications and approvals (J&A) in sole-source 

contracting. The subject of the hearing was OIG’s investigation regarding the 

SEC’s lease for 900,000 square feet of office space at Constitution Center, 

costing approximately $556.8 million, for over a 10 year period of time. 

Prominent in the leasing investigation was a J&A that was alleged to have been 

improperly used to support the Constitution Center’s lease sole-source 

contracting action. In addition, the OIG received complaints on the SEC’s use of 

J&As. As a result, the OIG conducted this audit based on improprieties that were 

found in the leasing investigation and on similar related complaints we received. 

A sole-source acquisition is a contract that is entered into or proposed to be 

entered into by an agency after soliciting and negotiating with only one source

(vendor). With limited exceptions, a sole-source contract requires a J&A. The 

vision of the Federal Acquisition System (FAS), as established in the Federal 

Acquisition Regulation (FAR), is to deliver on a timely basis the best value 

product or service to the customer, while maintaining the public’s trust and 

fulfilling public policy objectives. Best value means that the expected outcome of 

the acquisition provides the greatest overall benefit in response to the 

government’s requirements. Best value must be viewed from a broad 

perspective and is achieved by balancing competing interests in the FAS. One 

way the government expects to achieve best value is through competition. 

Further, FAS’ policy is to promote competition in the acquisition process. 

Therefore, an agency’s decision to limit competition in contracting should be 

carefully considered. 

FAR § 6.3, Other Than Full and Open Competition, prescribes the policies and 

procedures and statutory authorities that must be applied when contracts are not 

awarded under full and open competition. FAR §§ 6.302-1 – 6.302-7 permit the 

following circumstances for other than full and open competition: 

• FAR § 6.302-1, Only one responsible source and no other supplies 

or services will satisfy agency requirements

• FAR § 6.302-2, Unusual and compelling urgency
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• FAR § 6.302-3, Industrial mobilization; engineering, developmental, 

or research capability; or expert services

• FAR § 6.302-4, International agreement

• FAR § 6.302-5, Authorized or required by statute

• FAR § 6.302-6, National security

• FAR § 6.302-7, Public interest 

The SEC primarily uses three of the aforementioned authorities as justification for 

other than full and open competition: FAR § 6.302-1, FAR § 6.302-2, and FAR § 

6.302-3, specifically for expert services. 

The J&A process is incorporated into the overall contracting process at the SEC. 

The Office of Administrative Services (OAS), Office of Acquisitions (OA) is 

comprised of a policy branch and four contracting branches that are staffed with 

contracting officers and contracting specialists. The branches are broken into the 

following specialized areas:

• OAS, Office of Human Resources, and Regional Offices,

• Enforcement, Office of the Secretary, Other Headquarters Divisions 

and Offices, and Regional Offices, 

• Information Technology Software, and 

• Information Technology Infrastructure.

The Commission’s regional offices use outside vendors to acquire goods and 

services to support their operations and to help carry out the SEC’s mission. 

This is accomplished either through purchases that are made by authorized 

government purchase cardholders or through the issuance of legally binding 

contractual documents. OAS has delegated senior officials in the regional offices 

(i.e., Regional Directors, select Associate Regional Directors, and select legal 

counsels) with the authority to enter into and modify contracts with vendors on 

behalf of the Commission. These officials have delegated written contracting 

authority in the form of warrants (up to $100,000) to procure services limited to 

expert witnesses, foreign counsel, depositions, transcripts, courier or process 

servers, liens, and other case-related services. Since 2009, OA increased its 

training effort to regional office staff on contracting matters. 

OA has taken positive steps to increase competition in contracting at the SEC, 

which is indicated by significant increases in the contract dollars the agency 

competed from fiscal years 2009 to 2011. For example, in fiscal year 2009, the 

SEC competed 38.5 percent of the agency’s total obligated contract dollars, 

compared to 63.1 percent that was competed across the federal government. In 

fiscal year 2010, the SEC competed 52.5 percent of the agency’s total obligated 

contract dollars, compared to 65.6 percent that was competed across the federal 

government. Finally, in fiscal year 2011, the SEC competed 73.3 percent of the 
SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

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agency’s total obligated contract dollars, compared to 63.3 percent that was 

competed across the federal government.

Objectives. The overall objective of the audit was to assess SEC’s use of J&As 

in contracting. Specific audit objectives were to assess:

• OA’s approval processes and procedures for J&As, to include the 

roles of contracting officials and legal counsel; 

• whether applicable federal statutes and regulations and OA’s 

policies and procedures are followed in preparing and approving 

J&As; 

• whether J&As are appropriately used under the circumstances 

presented; and

• whether the use of J&As has impacted competition. 

Results. We found sole-source contracts that were awarded to vendors that did 

not have J&As. Further, the contracting officer approved J&As after they were 

awarded and J&As were not always signed by the appropriate officials. We 

reviewed a sample of 64 sole-source contracts that the SEC awarded in fiscal 

years 2009 to 2011, that had a contract value of approximately $10 million. Five 

of the 64 sole-source contracts did not have approved, written J&As, as required 

per FAR §§ 6.303 and 6.304. These contracts were awarded by a Regional 

Director in fiscal year 2011, for case-related services. Further, we found another 

3 of the 64 contracts had J&As that were signed by the contracting officer after 

the contract was awarded. Finally, OA awarded a contract for $620,000 in 2010, 

and the J&A was not signed by the competition advocate. The contract’s amount 

exceeded the $550,000 threshold established in FAR§ 6.304,

1 which requires the 

competition advocate to sign the J&A before the contract is awarded. 

During the audit, we also found that a sole-source contract was awarded using 

the authority for “unusual and compelling urgency,” that did not comply with FAR 

requirements. The circumstances identified in the J&A supported the use of this 

authority; however the contract exceeded the authorized period of performance 

allowed under FAR § 6.302-2. OA’s award of this sole-source contract 

appropriately used the unusual and compelling urgency authority, but it did not 

limit the period of performance as required in FAR § 6.302-2. For sole-source 

contracts awarded using the unusual and compelling urgency authority, the 

period of performance is limited to the time necessary to perform the urgent work 

under the contract, and the time the agency needs to enter into another contract 

for the required goods and services through the use of competitive procedures. 

This time cannot exceed one year unless the head of the agency determines that 

exceptional circumstances apply.

 

1 The current threshold is $650,000. At the time the contract was awarded, the threshold was $550,000.
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Additionally, our review of the sole-source contracts that cited FAR § 6.302-3 for

obtaining expert services found that most vendors received multiple contracts

with the SEC, that the typical statements used in the expert witness J&As related 

to removing barriers to competition lacked real substance, and that any market 

research is limited and informal. The SEC’s selection of expert witnesses is 

affected by variables such as witness expertise, availability, willingness to testify 

for the SEC, courtroom demeanor, and the trial attorney’s confidence in the 

expert witness. Further, the unpredictable timeline of a trial can result in an 

unexpected and urgent need for an expert witness. These circumstances tend to 

limit the pool of potential witnesses for particular cases. As a result, the SEC 

may not be receiving the best value available for all of its expert witness 

contracts. 

Finally, we found OA’s current internal guidance for preparing J&As is potentially 

confusing to its contracting officers and contract specialists who prepare J&As. 

