Audit Report

OIG-08-002

ACQUISITIONS: Although Weaknesses Still Exist, the Treasury 

Franchise Fund Improved Compliance With DOD Procurement 

Requirements 

October 29, 2007 

Office of 

Inspector General 

Department of the Treasury 

Contents

ACQUISITIONS: Although Weaknesses Still Exist, Page i 

 the Treasury Franchise Fund Improved Compliance With 

 DOD Procurement Requirements (OIG-08-002) 

Audit Report................................................................................................. 1 

 Results in Brief............................................................................................ 2 

 Background ................................................................................................ 6 

 Findings and Recommendations .................................................................... 10 

DOD and FedSource Did Not Conduct Required Market Research and 

FedSource Awarded Certain Task Orders Without Adequate Competition ...... 10 

Recommendations................................................................................... 13 

 Task Order Files Lacked Adequate Evidence of Price Reasonableness............ 14 

 Recommendation .................................................................................... 16 

FedSource Did Not Always Document Its Decision Process.......................... 16 

Recommendation .................................................................................... 18 

 FedSource’s Quality Assurance Surveillance Documentation 

 Remains Inadequate ................................................................................ 18 

 Recommendations................................................................................... 20 

ARC Compliance Reviews of FedSource Identified Contracting 

Deficiencies But Did Not Ensure Corrective Action Was Taken ..................... 21 

ARC and FedSource Did Not Have Adequate Controls to Prevent 

Contract Ceilings From Being Exceeded ..................................................... 23 

Recommendations .................................................................................. 25 

ARC Does Not Know If Small Business Contractors Complied With

Requirements Governing Use of Personnel ................................................. 26 

 Recommendation .................................................................................... 27 
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Appendices

 Appendix 1: Objective, Scope, and Methodology ....................................... 29 

 Appendix 2: Schedule of Task Order Exceptions ........................................ 31 

 Appendix 3: Management Response ......................................................... 32 

 Appendix 4: Major Contributors to This Report .......................................... 33 

 Appendix 5: Report Distribution ............................................................... 34 

Abbreviations

 ARC Administrative Resource Center 

 BPD Bureau of the Public Debt 

 CICA Competition in Contracting Act 

 DFARS Defense Federal Acquisition Regulations Supplement 

 DTAR Department of the Treasury Acquisition Regulation 

 DOD Department of Defense 

 FAR Federal Acquisition Regulation 

 GAO Government Accountability Office 

 IDIQ indefinite delivery/indefinite quantity 

 IGCE independent Government cost estimate 

 NDAA National Defense Authorization Act 

 OIG Office of Inspector General 

 QASP quality assurance surveillance plan 
OIG Audit

Report

The Department of the Treasury 

Office of Inspector General

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October 29, 2007 

Van Zeck, Commissioner 

Bureau of the Public Debt 

This report presents the results of our second audit of the 

Department of the Treasury’s compliance with applicable laws and 

regulations for procurements made on behalf of the Department of 

Defense (DOD) through the Treasury franchise fund. Our second 

audit focused on fiscal year 2006 procurements. Both this audit 

and the prior one were conducted in coordination with the DOD 

Office of Inspector General (OIG).1

 The audits were mandated by 

the National Defense Authorization Act (NDAA) for Fiscal Year 

2006.2

For this audit, we were again charged with determining whether 

Treasury was compliant with applicable requirements for 

procurements made on behalf of DOD. A determination of 

noncompliance would have significant implications for the Treasury 

franchise fund as DOD would be required to significantly curtail its 

use of Treasury for procurements. That said, it should also be 

noted that effective April 2007, responsibility for program direction 

and oversight of FedSource, the component of the Treasury 

franchise fund that directly serviced DOD, was transferred from the 

Treasury Deputy Chief Financial Officer to the Bureau of the Public 

Debt (BPD). BPD is to complete a controlled and orderly transition 

out of the FedSource business no later than September 30, 2008. 

BPD is to implement this transition in a manner that minimizes 

disruption to FedSource customers, employees, and vendors. 

1

 We reported the results of our first audit in Acquisitions: Treasury Franchise Fund Needs to Improve 

Compliance With Department of Defense Procurement Requirements, OIG-07-026 (Jan. 16, 2007). That 

audit focused, in accordance with the fiscal year 2006 NDAA, on Treasury franchise fund procurements 

on behalf of DOD during fiscal year 2005. 

