United States General Accounting Office

GAO Report to the Chairman, Permanent

Subcommittee on Investigations,

Committee on Governmental Affairs,

U.S. Senate

October 1997 INSPECTORS

GENERAL

Contracting Actions By

Treasury Office Of

Inspector General

GAO/OSI-98-1

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-278420 

October 31, 1997

The Honorable Susan M. Collins

Chairman, Permanent Subcommittee on

 Investigations

Committee on Governmental Affairs

United States Senate

Dear Madam Chairman:

This report responds to your May 6, 1997, letter and subsequent

discussions with your office requesting that we determine the facts and

circumstances surrounding the Department of the Treasury’s award of a

sole-source contract to Sato & Associates for a management study of

Treasury’s Office of Inspector General (OIG) and of a consulting services

contract to Kathie M. Libby, doing business as KLS, using other than full

and open competition. You also asked that we determine the nature and

purposes of trips to California by Treasury Inspector General (IG) Valerie

Lau since her appointment as IG.

Results in Brief In November 1994, shortly after her confirmation, Ms. Lau contacted

Frank S. Sato1

 to request that he perform a management review of the

Treasury OIG. She subsequently told the Treasury Procurement Services

Division (PSD) that she wanted Mr. Sato to perform a management review;

and on January 9, 1995, PSD awarded a sole-source management study

contract to Sato & Associates,2

 on the basis of unusual and compelling

urgency. 41 U.S.C. section 253(c)(2); Federal Acquisition Regulation (FAR)

section 6.302-2. The original price of the Sato & Associates contract was

$88,566; and an exercised option increased the contract’s final cost to

$90,776. In response to questions, Ms. Lau stated that the need to limit

competition for the management study was urgent and compelling

because, among other reasons, the study would assist her as a new

appointee to quickly make reassignments in her senior executive ranks

and to marshal the resources needed to conduct financial audits required

by the Government Management Reform Act of 1994 and the Chief

Financial Officer Act of 1990.

1

Mr. Sato had formerly held IG positions at the Department of Transportation and the Veterans

Administration.

2

Frank Sato of Woodinville, Washington, created the name Sato & Associates specifically to conduct

the Treasury OIG management review.

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Although Ms. Lau’s stated reasons provide some support for her position,

based on a review of the contract justification and Ms. Lau’s rationale, we

believe that there was insufficient urgency to limit competition. Even

assuming that a limited competition was warranted, it is clear that the

agency violated the applicable statute and regulation by failing to request

offers from as many potential sources as was practical under the

circumstances. Ms. Lau was aware that at least three other former IGs had

performed similar management reviews of OIGs; and Mr. Sato, who told us

he had never performed a management review, subsequently contracted

with two of them to help him perform the Treasury OIG management

review.

On February 25, 1995, Mr. Sato submitted an unsolicited proposal for

$91,012 to the Department of the Interior OIG to contract for work similar

to that being done at the Treasury OIG. Rather than award a contract based

on Mr. Sato’s proposal, the Department of the Interior conducted a full and

open competition and, in June 1995, awarded a management study

contract to Sato & Associates for approximately $62,000 less than the

proposal. Although the objectives of the study and final report for the

Interior contract were substantially the same as those for the Treasury

contract, the final cost to Interior was $28,920. This suggests that the price

of Sato & Associates’ sole-source contract for the Treasury OIG effort was

artificially high.

Regarding the KLS contract, on September 12, 1995, PSD awarded a

time-and-materials, consulting services contract to Kathie M. Libby, doing

business as KLS.3

 The contract, among other factors, called for KLS to

review and analyze a report prepared by the Office of Personnel

Management (OPM) on morale and diversity problems in the OIG office and

assist OIG managers and staff concerning goals identified in the OPM study.

The contract was awarded on the basis of unusual and compelling urgency

following limited competition.

Based on our investigation, we conclude that the justification for limiting

the competition was not reasonable. The primary reason advanced by Ms.