Over the past few years OA management has issued various guidance regarding 

J&A policy and procedures to its staff. However, based on the various guidance 

that has been issued and withdrawn, OA’s contracting officers and contract 

specialists indicated confusion about the guidance they should use for 

processing J&As. OA needs to clarify what policies and procedures its staff 

should follow when processing J&A’s. 

Summary of Recommendations. Based on the results of our audit, we 

recommend the following:

(1) The Office of Acquisitions (OA) should review contracting operations at 

the regional office where sole-source contracts were identified having no 

justifications and approvals. OA should further provide training to staff 

involved in the procurement process to ensure they are familiar with 

competition requirements in contracting, when sole-source contracting is 

appropriate and how to properly prepare justifications and approvals.

(2) The Office of Acquisitions should establish procedures to regularly review 

a sample number of regional office contracts to ensure that their 

contracting practices comply with the Federal Acquisition Regulation and 

Commission regulations and operating procedures.

(3) The Office of Acquisitions (OA) should review all open sole-source 

contracts awarded using FAR § 6.302-2, Unusual and Compelling 

Urgency, that are over the simplified acquisition threshold, and ensure that 

the contract’s period of performance does not exceed one year. If any 

contract’s period of performance exceeds one year, OA should modify the 

period of performance or obtain required approval from the Chairman for 

exceptional circumstances.
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(4) The Office of Acquisitions should conduct an assessment on the manner 

in which vendors are chosen as expert witnesses using FAR § 6.302-3, for 

sole-source contracts, and examine whether opportunities exist to expand 

the vendor competition base.

(5) The Office of Acquisitions should publish comprehensive policies and 

procedures governing the justification and approval process at the 

Commission. This guidance should reflect a thorough analysis of the 

current process to determine if it includes sufficient controls to ensure 

justifications and approvals comply with federal statutes and regulations 

and are appropriately used under the circumstances presented.

(6) The Office of Acquisitions (OA) should communicate its policies and 

procedures governing the justification and approval process at the 

Commission to contracting officers and contract specialists and provide

training as necessary. OA should properly notify its staff when previously 

issued OA guidance (policies and procedures) and administrative 

regulations are revised, superseded, or are no longer available for use.
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TABLE OF CONTENTS

Executive Summary................................................................................................

Table of Contents ...................................................................................................

Background and Objectives ..........................................................................

Background .................................................................................................

Objectives ....................................................................................................

Findings and Recommendations 

Finding 1: Sole-Source Contracts Were Awarded Without Proper Support 

Documents and Approval.............................................................................

Recommendation 1.................................................................

Recommendation 2.................................................................

Finding 2: Sole-Source Contract Authorized for Unusual and Compelling 

Urgency Exceeded the Authorized Period of Performance ..........................

Recommendation 3 .................................................................

Finding 3: Expert Services Contracts Are Sourced From a Limited Supply 

of Vendors that Could Potentially be Expanded...........................................

Recommendation 4 .................................................................

Finding 4: OA’s Current Guidance on J&As is Potentially Confusing..........

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Recommendation 5 ..............................................................

Recommendation 6 ..............................................................

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Appendices

Appendix I: Abbreviations............................................

Appendix II: Scope and Methodology..................................

Appendix III: Criteria............................................................

Appendix IV: List of Recommendations ..............................

Appendix V: Management’s Comments ..............................

Appendix VI: OIG Response to Management’s Comments...........

Tables 

Table1: Contract Limits and Required Approval Authority.

Table 2: OIG Contract Specialist Interview Results............

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Figures 

Figure 1: SEC’s J&A Process............................................................................ 5 

Figure 2: Percentage of Contract Dollars Competed at SEC ............................ 6 
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Background and Objectives 

Background

During his testimony on July 6, 2011, before the House Transportation and 

Infrastructure Committee, Subcommittee on Economic Development, Public 

Buildings and Emergency Management, the former U. S. Securities and 

Exchange Commission’s (SEC or Commission) Inspector General informed the 

committee that the Office of Inspector General (OIG) would conduct an audit of 

the SEC’s use of justifications and approvals (J&A) in sole-source contracting. 

The subject of the hearing was OIG’s investigation regarding the SEC’s lease for

900,000 square feet of office space at Constitution Center, costing approximately 

$556.8 million, for over a 10 year period of time. Prominent in the leasing 

investigation was a J&A that was alleged to have been improperly used to 

support the Constitution Center’s lease sole-source contracting action. In 

addition, the OIG received complaints on the SEC’s use of J&As. As a result, the 

OIG conducted an audit based on improprieties that were found in the leasing 

investigation and from similar related complaints we received. 

A sole-source acquisition is a contract that is entered into or proposed to be 

entered into by an agency after soliciting and negotiating with only one source. 

With limited exceptions, a sole-source contract requires a J&A.2 The 

Competition in Contracting Act of 1984, as implemented in the Federal 

Acquisition Regulation (FAR) Part 6, Competition Requirements, prescribes 

policies and procedures that are designed to promote full and open competition

through the use of competitive procedures such as sealed bidding and 

competitive proposals.

The vision of the Federal Acquisition System (FAS), as established in the FAR, is 

to deliver on a timely basis the best value product or service to the customer, 

while maintaining the public’s trust and fulfilling public policy objectives. Best 

value means that the expected outcome of the acquisition provides the greatest 

overall benefit in response to the government’s requirements. Best value must 

be viewed from a broad perspective and is achieved by balancing competing 

interests in the FAS. One way the government expects to achieve best value is 

through competition. Further, FAS’ policy is to promote competition in the 

acquisition process.

3

 Therefore, an agency’s decision to limit competition in 

contracting should be carefully considered. 

 

2 A J&A is a written justification for awarding a contract using other than full and open competition. It also 

includes the approval of the written justification by the appropriate authorities (See FAR §§ 6.303 and 

6.304).

3 FAR § 1.102.
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FAR § 6.3, Other Than Full and Open Competition, prescribes policies and 

procedures and identifies the statutory authorities that must be applied when 

contracts are not awarded under full and open competition. FAR §§ 6.302-1 – 

6.302-7 permit the following circumstances for other than full and open 

competition: 

• FAR § 6.302-1, Only one responsible source and no other supplies 

or services will satisfy agency requirements

• FAR § 6.302-2, Unusual and compelling urgency

• FAR § 6.302-3, Industrial mobilization; engineering, developmental, 

or research capability; or expert services

• FAR § 6.302-4, International agreement

• FAR § 6.302-5, Authorized or required by statute

• FAR § 6.302-6, National security

• FAR § 6.302-7, Public interest 

FAR Part 6 Authorities Used at SEC. The SEC primarily uses three of the 

aforementioned authorities as justification for other than full and open 

competition: FAR § 6.302-1, FAR § 6.302-2, and FAR § 6.302-3, specifically for 

expert services. 

An agency may use the authority under FAR § 6.302-1 (only one responsible 

source) when supplies or services required by the agency are only available from 

one responsible source, and no other type of supplies or services will satisfy the 

agency’s requirements. Supplies may be deemed available from only the original 

source in the case of a follow-on contract for the continued development or 

production of a major system or highly specialized equipment when substantial 

duplication of cost to the government is not expected to be recovered through 

competition, or when unacceptable delays in fulfilling the agency’s requirements 

would result. Examples of how the SEC uses this authority include purchasing: 

required copyrighted manuals, unique internet-based services related to the 

financial markets, and follow-on maintenance agreements for previously acquired 

computer software. 