2

 Pub. L. No. 109-163, 119 Stat. 3136 (Jan. 6, 2006). 
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We initiated this audit in October 2006, shortly after we completed 

work on the first audit. Our objective was to determine whether 

Treasury’s procurement policies, procedures, and internal controls 

applicable to the procurement of property, products, and services 

on behalf of DOD and whether administration of applicable policies, 

procedures, and internal controls were adequate to ensure 

Treasury’s compliance with laws and regulations applicable to 

procurements of property and services made on behalf of DOD. To 

accomplish this objective, we reviewed a sample of 28 task orders 

issued between July and September 2006. The sample task orders 

were from FedSource centers in Los Angeles, California; San 

Antonio, Texas; and Baltimore, Maryland. We also reviewed the 

files for the related multiple award contract and two blanket 

purchase agreements at BPD’s Administrative Resource Center 

(ARC), which is another component of the Treasury franchise fund. 

Our objective, scope, and methodology are described in more detail 

in appendix 1. 

Pursuant to the fiscal year 2006 NDAA, the DOD OIG and our 

office informed the Senate and House Committees on Armed 

Services in letters dated June 15, 2007, that we had determined 

that Treasury is compliant with DOD procurement requirements. In 

our letters, we also stated that while our review did identify some 

weaknesses with respect to market research and contractor 

surveillance, among others, overall we found that Treasury had 

made notable progress in addressing previously identified 

weaknesses. Additionally, we informed the Committees about 

Treasury’s plans to transition out of FedSource by September 30, 

2008.

Results in Brief

FedSource made notable progress to address weaknesses found in 

prior audits, as evidenced by our findings of fewer exceptions in 

the areas of competition and price reasonableness. Also of note, 

we found no significant exceptions related to the proper use of 

DOD appropriations. In contrast, last year DOD OIG identified 21 
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procurements made through FedSource during fiscal year 2005 

that potentially violated the Antideficiency Act.3

FedSource also issued procedures that were responsive to our prior 

audit report and DOD directives. In December 2006, FedSource 

issued a procedure for conducting due diligence reviews on all 

orders awarded on behalf of DOD. The due diligence reviews are to 

include a cursory review of the appropriateness of the DOD funding 

source. In January 2007, FedSource established a procedure 

requiring customer agency project officers to sign designation 

letters that outline the responsibility of the project officer to 

develop the contractor surveillance procedures and to monitor 

contractor performance. As discussed later in this report, adequate 

contractor surveillance was one area that continued to be a 

significant problem. In November 2006, FedSource issued a 

procedure to implement recent DOD policy that, among other 

things, addressed limitations on performance periods for severable 

services (services that are continuing and recurring in nature).4

However, both DOD and Treasury have some continuing 

weaknesses, particularly with respect to market research and 

contractor surveillance, as well as other problems that need 

attention. Our review of 28 task orders issued by FedSource on 

behalf of DOD found the following exceptions: 

x No market research was done for 26 task orders with a total 

value of $12.4 million. DOD ordering facilities did not document 

their determinations that the use of FedSource was in the best 

interest of DOD. FedSource files also did not include 

3

 While the DOD OIG’s findings were principally directed at DOD, we reported that they pointed to a 

need for FedSource to identify what due diligence it should perform when accepting orders to help 

prevent the use of incorrect appropriations. The fact that there were no significant exceptions found by 

our audit regarding use of DOD appropriations cannot be directly linked to any specific action by 

FedSource management. In this regard, it should be noted that DOD issued a number of internal policy 

directives over the last several years dealing with the proper use of appropriations for acquisitions, 

including acquisitions through non-DOD agencies such as FedSource.

4

 Under DOD procurement requirements, DOD may use funds available for a fiscal year to enter into a 

contract for severable services that begin during the fiscal year and end in the next fiscal year as long 

as the contract period does not exceed 1 year. 
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documentation of market research before issuing the task 

orders.

x Competition was inadequate for 4 task orders with a total value 

of $2.8 million. The four task orders were related to FasTrac, a 

program intended to provide federal agencies the capability of 

e-learning and other computer- and web-enabling assistance. 

We determined that from February 2005 to March 2007, 

FedSource issued a total of 125 FasTrac task orders, with a 

total value of $38.2 million, which were not adequately 

competed, lacked proper price analysis, and lacked award 

documentation. 

x Price reasonableness support was either not documented or 

inadequate for 8 task orders with a total value of $4.6 million. 