Lau for the urgency determination was the need to have the consultant

provide a briefing at an OIG management conference to be held a few days

after contract award. Ms. Lau wanted to convey to her managers that she

intended to correct problems identified in the OPM study. The KLS

consultants did attend the conference, but they were present for the

3

Two other consultants—Leslie Williams and Stan Ridley—worked with Kathie Libby on the contract.

The name KLS consisted of the initials of the three consultants’ first names.

Page 2 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

limited purpose of introducing themselves to the OIG staff and informing

the staff that KLS would work with them to implement the OPM study

recommendations. We believe that Ms. Lau’s ability to (1) convey to her

managers that the problems identified in the OPM study would be

addressed and (2) correct those problems would not have been seriously

impaired had the announcement of the actual consultant been delayed a

few months in order to obtain full and open competition. Ms. Lau could

still have informed the conference participants that she intended to hire

such a consultant expeditiously, and the actual hiring of the consultant

would have demonstrated to her employees that she was serious in her

intention to pursue the OPM recommendations.

Further, the largest modification made to the contract with KLS was

outside the scope of the contract. The OIG should have obtained this

additional work through a separate, competitive procurement.

We also identified a pattern of careless management in the procurement

process and in oversight of performance under the contract. We found that

the agency engaged in poor procurement planning in that it failed to fully

understand its needs and clearly articulate those needs to the contractor.

This resulted in five modifications with a fourfold increase in the

contract’s total price and a 1-year extension to the period of performance.

Further, the OIG paid for work that was not authorized by the contract or

modifications. Payments were also made to KLS without verification that

work had been done and without determining that documents for travel

and transportation costs incurred by the contractor had been received.

Regarding the IG’s travel, Ms. Lau made five trips to California between

September 1994 and February 1997. Although it was alleged that the trips

had been made at government expense to visit her mother who lives in

northern California, all five trips were scheduled for work-related reasons.

Background The Competition in Contracting Act of 1984 (CICA), 41 U.S.C. section 253,

and the implementing FAR section 6.302 require full and open competition

for government contracts except in a limited number of statutorily

prescribed situations. One situation in which agencies may use other than

full and open competition occurs when the agency’s need is of such

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 proposals. Even when an unusual and compelling urgency

exists, the agency is required to request offers from as many potential

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B-278420 

sources as is practicable under the circumstances. 41 U.S.C. section

253(e); FAR section 6.302-2(c)(2). This means that an agency may limit a

procurement to one firm only when the agency reasonably believes that

only that firm can perform the work in the available time.

Sato & Associates

Contract

Based on our investigation, we believe there was insufficient urgency to

limit competition and that the sole-source contract to Sato & Associates

was not proper. The Treasury OIG violated the applicable statute and

regulation by failing to request offers from as many potential sources as

was practical. Ms. Lau knew of three other former IGs who had performed

similar management reviews. Indeed, Mr. Sato hired two of the former IGs

to assist him with the Treasury OIG review. Further, the cost of that review,

over $90,700, appears artificially high. After Mr. Sato submitted a

similar-costing proposal to Interior and after a full and open competition,

Interior awarded a similar contract to Mr. Sato at a final cost of about

$28,900.

Contract Background Prior to being confirmed as Treasury IG on October 7, 1994, Ms. Lau

decided that a management review of the OIG would help her meet a

number of challenges in her new job. In November 1994, Ms. Lau

contacted Mr. Sato to request that he conduct the management review.

According to Ms. Lau, she first met Mr. Sato when she was a regional

official and Mr. Sato a national official of the Association of Government

Accountants; a professional relationship developed over the years through

functions related to that association.4

 Mr. Sato had written to the White

House Personnel Office in May 1993 recommending Ms. Lau for an

appointment to an IG position.5

In November 1994, Ms. Lau talked with senior OIG managers about a

management review and advised them that she knew to whom she wanted

to award a contract. In early December 1994, she contacted Treasury’s PSD

to request assistance in awarding a management review contract. The

contracting officer provided her with an explanation of the requirements

to justify a sole-source contract. Thereafter, Ms. Lau told PSD that she

4

Ms. Lau said that this relationship continued when she served as director of the Western

Intergovernmental Audit Forum, as she considered Mr. Sato to be an important figure in the audit

community. Ms. Lau and Mr. Sato stated that they have not had social engagements other than one

occasion in 1996, after the contract had been completed, when Ms. Lau and her husband visited Mr.