An agency may use the authority under FAR § 6.302-2 (unusual and compelling 

urgency) when its needs for supplies and services is of such an unusual and 

compelling urgency that the government would be seriously injured unless the 

agency is permitted to limit the number of sources from which it solicits bids or 

proposals. The period of performance for a contract awarded under this authority 

is limited to the time necessary to meet the unusual and compelling requirements 

of the work to be performed under the contract. This includes the time the 

agency needs to enter into another contract for the required goods and services 

through the use of competitive procedures. However, this time cannot exceed 

one year unless the head of the agency determines that exceptional 

circumstances apply. The SEC has used this authority to quickly enter into 
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contracts to investigate the May 6, 2010, market break4 and to fulfill timesensitive requirements of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, which was enacted on July 21, 2010. 

An agency may use the authority under FAR § 6.302-3 (expert services) when it

requires the use of an expert in litigation or disputes (including reasonably 

foreseeable litigation or disputes) involving the government in trials, hearings, or 

proceedings before a court, administrative tribunal, or agency, regardless of 

whether the expert is expected to testify. This authority is primarily used at the 

SEC by the Division of Enforcement (Enforcement) to obtain expert witnesses for 

litigation. This authority is also occasionally used for mediation services. 

J&A Requirements. Under FAR § 6.303-1, contracts awarded using FAR §§ 

6.302-1, 6.302-2, and 6.302-3 authority must be supported by written J&As. The 

justifications are approved by an appropriate authority and dependent on the 

dollar amount of the acquisition, the J&A requirements vary. With the exception 

of “unusual and compelling urgency” authority, J&As must be approved before 

the contract is awarded. The FAR prescribes the required content of J&As and 

the J&A approval levels as shown below in Table1.

 Table 1: Contract Limits and Required Approval

 Authority

Proposed Contract 

Amount

Required Approval Authority

$650,000 or less Contracting officer (unless a 

higher approval level is 

established in agency 

procedures)

Over $650,000 - $12.5 

million

Competition advocate

Over $12.5 million -

$62.5 million 

Head of the contracting activity5

Over $62.5 million

 

Senior procurement executive

 Source: FAR § 6.304

In most cases after awarding a contract under other than full and open 

competition, the FAR requires agencies to make the justification publicly 

available within 14 days.

6

 However, when an agency uses the “unusual and 

compelling urgency” exception, the FAR allows the agency 30 days to make the 

 

4 Also known as the “Flash Crash.” On May 6, 2010, the financial markets experienced a brief but severe 

drop in prices, falling more than 5 percent in a matter of minutes, only to recover a short time later.

5 The Office of Acquisition’s Assistant Director is designated as the head of contracting activity and the 

senior procurement executive at SEC.

6 FAR § 6.305, Availability of the justification. 
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justification publicly available. Agencies are required to post these justifications 

on FedBizOpps7 unless one of the exceptions in FAR § 5.202 applies. 

SEC’s J&A Processes and Procedures. The J&A process is incorporated into

the overall contracting process at the SEC. The Office of Administrative Services 

(OAS), Office of Acquisitions (OA) is comprised of a policy branch and four 

contracting branches that are staffed with contracting officers and contracting 

specialists. The branches are broken into the following specialized areas: 

• OAS, Office of Human Resources, and Regional Offices, 

• Enforcement, Office of the Secretary, Other Headquarters Divisions 

and Offices, and Regional Offices, 

• Information Technology Software, and 

• Information Technology Infrastructure. 

Requests for goods and services are initiated when an office submits a 

requisition to OA. Team leaders from the contracting branches review the 

requisitions for content and complexity and subsequently assign requisitions to a 

contract specialist. The contract specialist processes requisitions, solicitations 

and contracts that are awarded by the contracting officers. OA also uses support 

contractors to conduct its functions. Goods and services are procured through 

competitive and non-competitive orders and contracts, purchase cards, and 

interagency agreements.

The Commission’s regional offices acquire goods and services from outside 

vendors to support their operations and to help carry out the SEC’s mission. This 

is accomplished either through purchases that are made by authorized 

government purchase cardholders or through the issuance of legally binding 

contractual documents. OAS has delegated senior officials (i.e., Regional 

Directors, select Associate Regional Directors, and select legal counsels) in the 

regional offices, the authority to enter into and modify contracts with vendors on 

behalf of the Commission. These officials have delegated written contracting 

authority in the form of warrants (up to $100,000) to procure services limited to 

expert witnesses, foreign counsel, depositions, transcripts, courier or process

servers, liens, and other case-related services. OA has provided training to

regional office staff on contracting in various forms. For example, OA conducted 

on-site training at the Regional Offices in fiscal years 2009 and 2010. In 2010 

and 2012, OA conducted training on contracting and competition at its 

Administrative Officer conference. Further, OA conducted training by 

teleconference for data entry in PRISM8 and the Federal Procurement Data 

 

7 FedBizzOpps, or Federal Business Opportunities, is the Government Point of Entry for publicizing

contracting actions. It is located at www.fbo.gov. 8 PRISM is the SEC’s automated contract writing tool.
SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

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System (FPDS). Finally, the SEC’s Insider9 has a section that provides detailed 

information on contracting at the Regional Office level. 

OA’s J&A process has evolved significantly since 2005 when it was informal and 

ad hoc. OA has documented procedures for drafting, reviewing, and approving 

J&As at the SEC. On December 29, 2009, OA published the Justification and 

Approval Guide, which provides its staff with detailed guidance on J&A 

processes and procedures. Further, over the past year the OA Assistant Director 

sent emails to her staff to clarify the office’s guidance on processing J&As. OA’s 

current J&A procedures are shown below in Figure 1.

Step 1: Customer identifies a need for a 

contract to be awarded without full and open 

competition, and submits a request to limit 

competition to OA .

Step 2: Customer 

meets with the 

contracting officer /

specialist for approval

Step 3: Customer drafts statement of 

work (SOW), assigns Contracting 

Officer Representative (COR), 

develops Independent Government 

Cost Estimate (ICGE), conducts 

market research , and provides input 

for the J&A.

Step 4: The contracting 

officer/specialist drafts 

J&A and conducts 

additional market 

research as necessary

Step 5: The contracting 

officer sends draft J &A to 

OGC for legal sufficiency 

review

Step 6: The customer 

and the contracting 

officer verify the accuracy 

and completeness of the 

J&A, and sign.

Step 7: The contracting 

officer obtains 

additional signatures as 

necessary

Step 8: The contract is 

awarded

Step 9: If necessary, 

the J&A is posted on 

FEDBIZZOPPS

 Figure1: SEC’s J&A Process 

Source: OIG Generated 

Competition in Contracting at SEC. As stated in FAR § 6.501, Section 20 of 

the Office of Federal Procurement Policy Act requires the head of each executive 

agency to designate a competition advocate. The competition advocate is 

responsible for promoting the acquisition of commercial items; promoting full and 

open competition; challenging requirements that are not stated in terms of 

functions to be performed, performance required or essential physical 

characteristics; and challenging barriers to the acquisition of commercial items 

and full and open competition. To accomplish these tasks the competition 

advocate reviews the agency’s contracting operations, recommends new 

 

9 The SEC’s Insider is used as a primary internal source of information for SEC personnel. 
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initiatives, and reports the result to the senior procurement executive. Further, 

the competition advocate duties at the SEC include: 

(1) improving the quality of decision making for competition in 

contracting; 

(2) reviewing selected J&As for quality control purposes and 

approving ones for contracts over $650,000; 

(3) reviewing policy affecting competition, to include J&A policy; and 

(4) assessing various types of contracts used at the SEC.