Three of the 8 task order files did not contain an independent 

Government cost estimate (IGCE). Five of the 8 task orders 

files, 3 of which were FasTrac task orders, contained IGCEs 

that were not dated or dated on or after the same day as the 

task order award. 

x The basis for technical evaluation scores was inadequate for 16 

task orders with a total value of $8.4 million. Two FedSource 

centers lacked a standardized weighting system for scoring 

technical evaluations or a documented methodology for 

performing technical evaluations. One center inappropriately 

added points to its technical evaluation scores if the bidder 

proposed using DOD-suggested subcontractors or personnel. 

x Quality assurance surveillance deficiencies were noted in all 28 

task order files; however 26 task orders files with a total value 

of $12.6 million inadequately documented surveillance. While 

FedSource files contained quality assurance surveillance plans 

(QASP) for all task orders, an improvement over last year, a 

variety of deficiencies were noted in the quality assurance 

surveillance process. These deficiencies included overly broad 

statements of work that did not lend themselves to measurable 

standards of performance. 

The exceptions by task order are identified in appendix 2.
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In addition, we found the following: 

x ARC compliance reviews of three FedSource centers during 

2006 identified contracting deficiencies. However, ARC did not 

obtain detailed corrective actions plans and schedules to 

address the problems. 

x Maximum values were exceeded for five contracts, in violation 

of competition requirements. The amount by which the ceilings 

on the five contracts was exceeded totaled nearly $200 million. 

ARC and FedSource did not monitor task order awards against 

the contract ceilings in a coordinated manner. While additional 

controls were put in place, they may be inadequate. 

x ARC did not adequately monitor small business contractors’ 

compliance with requirements that at least 50 percent of the 

cost of services performed under such contracts be expended 

for services provided by the contractor’s own employees.

As we reported in our first audit, management issued a number of 

policies and procedures to address recommendations made by the 

Government Accountability Office (GAO) in a July 2005 report on 

FedSource.5

 Many of the same types deficiencies noted by GAO 

were found in our testing of fiscal year 2005 procurements. This 

was not unexpected given the recency of FedSource’s corrective 

actions. We did, however, make five recommendations in our prior 

audit to further improve FedSource compliance with DOD 

procurement requirements. These recommendations dealt with 

matters related to competition, task order file documentation, 

quality assurance surveillance plans, due diligence in accepting 

DOD funds, and performance periods for severable services. 

Management indicated that it had taken or planned actions that 

were generally responsive to our recommendations. Where we 

noted continuing weaknesses in our second audit, we are 

reaffirming our prior recommendations. Where appropriate, we 

made new recommendations to further refine our prior 

recommendations or to address additional weaknesses found 

during this audit. 

5

 GAO, Interagency Contracting: Franchise Funds Provide Convenience, but Value to DOD Is Not 

Demonstrated, GAO-05-456 (Washing, D.C.: July 29, 2005). The GAO report was based on fiscal year 

2003 procurement activities. GAO also reported on DOD’s use of GovWorks, a franchise fund run by 

the Department of the Interior.
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Specifically, as new recommendations, the Commissioner of BPD 

should: (1) issue guidance to FedSource as to the market research 

to be conducted and documented at the task order level, (2) ensure 

that future acquisitions under the FasTrac program use an 

appropriate contract vehicle and are competed, (3) ensure that 

IGCEs are prepared timely and dated accurately, (4) ensure a 

standard technical evaluation methodology is used in all FedSource 

centers, (5) ensure that task order statements of work allow the 

establishment of measurable standards and QASPs that correspond 

to statements of work, (6) ensure that QASPs clearly specify 

surveillance requirements and responsibilities, (7) assess whether 

additional controls are needed to prevent contract ceilings from 

being exceeded, (8) remind contracting personnel of requirements 

to ensure full and open competition, and (9) implement procedures 

to ensure that small business contractors comply with contractual 

requirements for work that must be provided by their own 

employees.

BPD concurred in general with the findings in our report. Its 

response noted that FedSource was instructed to suspend the 

issuance of new task orders effective October 1, 2007. As our 

recommendations apply to the administration of existing FedSource 

task orders and to current operations, BPD agreed to implement the 

recommendations. BPD’s response is discussed in more detail in 

the Findings and Recommendations section of this report and the 

response is included as appendix 3. 