Sato’s residence.

5

Ms. Lau does not recall asking him for a recommendation, and Mr. Sato does not recall the reason for

his writing to recommend Ms. Lau.

Page 4 GAO/OSI-98-1 Treasury Office Of Inspector General
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wanted Sato & Associates to do the work. The Treasury contracting officer

subsequently prepared a Justification for Other Than Full and Open

Competition, also known as the justification and approval (J&A) document.

On December 12, 1994, PSD approved the J&A, authorizing a sole-source

award to Sato & Associates. When we asked the contracting officer why

she did not attempt to identify other individuals or companies that could

perform the contract, she stated that Ms. Lau had told her that Mr. Sato

“had unique capabilities which would preclude the award of a

management studies contract to anyone else.”

Contract Award On January 9, 1995, Treasury’s PSD awarded a contract at the request of the

Treasury OIG to Sato & Associates to perform a management study of the

Treasury OIG. The contract specified that the contractor was to produce a

report within 13 weeks, which was to focus on the most efficient methods

of improving the organization and functioning of the operations of the OIG.

Specific areas to be reviewed included office management procedures and

practice, staffing, correspondence, automation, and personnel

management.

The contract was awarded without full and open competition on the basis

of unusual and compelling urgency. The J&A for the Sato contract provided

that “[t]he Government would be injured if the Inspector General is unable

to quickly assess any needs for management reform and make any

required changes that would ensure that she receives the appropriate staff

support for the implementation of her policies.” According to the

contracting officer, when she questioned Ms. Lau about the justification

for the Sato contract and whether an urgent need existed, Ms. Lau stated

that she did not want to divulge too much of “the internal goings-on” in the

Inspector General’s Office to the contracting officer. Ms. Lau merely

assured the contracting officer that the need was urgent.

In her August 27, 1997, deposition before the Permanent Subcommittee on

Investigations, Ms. Lau was asked to explain why the contract had been

awarded to Sato & Associates based on unusual and compelling urgency.

She stated the following:

“I was aware that the office had some major challenges to meet, that we needed to marshal

the resources to do the financial audits required by the Government Management Reform

Act. That we had some major work to do in terms of identifying the resources to do so. In

addition, as the newly appointed head of the Office of Inspector General, I had a 120 day

period before I would be able to make any major changes or reassignments of senior

Page 5 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

executives, and that I wanted to do that as early as possible. I knew I was going into an

office with some issues that were getting scrutiny from Congress as well as others. I

believed that I needed to have a trusted and experienced group of professionals come in to

assist me to do that. I definitely felt that there was a compelling and urgent need, if you

want to use that terminology, because I wanted to ensure that I had, for example, some of

the major changes that were necessary to meet the CFO [Chief Financial Officers Act] audit

by the time the next cycle came around, which in Government fiscal years, the cycle ends

September 30th, and so the financial audits that would be required under that would have

to be planned and conducted within that time frame.”

Other than full and open competition is permitted when the agency has an

unusual and compelling urgency such that full competition would

seriously injure the government’s interest. We recognize that the

challenges Ms. Lau believed she faced and her express desire to make

management changes and develop strategies to deal with various audit

requirements as soon as possible after taking office, provide some support

for the OIG’s urgency determination. On the other hand, we are not aware

of facts establishing that Ms. Lau’s ability to perform her duties would

have been seriously impaired had the procurement of a consultant to

perform the management study been delayed by a few months in order to

obtain full and open competition. On balance, we believe that there was

insufficient urgency to limit competition. It is clear, however, that

irrespective of whether it would have been proper to limit competition,

issuance of a sole-source contract to Sato & Associates was not proper.

As discussed above, unusual and compelling urgency does not relieve an

agency from the obligation to seek competition. An agency is required to

request offers from as many potential sources as is practicable under the

circumstances. It may limit the procurement to only one firm if it

reasonably believes that only that firm can perform the work in the

available time. 41 U.S.C. section 253(c)(1).