Over the past year, OA has appointed several different staff as competition 

advocates. The current competition advocate spends about 25 percent of her 

time on competition advocate duties. 

OA has taken positive steps to increase competition in contracting at the SEC. 

This is indicated by significant increases in the contract dollars the agency 

competed from fiscal years 2009 to 2011.

10 For example, as shown in Figure 2, 

in fiscal year 2009, the SEC competed 38.5 percent of the agency’s total 

obligated contract dollars, compared to 63.1 percent that was competed across 

the federal government. In fiscal year 2010, the SEC competed 52.5 percent of 

the agency’s total obligated contract dollars, compared to 65.6 percent that was 

competed across the federal government. Finally, in fiscal year 2011, the SEC 

competed 73.3 percent of the agency’s total obligated contract dollars, compared 

to 63.3 percent that was competed across the federal government. 

 Figure 2: Percentage of Contract Dollars Competed at SEC 

 

0 

10 

20 

30 

40 

50 

60 

70 

80 

FY 2009 FY 2010 FY 2011

SEC

Fed Govt

 Source: Federal Procurement Data System

10 SEC obligated contract dollars in the amounts of $151 million, $222 million, and $222 million respectively 

in fiscal years 2009 through 2011. 
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Several factors contributed to the increase in contract dollars the SEC competed. 

First, the leadership of OA has increased its oversight and scrutiny of J&As in an 

effort to improve quality and maximize competition. Further, OA contracting 

specialists received continuing education in competition that has been reinforced 

by OA’s leadership. The Office of the General Counsel (OGC) has also begun 

routinely reviewing and assessing J&A documents for legal sufficiency. Most 

importantly, OA has hired several experienced contracting officers and 

contracting specialists. The additional staffing and expertise in contracting has 

lead to an increase in competitive actions. 

Audit Universe of Awarded Sole-Source Contracts

To assess the SEC’s use of J&A in contracting, we developed a statistical 

sample of the universe of sole-source acquisitions OA awarded from fiscal years 

2009 through 2011, using data from FPDS. See Appendix II, Methodology. 

Objectives 

Objectives. The overall objective of the audit was to assess SEC’s use of J&As 

in contracting. Specific audit objectives were to assess: 

• OA’s approval processes and procedures for J&As, to include the 

roles of contracting officials and legal counsel; 

• whether applicable federal statutes and regulations and OA’s 

policies and procedures are followed in preparing and approving 

J&As; 

• whether J&As are appropriately used under the circumstances 

presented; and

• whether the use of J&As has impacted competition. 

Where appropriate, OIG will also identify best practices for consideration by 

management.
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Findings and Recommendations

Finding 1: Sole-Source Contracts Were Awarded 

Without Proper Support Documents and Approval

OIG identified sole-source contracts that were awarded to 

vendors that did not have J&As. Further, the contracting 

officer approved/signed J&As after they were awarded and 

J&As were not always signed by the appropriate officials. 

We reviewed a sample of 64 sole-source contracts that the SEC awarded during 

fiscal years 2009 to 2011, that had a contract value of approximately $10 million. 

Five of the 64 sole-source contracts did not have approved, written J&As, though 

they were required per FAR §§ 6.303 and 6.304.

11 These contracts were 

awarded by a regional office, Regional Director in fiscal year 2011 for case 

related services. Further, three contracts from other offices had J&As that were 

signed by the contracting officer after the contract was awarded. Finally, OA 

awarded a contract for $620,000 in 2010, and the J&A was not signed by the 

competition advocate. The contract amount exceeded the $550,000 threshold

that is established in FAR§ 6.304, which requires the competition advocate to 

sign the J&A before the contract is awarded.12

Sole-Source Contracts Without Written Justifications and 

Approvals

Using his warrant authority, a Regional Director signed the five sole-source 

contracts the OIG identified as not having an approved, written J&A.

13 Two 

paralegals from this regional office oversaw the vendor selection process for 

three of the contracts. Personnel from this regional office informed the OIG they 

were unaware J&As were required and they only had limited training on 

contracting procedures. Regional office personnel further indicated that there 

were exigent circumstances associated with some contracts, and this drove them 

to quickly enter into contracts for items such as process servers and other caserelated services. The paralegal’s rationale for selecting certain vendors included: 

 

11 There were 14 contracts in the sample that did not have J&As. However, we determined that nine of the 

contracts did not require a FAR Part 6 J&A for the following reasons: 1) Four contracts were under the micro 

purchase threshold of $3,000; 2) Four contracts used FAR Part 13 simplified procedures; and 3) One 

contract was an 8(a) contract that was under $20 million. 12 The current threshold is $650,000. At the time the contract was awarded, the threshold was $550,000. 13 OIG met with representatives from the regional office on January 31, 2012. 
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• Defendants in Commission litigation chose the vendors and the 

regional office had no part in the selection; 

• The vendors selected were preferred over other possible vendors; 

• In the past, regional staff had problems with certain vendors, so 

they routinely tend to request preferred companies they work best 

with. 

We determined the five contracts in question should have either been competed

or an authorized contracting official should have approved and signed J&As for 

the contracts prior to the contracts being awarded. OA coded the contracts in 

FPDS by using the authority under FAR § 6.302-3 for expert services. Based on 

circumstances presented by the regional office staff, such as situations where the 

regional office had no choice in selecting a vendor, we determined that FAR § 

6.302-1 for “only one responsible source” was the more appropriate authority that 

should have been used. In all other cases, the contracts should have been 

opened to competition because they did not meet the requirements of the FAR § 

6.302 authorities for other than full and open competition. 

Awarding a sole-source contract without proper J&A is a violation of FAR § 

6.303-1 and the Competition in Contracting Act of 198414 which requires that 

contracting officers not commence negotiations for sole-source contracts, 

commence negotiations for contracts resulting from unsolicited proposals, or 

award any other contract without providing for full and open competition, unless 

the contracting officer justifies the use of such actions in writing (if required in 

FAR § 6.302), certifies the accuracy and completeness of the justification, and 

obtains the approval required by FAR § 6.304. 

Further, this practice unnecessarily limits competition and restricts vendor’s 

access to federal contracting opportunities. Competition provides the best 

assurance that the government receives a fair and reasonable price and obtains 

the most comprehensive input on technical aspects of the various methods work 

can best be performed. 

Contracting Officer Signed J&As After Award

For three contracts we reviewed, the contracting officer did not sign the J&A 

before the contract was awarded. All of the contracts involved were sole-source 

awards that used the expert services authority. For one contract awarded in 

2010, the contracting officer signed the original J&A before the contract was 

awarded. However, the J&A was subsequently revised and the contracting 

officer did not certify, approve, and sign the updated J&A before the contract was 

awarded. The two remaining contracts were awarded in 2009. In both cases, a 

sole-source contract was awarded for an expert witness before the contracting 

14 43 U. S. Code § 253.

 
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officer certified, approved, and signed the J&A. In 2011, our sample found no 

instances where the contracting officer signed a J&A after the contract was 

awarded.