Background

Franchise Funds 

The Government Management Reform Act of 1994 authorized the 

Office of Management and Budget to establish franchise fund pilot 

programs at six executive branch agencies. Franchise funds are 

government-run, self-supporting, businesslike enterprises managed 

by federal employees. The funds provide a variety of common 

administrative services, such as payroll processing, information 

technology support, employee assistance programs, and 
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contracting. Franchise funds are required to recover their full cost 

of doing business and are allowed to retain up to 4 percent of their 

annual income. To cover their costs, the funds charge fees for the 

services they provide. 

Congress authorized the pilot programs because it expected that 

franchise funds would be able to provide common administrative 

services more efficiently than each federal agency on its own. In 

1996 and 1997, the Office of Management and Budget established 

franchise fund pilot programs at the Departments of Commerce, 

Health and Human Services, the Interior, the Treasury, and 

Veterans Affairs and at the Environmental Protection Agency. 

These programs were to expire in 1999, 5 years after passage of 

the Government Management Reform Act. The Treasury franchise 

fund, however, was extended several times by other legislation. 

The Consolidated Appropriations Act of 2005 gave the Treasury 

franchise fund permanent status. 

Treasury Franchise Fund Entities Used by DOD 

The Treasury franchise fund comprises the following entities: 

(1) FedSource, (2) ARC, (3) the Federal Consulting Group, and 

(4) Treasury Agency Services. Procurement services to DOD are 

provided through FedSource and ARC. During fiscal year 2006, 

FedSource issued 12,354 task orders on behalf of DOD with a total 

value of approximately $166 million. 

The acquisition process for the Treasury franchise fund originates at 

ARC, which is part of BPD and located in Parkersburg, West 

Virginia. ARC performs contract competitions and establishes master 

contract vehicles from which FedSource issues task orders to meet 

customer needs. In addition, ARC appoints FedSource’s contracting 

officers, designates contracting officer’s technical representatives, 

and conducts compliance reviews to determine whether Treasury 

franchise fund procurement activities are being carried out in 

accordance with applicable laws and regulations. 

FedSource serves as a liaison between customers and contractors, 

develops comprehensive acquisition strategies, works with 

customers to develop statements of work, competes and awards 
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task orders, develops and participates in QASPs, and closes out 

completed task orders. To procure property or services, DOD sends 

FedSource either a Military Interdepartmental Purchase Request or 

an interagency agreement. These funding documents should 

describe the type of property or services requested and identify the 

appropriation account of the funds being provided. Upon receipt of 

the funding documents, FedSource is to review them and, if they 

are acceptable, issue task orders against master contracts for the 

requested property or services. A funding document may fund 

more than one task order.

Key Laws and Regulations 

Procurement activities conducted by federal franchise funds are 

subject to the same laws and regulations to which other federal 

government procurement activities are subject, as well as to any 

additional regulations specific to the funding agency. Four of the 

principal legal authorities that govern the procurement activities of 

this review are the Competition in Contracting Act of 1984 (CICA), 

the Federal Acquisition Regulation (FAR), the Defense Federal 

Acquisition Regulations Supplement (DFARS), Department of the 

Treasury Acquisition Regulation (DTAR) , and the Antideficiency 

Act.

CICA generally requires that federal contracts be awarded on the 

basis of full and open competition. The purpose of the full and 

open competition requirement is to permit the federal government 

to rely on competitive market forces to obtain needed goods and 

services at fair and reasonable prices. Only when full and open 

competition would be impracticable, such as when needs are 

urgent or only one source is available, would full and open 

competition not be required. In such cases, the approach taken 

must be appropriately justified, approved, and documented. 

The FAR is the primary regulation for use by all federal executive 

agencies in their acquisition of supplies and services with 

appropriated funds. It became effective on April 1, 1984, and is 

issued within applicable laws under the joint authorities of the 

Administrator of General Services, the Secretary of Defense, and 

the Administrator of the National Aeronautics and Space 
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Administration, under the broad policy guidelines of the 

Administrator, Office of Federal Procurement Policy, Office of 

Management and Budget. According to the FAR, contracting 

officers, as a matter of policy and with certain limited exceptions, 

must promote and provide full and open competition in soliciting 

offers and awarding government contracts. Contracting officers are 

to do this through the use of competitive procedures and are to 

purchase supplies and services from responsible sources at fair and 

reasonable prices. The determination of price reasonableness is to 

be documented in the contract file. 