The J&A stated that Sato & Associates had a predominate capability to

meet the Department of Treasury’s needs. However, Ms. Lau stated to us

that she knew at the time that former Inspectors General Charles

Dempsey, Brian Hyland, and Richard Kusserow6

 had been awarded

contracts for management reviews.

We interviewed two of the three former Inspectors General—Messrs.

Dempsey and Hyland—that Ms. Lau knew had done management reviews.

6

Mr. Dempsey was a former IG at the Department of Housing and Urban Development and the

Environmental Protection Agency; Mr. Hyland was a former IG at the Department of Labor; and Mr.

Kusserow was a former IG at the Department of Health and Human Services.

Page 6 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

Both stated that they could have met the IG’s urgent time frame to perform

the contract. In fact, they were hired by Mr. Sato to work on the Treasury

OIG contract, performing as consultants. We are aware of no reason why it

was impractical for the agency to have requested offers from at least the

three other known sources for the work Ms. Lau needed. Nor are we

aware of any reason why Sato & Associates was the only firm that could

have performed that work in the available time. In fact, Mr. Sato reported

to us that he had never performed a management review, while, as Ms. Lau

knew, Messrs. Dempsey, Hyland, and Kusserow had done so.

Consequently, we conclude that the agency acted in violation of 41 U.S.C.

section 253(e) and FAR section 6.302-2(c)(2) by failing to request offers

from other potential sources.

Contract Costs The contract to Sato & Associates was awarded at a firm fixed price7

 of

$88,566, which included estimated travel and per diem costs of $15,296.

The contract also contained an unpriced time-and-materials option8

 to

assist in implementing recommendations made in the contract’s final

report. A second modification to the contract9

 exercised that option and

raised the projected cost an estimated $24,760, for a total estimated

contract cost of $113,326. The actual amount billed to the government by

Mr. Sato for the fixed-price contract and the time-and-materials option

totaled $90,776.

Federal procurement policy seeks to ensure that the government pays fair

and reasonable prices for the supplies and services procured by relying on

the competitive marketplace wherever practical. We believe that the lack

of competition for the award of the Treasury OIG management study may

have been the reason for an artificially high price on the Sato & Associates

contract. On February 25, 1995, Mr. Sato submitted an unsolicited

proposal for $91,012 to the Department of the Interior’s OIG for a contract

similar to his Treasury contract. Rather than award a contract to Mr. Sato

based on this proposal, the Department of the Interior conducted a full

and open competition. In June 1995, Interior awarded a management study

contract to Sato & Associates for approximately $62,000 less than the offer

in Mr. Sato’s unsolicited proposal. The contract’s final cost was $28,920.

7

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of

the contractor’s cost experience in performing the contract. FAR section 16.202-1.

8

A time-and-materials contract provides for acquiring supplies or services on the basis of (1) direct

labor hours at specified fixed hourly rates and (2) materials at cost, including, if appropriate,

material-handling costs. FAR section 16.601.

9

The first modification related to the delivery of the final report and did not increase the contract cost.

Page 7 GAO/OSI-98-1 Treasury Office Of Inspector General
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Our review of both management study contracts shows that they are

similar and that any dissimilarity does not explain a nearly threefold

higher cost of the Treasury contract over the Interior contract. The

Treasury and Interior contracts contained three identical objectives that

the contractor was to focus on in conducting the review and making

recommendations.10 They were to

“a. improve the day-to-day management of the Office of Inspector

General[,]

“b. optimize management techniques and approaches[, and]

“c. enhance the efficiency . . . [and] productivity of the . . . [OIG].”

The proposals and final reports submitted by the contractor were

substantially the same for both jobs. Mr. Sato’s final report for Treasury

included 30 recommendations; his Interior report had 26

recommendations. Eighteen of the recommendations in both reports were

substantially the same.

Messrs. Dempsey and Hyland worked with Mr. Sato on both the Interior

OIG and Treasury OIG contracts. Mr. Hyland stated to us that the scope of

work on the Interior contract was basically the same as that on the

Treasury contract. According to Mr. Dempsey, although he conducted

more interviews at Treasury than at Interior, the Treasury contract was

worth no more than $40,000, adding that he and Mr. Hyland could have

done “this job in 60 days at $40,000.”