The mandatory information contained in the J&A15 requires the technical 

representative and the contracting officer to scrutinize their claim that competition 

should be limited for a particular acquisition. Certification and approval of a J&A 

after a contract is awarded indicates that this analysis is not timely; therefore the 

acquisition may be flawed. When sole-source contracts are awarded prior to the 

approval of a J&A, OA cannot properly demonstrate that it determined the prices 

were fair and reasonable or that it received the best possible value for the goods 

and services acquired. 

J&As Not Always Signed at the Appropriate Level

One sole-source contract we reviewed was awarded without the proper J&A 

because it was not signed by the competition advocate. This contract was 

awarded for expert services in 2010, for $620,000. This amount was above the 

$550,000 threshold established by FAR § 6.304. At the time of the contract’s

award the competition advocate should have signed the J&A.

The competition advocate’s role is to ensure that competition is maximized in the 

agency by challenging any unnecessary restrictions on competition. When the 

competition advocate does not review and approve J&As when required, one of 

the agency’s tools to promote competition is negated. 

Failure to execute an appropriately signed J&A prior to contract award may 

indicate a lack of training and/or insufficient internal controls to ensure 

compliance with federal regulations and Commission policies and procedures.

Recommendation 1: 

The Office of Acquisitions (OA) should review contracting operations at the

regional office where sole-source contracts were identified having no 

justifications and approvals. OA should further provide training to staff 

involved in the procurement process to ensure they are familiar with

competition requirements in contracting, when sole-source contracting is 

appropriate and how to properly prepare justifications and approvals. 

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

 

15 FAR § 6.303-2 
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OIG Analysis. We are pleased that OAS concurred with this 

recommendation.

Recommendation 2: 

The Office of Acquisitions should establish procedures to regularly review a 

sample number of regional office contracts to ensure that their contracting 

practices comply with the Federal Acquisition Regulation and Commission 

regulations and operating procedures.

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation.

Finding 2: Sole-Source Contract Authorized for 

Unusual and Compelling Urgency Exceeded the 

Authorized Period of Performance 

A sole-source contract awarded using the authority for 

“unusual and compelling urgency” did not comply with FAR 

requirements. The circumstances identified in the J&A 

supported the use of this authority; however the contract 

exceeded the authorized period of performance allowed 

under FAR § 6.302-2. 

OA awarded a sole-source contract on June 14, 2010, using FAR’s “unusual and 

compelling urgency” authority. The contract’s period of performance was from 

June 14, 2010 to June 13, 2013, and the initial contract value was $250,000,

which exceeded the simplified acquisition $150,000 threshold. This contract was

modified four times and its current value is now $1,500,000. The objective of the 

contract is to have the vendor conduct an investigation related to the May 6, 

2010, market break and determine: 

 

(1) to the extent possible, what events precipitated or contributed to the 

market break; and 

(2) what the features of market design and market participant behavior 

may have propagated or amplified the event.

OA’s award of this sole-source contract appropriately used the unusual and 

compelling urgency authority, but it did not limit the period of performance for 

acquisitions that exceed the simplified threshold as required in FAR § 6.302-2. 
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For sole-source contracts awarded using the unusual and compelling urgency 

authority, the contract’s period of performance is limited to the time necessary to 

meet the unusual and compelling requirements of the work to be performed 

under the contract. This includes the time the agency needs to enter into another 

contract for the required goods and services through the use of competitive 

procedures. However, this time cannot exceed one year unless the head of the 

agency determines that exceptional circumstances apply. 

We concluded that the period of performance on the contract in question should 

not have exceeded one year, unless the SEC Chairman determined that 

exceptional circumstances applied and approved the request. However, there is 

no evidence in the contract file that supports that the Chairman made this 

determination. Because this was not done, the SEC inappropriately limited 

competition for follow-on work related to this contract. Therefore, OA cannot 

assure that the cost of the follow-on work was reasonable or the SEC received 

the best value for services rendered.

Recommendation 3: 

The Office of Acquisitions (OA) should review all open sole-source contracts 

awarded using FAR § 6.302-2, Unusual and Compelling Urgency, that are 

over the simplified acquisition threshold, and ensure that the contract’s period 

of performance does not exceed one year. If any contract’s period of 

performance exceeds one year, OA should modify the period of performance 

or obtain required approval from the Chairman for exceptional circumstances. 

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation.
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Finding 3: Expert Services Contracts Are 

Sourced From a Limited Supply of Vendors that 

Could Potentially be Expanded 

Our review of sole-source contracts that cited FAR § 6.302-3 

for expert services, found that: most vendors received 

multiple contracts with the SEC, typical statements in the 

expert witness J&As about removing barriers to competition 

lacked real substance, and market research is limited and 

informal. 

Enforcement is OA’s primary customer for sole-source expert services contracts. 

Enforcement uses these contracts to hire expert witnesses in support of SEC 

litigation.

Some Vendors for Expert Services Contracts Have Multiple SEC 

Contracts

Of the sole-source contracts we reviewed, 27 of 64 (42 percent) were awarded 

as “expert services” contracts. Of these 27 contracts, 21 (78 percent) were 

awarded to vendors that received at least two SEC contracts during fiscal years 

2009 through 2011. Some vendors received more than two SEC contract 

awards during this period. For the three year period, we found: 

• Two vendors were awarded seven contracts; each vendor’s total 

contracts were valued at over $2.2 million and $1.3 million, 

respectively.

• Two vendors were awarded five contracts; each vendor’s total 

contracts were valued at over $2.7 million and $246,000 

respectively.

• Three vendors were awarded four contracts; each vendor’s total 

contracts were valued at over $1 million, $890,000, and $217,000, 

respectively. 

Vendors are generally awarded multiple expert services contracts with the SEC. 

The opportunity for new entrants to break into this opportunity is thereby limited. 

Therefore, the SEC may not be receiving the best value for its expert services 

contracts. 

Language in Expert Services J&As Lacks Substance

After reviewing and analyzing numerous J&As we determined that some 

language in the expert services J&As regarding “removing barriers to 
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 For example, paragraph 10 of the J&A 

states “a listing of sources, if any that expressed, in writing an interest in the 

acquisition.” OA’s typical response was “A listing of sources that express an 

interest in actions under this J&A will be maintained in the applicable contract 

files.” Paragraph 6 of the J&A states, “Efforts to ensure that offers are solicited 

from as many potential sources as possible.” Most of the expert services J&As 

we reviewed cited FAR § 5.202 (a) (14), as exempting the SEC from publicizing 

the action. We determined that it was unlikely that potential vendors would 

express an interest in writing to the SEC if the action is not publicized in 

FedBizOpps. 

Further, paragraph 11 of the J&A states “A statement of the actions, if any, the 

agency may take to remove or overcome any barriers to competition before any 

subsequent acquisition for the supplies or services required” and OA’s typical 

response was “The Commission’s requirements are ongoing and the SEC will 

continue to survey potential experts for similar services.” 

The standard language found in many sections of the expert services J&As does 

not encourage the type of analysis that will truly remove barriers to competition in 

expert services contracting at the SEC. Therefore, the SEC does not obtain the 

benefits of competition in this category of contracts. 

Market Research is Limited and Informal

Enforcement maintains a database (Word document) consisting of expert 

witnesses that are available for contracting services by various subject areas 

such as insider trading cases, broker-dealer issues, municipal bond fraud, etc. 

According to Enforcement’s Acting Deputy Managing Executive, the list is 

updated when: 

competition,” lacked real substance.