KLS Contract

Contract Background Ms. Lau told us that prior to her October 1994 confirmation she had

learned that OIG suffered severe morale and diversity problems. In the

spring of 1995, she requested OPM to conduct a workplace effectiveness

study of the OIG. The purpose of the resulting OPM report was to provide

the OIG with the necessary information on employee attitudes to assist it in

its efforts to remove obstacles to workplace effectiveness.

When Ms. Lau made that request, she had anticipated contracting with OPM

to develop an implementation plan based on the problems identified in the

initial study. However, in April 1995, OPM explained that it was unable to

10The Treasury contract contained one additional objective, to improve the teamwork of the OIG staff.

Page 8 GAO/OSI-98-1 Treasury Office Of Inspector General
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do any follow-on work because of reorganization and downsizing. Instead,

in July 1995, OPM provided Treasury OIG a list of 12 consultants who were

capable of doing the follow-on work.

On July 12, 1995, Ms. Lau’s staff gave her a list of 14 possible consultants

to perform the follow-on work—OPM’s list of 12 and 2 others with whom

the staff were familiar. Ms. Lau reviewed the list, added two names, and

instructed her special assistant to invite bids from at least the six

individuals she had identified on the list.11

On August 17, 1995, OPM conducted a preliminary briefing with senior OIG

staff concerning the nature of the OIG problems. Thereafter Ms. Lau told

PSD that an urgent need existed to hire a contractor to perform the

follow-on work. She wanted the contract awarded before the annual OIG

managers’ meeting scheduled for September 14, 1995, to prove to her

managers that she intended to fix the problems identified in the OPM study.

(The final report was furnished to the OIG on September 30, 1995; it

reported that OIG suffered from a lack of communication with its

employees, severe diversity problems, and a lack of trust employees had

toward management.)

OIG staff followed up with the six consultants identified by Ms. Lau. The

staff were unable to contact one consultant, and another consultant could

not provide a preliminary proposal by August 30, 1995. With respect to the

remaining four consultants, OIG staff met with each one to orally describe

the agency’s needs and request written proposals. Following receipt of the

proposals and oral presentations by the offerors, two OIG officials selected

Kathie M. Libby, doing business as KLS, a consultant from OPM’s list, as the

successful contractor. Although one OIG official told us that the evaluation

criteria used for evaluating the proposals were based on the OPM

recommendations, the other OIG official involved in the selection stated

that the selection was based only on a “gut instinct” that KLS would

provide a “good fit” with OIG and could do the work. Ms. Lau concurred

with the selection.

Contract Award On September 12, 1995, a time-and-materials contract was awarded to

KLS. The original term of the contract was from date of award (Sept. 12,

11Ms. Lau stated that she had no basis to evaluate the consultants. She merely reviewed the list, added

the names of two more individuals with whom she was familiar, marked four of the consultant names

with an “X”, and wrote a note to her special assistant that read, “. . . Invite bids from 3 write-ins [the

two names Ms. Lau added and one of the two names added by her staff] and those with X’s and any

who come highly recommended. We need to obligate this year!”

Page 9 GAO/OSI-98-1 Treasury Office Of Inspector General
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1995) to September 30, 1996. The contract, among other things, called for

the contractor to attend the September 14, 1995, OIG conference; review

and analyze the OPM survey results; and provide assistance to managers

and staff on reaching the goals identified by OPM in its study. It was

expected that in the beginning stages of contract performance, KLS would

meet with OIG employees weekly, if not daily. Given the complexity of the

issues and the desire for lasting improvements, OIG anticipated that KLS’s

services would be required for as long as 1 year, although it was

anticipated that the services would be on an “on-call” basis during the final

stages of the contract.

The agency justified limiting the competition on the basis of unusual and

compelling urgency. The J&A provided as follows, “It is imperative that the

services begin no later than September 11, 1995, in order to have the

consultants provide a briefing to managers attending the September 14,

1995, OIG managers conference.” This determination reflected Ms. Lau’s

concern that while similar management studies had been conducted in the

past, historically there had been no follow-through on the studies’

recommendations. It also reflected her desire to show the OIG managers

continuity between the OPM survey results and the follow-up work. To that

end, the J&A noted that it was imperative that the employees view the

change process to be implemented by the consultants as an on-going

process rather than a series of “finger in the dike” actions.

Based on the results of our investigation, we conclude that the decision to

limit the competition was not reasonable. As explained previously, other

than full and open competition is permitted when the agency has an

unusual and compelling urgency such that full competition would

seriously injure the government’s interest. The agency’s urgency

determination was based upon Ms. Lau’s desire to have a management

consultant provide a briefing at a management conference to be held a few

days after contract award. The KLS consultants did attend the

management conference, but they were present for the limited purpose of

introducing themselves to the OIG staff and informing them that KLS would

work with them to implement the OPM study recommendations. Little else

was possible since, although OIG staff had received preliminary results

from the OPM study in August 1995, Ms. Libby informed us that it was not

until mid-October 1995, well after the OIG management conference, that the

KLS consultants received the study results and began work on the

contract.

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We recognize the importance of Ms. Lau’s desire for her managers to know

that she intended to implement the OPM study recommendations. However,

we do not believe Ms. Lau’s ability to convey that message at the

management conference and to correct the problems identified in the OPM

study would have been seriously impaired had the announcement of the

actual consultant been delayed by a few months in order to conduct a full

and open competition. Following discussion at the conference of the OPM

study, Ms. Lau could have announced that the agency was going to employ

a contractor with expertise in the field to perform follow-on work on the

OPM study and that the acquisition process would begin as soon as

practicable. The announcement of her plans, an expeditious initiation of

the acquisition process, and notification of her staff about the contract

award should have been sufficient to assure her employees that Ms. Lau

was serious about addressing the diversity and morale problems.

Contract Modifications and

Costs

When first awarded, the KLS contract had an estimated level of effort of

$85,850. The original term of the contract was 1 year. By November 1,

1996, four modifications had increased the contract price to $345,050 (see

table 1). Modification 5 extended the contract through September 30, 1997,

at no additional cost.

Table 1: Cost Increases From

Modifications to KLS Contract Contract and

modification number Effective date Amount Contract price

Contract 09/12/95 $85,850 $85,850

Mod 1 11/22/95 30,800 116,650

Mod 2 04/08/96 78,400 195,050

Mod 3 09/12/96 1,400 196,450

Mod 4 09/30/96 148,600 345,050

Mod 5 11/01/96 0 345,050

Federal procurement law requires that an agency conduct a separate

procurement when it wishes to acquire services that are beyond the scope

of an existing contract. A matter exceeds the scope of the contract when it

is materially different from the original contract for which the competition

was held. The question of whether a material difference exists is resolved

by considering such factors as the extent of any changes in the type of

work, the performance period, and costs between the contract as awarded

and as modified, as well as whether potential bidders reasonably would

Page 11 GAO/OSI-98-1 Treasury Office Of Inspector General
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have anticipated the modification.12 In our view, the largest modification

(Modification 4) materially deviated from the original contract’s scope of

work and should have been the subject of a separate procurement action.

Modification 4 increased the contract price by $148,600 and extended the

contract period of performance by 6 months. About half of the work under

this modification was the same type of work that had been performed

under the original contract; however, the other half was beyond the

contract’s scope of work and would not reasonably have been anticipated

by potential bidders. It involved revising the OIG’s performance appraisal

system. Although the OPM study referenced employee concerns with the

OIG performance appraisal system, nothing in the contract called for the

contractor to work with OIG to modify that system. Ms. Libby herself stated

that Modification 4 significantly changed the original scope and contract

requirements and that she was surprised competition was not held for this

work. In our view, this modification was beyond the contract’s scope of

work and would not have been appropriate even if the OIG could have

justified its urgency determination for the original procurement.