16

• individuals contact Enforcement and express an interest in doing 

expert services work for the SEC; 

• staff in Enforcement’s Trial Unit network with expert witnesses they 

meet during cases; 

• Enforcement reaches out to trusted firms; and

• the Division conducts limited market research.

The Acting Deputy Managing Executive pointed out that for some expert 

services, there is a very small community of available resources and many 

vendors do not want to testify for the SEC. Also, Enforcement’s Trial Unit does 

not want to reveal its litigation strategy, so the search for an expert is often 

conducted confidentially by limiting queries to trusted associates.

 

16 FAR § 6.303-2 requires the J&A to address 12 areas.
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FAR § 10.001 requires agencies to conduct market research before soliciting

acquisition offers above the simplified acquisition threshold, and for acquisitions 

below the simplified acquisition threshold when adequate information is not 

available and the circumstances justify its cost. The extent of market research 

varies depending on factors such as urgency, estimated dollar value, complexity 

and past experience. The contracting officer may use market research 

conducted within the last 18 months before awarding a task order or delivery 

order, if the information is still current, accurate, and relevant. 

Our review found SEC’s expert services J&As show limited and informal market 

research. In 22 percent of the J&As we reviewed, the J&A indicated no market 

research was conducted before the contract was awarded. For example, one 

J&A stated that a “market survey was not conducted because it would not be 

appropriate in litigation to announce the Commission’s goals in its search for an 

expert.” With few exceptions, the remaining expert services J&As we reviewed

illustrated that only limited, informal market research was conducted among 

experts who were already known to the SEC. For example, one J&A stated, 

“The staff considered three experts . . . . The staff also reviewed lists of potential 

experts located on EnforceNet,

17 as well as a list of experts the SEC has used 

within the past three years.” None of these solicitations were publicized. 

The informal market research conducted for expert services contracts limits the 

pool of potential vendors for expert services. Therefore, the SEC may not be 

receiving best value for its expert services contracts.

SEC’s Expert Witness Selection Process Variables

The SEC’s selection of expert witnesses is affected by variables such as witness 

expertise, availability, willingness to testify for the SEC, court room demeanor, 

and the trial attorney’s confidence in the expert witness. Though these 

characteristics are subjective in nature, they may be valid. Further, the 

unpredictable timeline of a trial can result in an unexpected and urgent need for 

an expert witness. Also, the timeline of a trial is generally not controlled by 

Enforcement’s Trial Unit, so the need for an expert witness can be unexpected

and urgent. These circumstances tend to limit the pool of potential witnesses for 

a particular case.

Once a trial has begun, the desire to keep the litigation strategy confidential 

precludes the SEC from openly soliciting expert witnesses. In these instances,

Enforcement does not conduct additional market research or informal research 

as was illustrated in our J&A review. 

 

17 EnforceNet is the Division of Enforcement’s intranet. 
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The SEC’s approach to selecting certain expert witnesses is impacted by its 

current operational concerns, and there is a limited supply of known experts in 

certain areas. The culmination of these circumstances restricts the opportunity 

for new vendors to enter into this contracting opportunity. As a result, the SEC 

may not be receiving the best value available for all its expert witness contracts.

Recommendation 4: 

The Office of Acquisitions should conduct an assessment on the manner in 

which vendors are chosen as expert witnesses using FAR § 6.302-3, for solesource contracts, and examine whether opportunities exist to expand the 

vendor competition base. 

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation.

Finding 4: OA’s Current Guidance on J&As is 

Potentially Confusing 

OA’s current internal guidance for preparing J&As is 

potentially confusing to contracting officers and contract 

specialists who prepare J&As. 

OA’s J&A Guidance 

Over the past few years OA management has issued various guidance regarding 

J&A policy and procedures to its staff. Specifically, on December 29, 2009, OA

issued internal J&A guidance to its staff in the Justification and Approval Guide. 

This guide is posted on the SEC’s Insider as an Acquisition Policy Newsflash. 

On July 8, 2011, the Head of the Contracting Activity (HCA) sent an email to OA 

staff that was described as written policy for J&As and throughout the year the 

HCA sent additional guidance related to J&As via emails to OA staff. In 

December 2011, OAS published Securities and Exchange Commission 

Regulation (SECR) 10-21, Restricting Competition for SEC Acquisitions, which 

provided guidance on the use and preparation of J&As in contracting at the SEC. 

Subsequently, SECR 10-21 was removed from SEC’s internal site and is 

currently under further review. 
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We found OA’s Justification and Approval Guide conflicts with the HCA’s emails 

as follows: 

The Justification and Approval Guide specifies that 

• the project manager (technical representative or end user) is 

responsible for preparing the J&A; and 

• OGC will review all J&As. 

The HCA’s emails 

• designate the contracting officer/contract specialist 

responsible for preparing J&As; 

• indicate OGC will sign all J&As.

• add a requirement that the technical representative submit a 

request to limit competition that is not included in the guide.

• specifies that the contract specialist will add their own 

additional market research to the J&A. Note: the Justification 

and Approval Guide does not have this requirement. 

Contract Specialist Interview Results. As shown in Table 2, OIG interviews 

with 16 contract specialists assigned to OA had the following results: 

 Table 2: OIG Contract Specialist Interview Results 

Number of Contract 

Specialists

OIG Interview Results

Six Indicated SECR 10-21 was the guidance 

they used to process J&As, even though 

OA withdrew it as an active regulation in 

December, 2011

Seven Indicated the HCA’s emails were the 

prevailing J&A guidance.

One Indicated OA’s J&A Guide is the 

prevailing J&A guidance.

Two Were unaware of any current internal 

guidance and refer to J&A examples and 

the FAR to process J&As. 

Source: OIG Generated

Further, a consistent comment contract specialist relayed to OIG was that the 

HCA had sent out several emails related to processing J&As and the guidance 

needs to be clarified regarding what policies and procedures they are required to 

follow when processing J&A’s. 
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OA’s J&A Policies and Procedures. Internal controls18 (e.g., the organization’s 

policies, procedures, etc.) are tools that can be used to help management 

achieve results and safeguard the integrity of their programs. The objectives of 

internal control include: 

(1) effectiveness and efficiency of operations; 

(2) reliability of financial reporting; and 

(3) compliance with applicable laws and regulations. 

Internal controls are built on five standards: control environment; risk 

assessment; control activities; information and communications; and monitoring. 

The fourth standard (information and communications) asserts that information 

should be communicated to relevant personnel at all levels within an 

organization. The information should be relevant, reliable, and timely. Confusing 

J&A policy guidance is contrary to this standard and may result in the contracting 

staff’s failure to comply with the laws and regulations that govern SEC’s use of 

J&As in contracting.

Recommendation 5: 

The Office of Acquisitions should publish comprehensive policies and

procedures governing the justification and approval process at the 

Commission. This guidance should reflect a thorough analysis of the current 

process to determine if it includes sufficient controls to ensure justifications 

and approvals comply with federal statutes and regulations and are 

appropriately used under the circumstances presented. 

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation.

 

18 OMB Circular A-123, Management’s Responsibility for Internal Controls.
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Recommendation 6:

The Office of Acquisitions (OA) should communicate its policies and 

procedures governing the justification and approval process at the 

Commission to contracting officers and contract specialists and provide 

training as necessary. OA should properly notify its staff when previously 

issued OA guidance (policies and procedures) and administrative regulations 

are revised, superseded, or are no longer available for use. 