Poor Management

Practices

In addition to legal improprieties in the manner in which the agency

awarded and assigned tasks under the contract, we found a pattern of

careless management in the procurement process and in oversight of

performance under the contract. We believe such careless management

could have contributed to an increased cost for the work performed under

the contract.

Good procurement planning is essential to identifying an agency’s needs in

a timely manner and contributes to ensuring that the agency receives a

reasonable price for the work. Little or no procurement planning took

place prior to making the award here. Although proposals were solicited

to do follow-on work relating to recommendations from an OPM study on

diversity and workplace morale, the OIG had not received the OPM study

and had only been briefed on the preliminary findings at the time of the

solicitation. The OIG therefore did not have sufficient information to

adequately identify its needs and clearly articulate a set of goals for the

change process to be implemented.

Furthermore, OIG did not prepare a written solicitation, including a

statement of work. One important purpose of a written statement of work

12Stoehner Security Services, Inc., B-248077, B-248077.3, Oct. 27, 1992, 92-2 C.P.D. ¶ 285; Neil R. Gross

& Co., B-237434, Feb. 23, 1990, 90-1 C.P.D. ¶ 212.

Page 12 GAO/OSI-98-1 Treasury Office Of Inspector General
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is to communicate the government’s requirements to prospective

contractors by describing its needs and establishing time frames for

deliverables. The OIG instead relied upon oral communications and failed

to effectively communicate with the consultants from whom it solicited

proposals. Had the OIG waited until it received the OPM report, carefully

analyzed OPM’s recommendations, determined what it needed, and

adequately communicated these needs in a written solicitation, we believe

the OIG would have received a better proposal initially, and one that may

have been at a lower overall price.

In this regard, Ms. Libby explained to us that the OIG had not specifically

identified to her its needs and that she had misunderstood the work to be

performed as explained in her initial telephone conversation with the OIG.

Her proposal was based on her belief that the OIG already had management

task forces or employee groups studying what changes were needed to

address the issues raised in the OPM study and that KLS was to serve only

in an advisory capacity to those working groups. However, soon after

conducting her initial briefings, she learned that this was not the case and

that the work that needed to be done was different from what she believed

when she presented her proposal. As a result shortly after she began work,

Ms. Libby informed OIG that more work was necessary under the contract

than she had originally envisioned. This led to the first three modifications

under the contract.

Modification 1 was issued soon after the contract was awarded. It called

for KLS to design and conduct briefings with OIG staff both in headquarters

and in the field, adding $30,800 to the costs of the original contract.

Modification 2 also increased the level of effort, and added $78,400 to the

contract. According to a memorandum from the contracting officer, this

modification was necessary because KLS’s technical proposal had

suggested the establishment of one steering group whereas additional

groups were needed. The modification also significantly increased the

training hours to be expended by KLS. Modification 3 resulted from the

need to increase the amount of “other direct costs” to allow for travel and

material costs for KLS to contribute to the 1996 OIG managers’ conference.

Although each of these three modifications were within the scope of work

contemplated by the initial contract, this increased work was apparently

necessary because OIG had not adequately determined its requirements at

the beginning of the procurement process and conveyed them to KLS. Had

the agency adequately planned for the procurement and identified its

needs, this work could have been included in the original contract and the

modifications would not have been required.

Page 13 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

Similarly, had the OIG properly analyzed the OPM recommendations, it

could have determined whether revision of the performance appraisal

system should have been included in the scope of the original contract or

the work procured separately—thus eliminating Modification 4.

Furthermore, had the OIG determined the nature of the work involved in

revising the performance appraisal system, specific deliverables and time

frames for revising the performance appraisal system could have been

established. None of this was done in Modification 4, which merely stated

that the modification was “to complete change process transition to

include establishing a permanent self-sustaining advisory team, work with

in-house committees on complex systems changes, and to establish

procedures which will withstand changes in senior management

personnel.” An OIG official told us that revision to the performance

appraisal process had been on-going for 2 years and that the revisions to

the system had still not been completed as of June 1997.