Management Comments. OAS concurred with this recommendation. See 

Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation.
Appendix I

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Abbreviations

CICA Competition in Contracting Act of 

1984 

COSO Committee of Sponsoring 

Organizations of the Treadway 

Commission

Enforcement Division of Enforcement

FAR Federal Acquisition Regulation

FAS Federal Acquisition System

FedBizOpps Federal Business Opportunities

FPDS Federal Procurement Data System

HCA Head of Contracting Activity

J&A Justification and Approval

OA Office of Acquisitions

OAS Office of Administrative Services

OGC Office of General Counsel

OIG Office of Inspector General

SEC or 

Commission

U. S. Securities and Exchange 

Commission

SECR Securities and Exchange 

Commission Regulation

USC United States Code
Appendix II

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Scope and Methodology

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a

reasonable basis for our findings and conclusions based on our audit objectives. 

We believe that the evidence obtained provides a reasonable basis for our

findings and conclusions based on our audit objectives. 

Scope. Our audit focused on OA’s policy and procedures for processing J&As at 

SEC. In addition, we reviewed sole-source contracts with J&As in our scope of 

fiscal years 2009 through 2011. Further, we considered federal law, federal 

regulations, and SEC policies and procedures that pertain to contracting. We 

conducted our fieldwork from November 2011 to February 2012. 

Methodology. To meet the objectives of assessing (1) OA’s approval processes 

and procedures for J&As, to include the role of contracting officials and legal 

counsel, and (2) whether applicable federal statutes and regulation and OA’s 

policies and procedures are followed in approving J&As, we gained familiarity 

with federal contracting law, federal contracting regulations, and SEC policies 

and procedures related to contracting and J&As. In addition, we conducted a 

walk-through of OA’s J&A approval process, interviewed key personnel, and 

collected supporting documentation. We also developed a statistical sample of 

sole-source contracts that were awarded during fiscal years 2009 to 2011, 

obtained and reviewed contracting documents to include J&As, and conducted 

testing to ensure compliance with federal laws, regulations, and the SEC policies 

and procedures. 

To meet the objective of determining whether J&As were appropriately used 

under the circumstances presented, we identified the universe of J&A and 

conducted a review on a sample number (see the Statistical Sampling section) 

using a standard template and compared the assertions of the J&A to the facts 

presented in the contract file. In cases where we found anomalies we conducted 

interviews with personnel involved in the contracting action. In addition, we 

analyzed the results of testing to understand trends in sole-source contracting 

and followed up with customers and contracting officials.

Finally, to meet the objective of assessing the impact of J&As on competition at 

the SEC, we used FPDS to developed comparative statistics on contract dollars 

competed at the SEC and across the federal government as a whole. We also

interviewed the Commission’s competition advocate and reviewed the SEC’s 

Competition Advocate Report for fiscal years 2009 through 2011.
Appendix II

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Internal Controls. The Internal Control—Integrated Framework, published by

the Committee of Sponsoring Organizations of the Treadway Commission

(COSO), provides a framework for organizations to design, implement, and

evaluate controls that facilitate compliance with federal laws, regulations, and

program compliance requirements.

19 For this audit, we based our assessment of

OA’s internal controls that were significant to the audit objectives on the COSO

framework, including control environment, risk assessment, control activities, 

information and communication, and monitoring. Among the internal controls 

that we assessed were OA’s controls related to processing J&As, the annual risk 

assessment for the Federal Manager’s Financial Integrity Act assurance 

statement,

20 OA’s policies and procedures in place to meet its objectives, and 

OA’s internal communication process.

Use of Computer-Processed Data. We determined the best way to generate a 

list of sole-source contracts likely to have a J&A for this audit was to use the 

USASpending website.

21 USASpending receives contract data from FPDS daily. 

Per FAR § 4.606, agencies are required to report all contract data over the micropurchase threshold, or $3,000, to FPDS. Therefore, USASpending should 

provide a complete listing of contract actions since it regularly receives data 

updates from FPDS. Since the audit objectives required the review of contracts 

and associated J&As, the primary concern was that the information systems 

generate an accurate list of sole-source contracts. To test this, we conducted 

basic existence and completeness testing using a list from OA’s contract file 

room. The results of the completeness and existence testing gave us reasonable 

assurance that the data from USASpending/FPDS is sufficient to generate an 

accurate list of sole-source contracts for this audit.

Statistical Sampling. To review the SEC’s use of J&A in contracting the OIG

used USASpending/FPDS to generate all contracts awarded during fiscal years 

2009 through 2011. Subsequently, we selected contracts that were not 

competed and eliminated duplicates. The result was an audit universe of 454 

sole-source contracts. We then used the EZ Quant Statistical Analysis Audit tool 

to generate a statistical sample of 64 contracts. The sample was designed to 

project rates of occurrence with 90 percent confidence that the point estimate is 

within ± 5 percent of the audit universe.

 

19 Committee of the Sponsoring Organizations of the Treadway Commission, Internal Control – Integrated 

Framework (1992). 20 Federal Manager’s Financial Integrity Act of 1982. 21 http://www.usaspending.gov/ 
Appendix II

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Prior Coverage. OIG reviewed improper actions related to the leasing of office 

space where an inappropriately backdated J&A was prominent. In another 

review, we examined a sole-source contract that was awarded prior to the J&A 

being signed. Further, this J&A was not approved by the competition advocate 

though it exceeded the dollar threshold required for the competition advocate’s 

review. 
Appendix III

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Criteria

41 United States Code (USC) § 253. Also known as the Competition in 

Contracting Act of 1984 (CICA). Section 253 is the statutory authority for 

competition requirements in federal contracting. It is the source of law for the 

FAR Part 6 – Competition Requirements. The section outlines the exceptions by 

which a federal agency may use noncompetitive procedures in procurement and 

the J&As that must be included.

FAR Part 6 – Competition Requirements. Prescribes policies and procedures 

to promote full and open competition in the acquisition process and to provide for 

full and open competition, full and open competition after exclusion of sources, 

other than full and open competition, and competition advocates. Further, it 

specifies the requirements for J&As. 

FAR Part 2 – Definitions. This part: (1) defines words and terms that are 

frequently used in the FAR; (2) provides cross-references to other definitions in 

the FAR of the same word or term; and (3) provides for the incorporation of these 

definitions in solicitations and contracts by reference.

FAR Part 5 – Publicizing Contract Actions. Prescribes policies and 

procedures for publicizing contract opportunities and award information. 

FAR Part 10 – Market Research. Prescribes policies and procedures for 

conducting market research to arrive at the most suitable approach to acquiring, 

distributing, and supporting supplies and services.

SECR 10-02, SEC Contracting Authorities and Appointments. Establishes 

uniform policies and procedures for the acquisition of products and services for 

the SEC. It also describes the delegation of authority and accountability for the 

management of acquisition functions performed on behalf of the Chairman. 

SEC’s Justification and Approval (J&A) Guide. Issued by the Policy, 

Oversight & Acquisitions Branch of the Office of Acquisitions on 12/29/2009 to 

provide guidance and procedures for developing J&As that are adequate and 

complete.

OMB Circular A-123, Management’s Responsibility for Internal Control. 