We also identified management deficiencies in oversight of the work

performed under the contract. In several instances, KLS performed and

billed for work that was not included in the contract statement of work. As

stated previously, pursuant to Modification 4, KLS was authorized to make

revisions to the OIG performance appraisal system. However, prior to this

modification, one of KLS’s employees performed this type of service,

working with employee groups to address generic critical job elements

and standards, rating levels, and an incentive award system to complement

the performance appraisal system. Furthermore, the OIG official

responsible for authorizing payment performed under the contract told us

that she did not verify that any work had been performed under the

contract prior to authorizing payment. She also told us that she did not

determine whether documentation for hotel and transportation costs

claimed by KLS had been received even though she authorized payment

for these travel expenses.

California Trips Allegations concerning IG Lau’s trips to California suggested that she had

used these trips, at taxpayers’ expense, to visit her mother, a resident of

the San Francisco Bay area. A review of Ms. Lau’s travel vouchers revealed

that she had made 22 trips between September 1994 and February 1997 (30

months)—5 to California of which 3 included stops in San Francisco.

Page 14 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

During the three trips that included San Francisco, Ms. Lau took a total of

9 days off.13 During these 9 days, she charged no per diem or expense to

Treasury. Her travel to California, including the San Francisco area, was

scheduled for work-related reasons. See table 2.

Table 2: Treasury IG’s Trips to California

Washington, DC—

departure and return Purpose of trip California destination Time off taken

07/02 - 08/95 Speak/participate in annual Association of

Government Accountants Professional

Development Conference

San Diego None

09/16 - 26/95 Speak at Western Intergovernmental Audit

Forum, Honolulu, HI

Visit San Francisco Regional Office

— 

Oakland/San Francisco

09/16/95

(1 day)

09/23/95

(1 day)

03/19 - 28/96 Visit Los Angeles Field and San Francisco

Regional offices

Speak before state and county audit

associations

Los Angeles/

San Francisco

03/23 - 27/96

(5 days)

11/15 - 20/96 Meet with OIG Audit Issue Development

Group

San Francisco 11/15 - 16/96

(2 days)

01/27 - 02/01/97 Speak at Western Intergovernmental Audit

Forum; meet with Justice, Customs, OIG

officials and staff; tour Customs facilities

Los Angeles/ San Diego None

Methodology We conducted our investigation from May 13 to October 8, 1997, in

Washington, D.C., and Seattle, Washington. We interviewed Treasury

officials, including current and former OIG officials, and contractors and

staff involved in the two procurements discussed in this report. We

reviewed pertinent government regulations, OIG contract files, OIG

contracting policies and procedures, and Interior OIG documents

concerning Sato & Associates’ review of its operation. We also reviewed

Ms. Lau’s financial disclosure statements, travel vouchers, and telephone

logs. Finally, we reviewed prior GAO contracting decisions relevant to the

subject of our investigation.

As arranged with your office, unless you announce its contents earlier, we

plan no further distribution of this report until 30 days after the date of

13As a presidential appointee, the IG does not accumulate personal leave, is on call 24 hours a day, and

takes personal time off as needed.

Page 15 GAO/OSI-98-1 Treasury Office Of Inspector General
B-278420 

this letter. At that time, we will send copies of the report to interested

congressional committees; the Secretary of the Treasury; and the

Inspector General, Department of the Treasury. We will also make copies

available to others on request. If you have any questions concerning our

investigation, please contact me or Assistant Director Barney Gomez on

(202) 512-6722. Major contributors are listed in appendix I.

Sincerely yours,

Director

Office of Special Investigations

Page 16 GAO/OSI-98-1 Treasury Office Of Inspector General
Page 17 GAO/OSI-98-1 Treasury Office Of Inspector General
Appendix I 

Major Contributors to the Report

Office of Special

Investigations,

Washington, D.C.

Norman M. Burrell, Senior Investigator in Charge

Ned M. Friece, Senior Investigator

M. Jane Hunt, Senior Communications Analyst

Barbara W. Alsip, Communications Analyst

Office of the General

Counsel

Aldo A. Benejam, Senior Attorney

Barry L. Shillito, Senior Attorney

(600442) Page 18 GAO/OSI-98-1 Treasury Office Of Inspector General
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