Establishes that management has a fundamental responsibility to develop and 

maintain effective internal control.
Appendix IV

SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

Report No. 507 

Page 25

List of Recommendations

Recommendation 1: 

The Office of Acquisitions (OA) should review contracting operations at the 

regional office where sole-source contracts were identified having no 

justifications and approvals. OA should further provide training to staff involved

in the procurement process to ensure they are familiar with competition 

requirements in contracting, when sole-source contracting is appropriate and 

how to properly prepare justifications and approvals.

Recommendation 2: 

The Office of Acquisitions should establish procedures to regularly review a 

sample number of regional office contracts to ensure that their contracting 

practices comply with the Federal Acquisition Regulation and Commission 

regulations and operating procedures.

Recommendation 3: 

The Office of Acquisitions (OA) should review all open sole-source contracts 

awarded using FAR § 6.302-2, Unusual and Compelling Urgency, that are over 

the simplified acquisition threshold, and ensure that the contract’s period of 

performance does not exceed one year. If any contract’s period of performance 

exceeds one year, OA should modify the period of performance or obtain 

required approval from the Chairman for exceptional circumstances. 

Recommendation 4: 

The Office of Acquisitions should conduct an assessment on the manner in which 

vendors are chosen as expert witnesses using FAR § 6.302-3, for sole-source 

contracts, and examine whether opportunities exist to expand the vendor 

competition base. 

Recommendation 5:

The Office of Acquisitions should publish comprehensive policies and procedures 

governing the justification and approval process at the Commission. This 

guidance should reflect a thorough analysis of the current process to determine if 

it includes sufficient controls to ensure justifications and approvals comply with 

federal statutes and regulations and are appropriately used under the 

circumstances presented. 
Appendix IV

SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

Report No. 507 

Page 26

Recommendation 6:

The Office of Acquisitions (OA) should communicate its policies and procedures 

governing the justification and approval process at the Commission to contracting 

officers and contract specialists and provide training as necessary. OA should 

properly notify its staff when previously issued OA guidance (policies and 

procedures) and administrative regulations are revised, superseded, or are no 

longer available for use. 
Management’s Comments

�J XA ..

.... _ .. 

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SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

Report No. 507 

Page 27

:_1

Appendix V 

MEMORANDUM 

TO: Jacqueline Wilson, Assistant Inspector General for Audits, Office of 

Inspector General 

FROM: Jayne L Seidman, Acting � ces 

SUBJECT: The SEC's Use of Justlncatlons and Approvals in Sole-Source 

Contracting, "Report No. 507 

DATE: March 23, 2012 

·Thls memorandum is in response to the Office of Inspector General's (OIG) Draft 

Report No. 507, titled The SEC's Use of Justlncations and Approvals in Sole-Source . 

Contracting. Thank you for the opportunity to review and respond to this report . 

OIG Recommendation 1. The Office of Acquisitions (OA) should review contracting 

operations at the regional office where sole-source contracts were identified having no 

justifications and approvals. OA should further provide training to staff involved in the 

procurement process to ensure they aI'S familiar with competition requirements In 

contracting. when so/e-source contracting is appropriate and how to properly prepare 

justifications and approvals. 

The Office of Administrative Services (OAS) concurs. The Office of Acquisitions will 

review contracting operations in that regional of

ce and provide training to staff involved

in the procurement process to ensure that they are familiar with competition 

requirements, when sole-source contracting is appropriate, and how to properly prepare

justifications and approvals. 

OIG Recommendation 2. The OfICe of Acquisitions should establish procedures to 

regularly review a sample number of regional office contracts to ensure that their 

contracting practices comply with the Federal Acquisition Regulation end Commission 

regulations and operating procedures. 

OAS concurs. OA is reviewing a ·sample of regional office contracts for compliance with 

the acquisition policies, incfuding the Federal Acquisition Regulation and Commission 

regulations and operating procedures. OA will implement a process whereby in the 

future OA reviews a sample of new regional office contracts quarterly. 

OIG Recommendation 3: The Of

 of Acquisitions (OA) should review all open solesource contracts awarded using FAR § 6.302-2, Unusual and Compelling Urgency. that 

are over the simplified acquisition threshold. and ensure that the contract's period of 

performance does not exceed one year. If any contract's period. of performance 
SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

Report No. 507 

Page 28

Appendix V 

exceeds one year, OA should modify the period of performance or obtain required 

approval from the Chairman for exceptional circumstances. 

OAS concurs. For the contract mentioned in the IG's report, OA has begun corrective 

action by completing a modification correcting the period of performance to reflect the 

actual work period, June 14, 2010 to March 8, 2011, and officially closing the contract. 

. OA is also reviewing other open sole source contracts awarded under the authority of 

FAR § 6.302-2, Unusual and Compelling Urgency. For any such contract found to 

reference a period of performance exceeding one year, OA will take appropriate 

corrective actions. 

OIG Recommendation 4. The Office of Acquisitio

ors are chosen as expe

 examine whether oppo

ns should conduct an assessment on 

the manner in which vend rt witnesses using FAR § 6.302-3, for 

sole-source contracts, and rtunities exist to expand the vendor . 

competition base. 

OAS concurs. OA is assessing the current processes used for choosing expert 

witnesses and is working with technical and requirements staff to formalize 

improvements to expand the vendor competition base. 

OIG Recommendation 5. The Office of Acquisitions should publish comprehensive 

policies and procedures governing the justification and approval process at the 

Commission. This guidance should reflect a thorough analysis of the current process to 

determine if it includes sufficient controls to ensure justifications and approvals comply 

with federal statutes and regulations and are appropriately used under the 

circumstances presented. 

OAS concurs. OA will publish comprehensive policies and procedures governing the 

justification and approval process, and will assure that the procedures include sufficient 

controls to ensure the justification and approvals are used appropriately under the 

circumstances presented, and to ensure compliance with federal statutes and 

regulations. 

OIG Recommendation 6. The Of of Acquisitions should communicate its poliCies 

and procedures governing the justification and approval process at the Commission to 

contracting officers and contract specialists and provide training as necessary. OA 

should properly notify its staff when previously issued OA guidance (policies and 

procedures) and administrative regulations are revised, superseded, or are no longer 

available for use. 

OAS concurs. OA will communicate its revised policies and procedures governing the 

justification and approval process to contracting officers and contract specialists, and 

will provide training as necessary. Further, OA will establish a procedure to assure staff 

is notified of changes to OA policies, procedures, and administrative regulations. 
Appendix VI

SEC’s Use of Justifications and Approvals in Sole-Source Contracting March 28, 2012

Report No. 507 

Page 29

OIG Response to Management’s Comments

OIG is pleased that OAS concurred with all of the report’s recommendations. We 

are also encouraged that OAS has indicated that it intends to take prompt action 

to address the deficiencies we identified in the report. 

We believe that fully implementing all of our recommendations will significantly 

enhance the efficiency and effectiveness of OAS in connection with its important 

work of awarding contracts for goods and services at the SEC.
Audit Requests and Ideas

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at:

U.S. Securities and Exchange Commission

Office of Inspector General

Attn: Assistant Inspector General, Audits (Audit Request/Idea)

100 F Street, N.E.

Washington D.C. 20549-2736

Tel. #: 202-551-6061

Fax #: 202-772-9265

Email: oig@sec.gov

Hotline 

To report fraud, waste, abuse, and mismanagement at SEC, 

contact the Office of Inspector General at:

Phone: 877.442.0854

Web-Based Hotline Complaint Form:

www.reportlineweb.com/sec_oig