DOD implements and supplements the FAR in the DFARS, under 

the authorization and subject to the authority, direction, and 

control of the Secretary of Defense. The DFARS requires, with 

certain exceptions, that each DOD procurement exceeding 

$100,000 under a multiple award contract be made on a 

competitive basis. Multiple award contracts are contracts issued 

under the same solicitation to two or more sources. The sources to 

which multiple awards are issued must agree to provide the same or 

similar supplies and services at fixed prices during a fixed period, and 

the government agrees to purchase a minimum quantity from each 

contractor. For multiple award contracts, the contracting officer 

must fulfill the “competitive basis” requirement by providing fair 

notice to all contractors offering the required supplies or services 

and ensure that the contractors are afforded a fair opportunity to 

submit an offer and have that offer fairly considered.6

 For task 

orders under multiple award contracts, the FAR requires that 

contracting officers provide contractors fair opportunity to be 

considered for orders exceeding $3,000. It also requires 

contracting officers to document in the contract file the rationale 

for placement and price of each order. 

6

 This DFARS provision implements section 803 of the NDAA for Fiscal Year 2002, enacted as 

Pub. L. No. 107-107 on December 28, 2001. As stated in the DFARS, exceptions to the fair 

opportunity process apply when (1) only one contractor is capable of providing the supplies or services 

required at the level of quality required because the supplies or services are unique or highly specialized 

or (2) the order must be issued on a sole source basis in the interest of economy and efficiency because 

it is a logical follow-on to an order already under the contract, provided that all awardees were given a 

fair opportunity to be considered for the original order. 
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The DTAR is issued for Departmental guidance in accordance with 

the policy cited in FAR.7

 The DTAR establishes uniform Treasury 

policies and procedures for all acquisition activities within the 

Department of the Treasury, except the United States Mint. The 

DTAR is under the direct oversight and control of Treasury's Office 

of the Procurement Executive, which is responsible for evaluation, 

review, and issuance of all Department-wide acquisition regulations 

and guidance. The Treasury DTAR Council will review proposed 

revisions to the DTAR and make recommendations. Each bureau 

chief procurement officer may supplement the DTAR. Bureaus 

proposing to issue regulatory supplements or use solicitation and/or 

contract clauses on a repetitive basis must forward them to the 

Senior Procurement Executive for concurrence prior to publication 

in the Federal Register.

The Antideficiency Act prohibits federal government officials from 

making payments or committing the United States to make 

payments for goods or services unless Congress has appropriated 

sufficient funds to pay for the goods or services. Among other 

things, the law prohibits the federal government from using funds 

for other than their intended purpose or making or authorizing 

expenditure from, or creating or authorizing an obligation under, 

any appropriation or fund in excess of the amount available in the 

appropriation or fund unless authorized by law.8

Findings and Recommendations

Finding 1 DOD and FedSource Did Not Conduct Required Market 

Research and FedSource Awarded Certain Task Orders 

Without Adequate Competition 

We found no evidence that market research had been conducted 

by the DOD ordering facility or FedSource for the goods and 

services procured through 26 task orders, which had a total value 

of $12.4 million. As a result, DOD was not assured that the goods 

and services were obtained at the best value. For four of these task 

7

 FAR 1.301 

8

 31 U.S.C. § 1341(a) (1) (A). 
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orders, related to e-learning services under a program referred to as 

FasTrac, FedSource did not consider contract vehicles other than a 

multiple award contract established by ARC, which was 

inappropriate to fulfill DOD’s need. It further limited competition to 

just 2 of the 9 available contractors without justification. In total, 

FedSource issued 125 task orders to the selected contractor for 

FasTrac with a total value of $38.2 million. We determined they 

were inadequately competed. 

The FAR requires that agencies perform acquisition planning and 

conduct market research for all acquisitions to ensure that the 

federal government meets its needs in the most effective, 

economical, and timely manner.9

 Agencies must use market 

research results to determine sources capable of satisfying agency 

requirements.10 Accordingly, when placing orders for goods and 

services, it is incumbent on DOD to support its decision to use 

FedSource.11 Also, when issuing task orders, FedSource must 

likewise determine the most appropriate sources and methods for 

acquiring the goods and services.

DOD Ordering Facilities Did Not Perform Market Research

The 26 task orders in our sample were issued on behalf of 14 DOD 

ordering facilities. We visited 6 of the ordering facilities to examine 

the contracting files. We also interviewed the DOD project officers 

for the remaining sampled task orders about their methods and 

documentation of market research. We found that none of the files 

reviewed contained evidence showing how the facility determined 

that using FedSource was in the best interest of DOD. Contracting 

staff at 2 of the facilities we visited told us that the reasons for 

using FedSource were discussed in meetings, but no 

documentation was maintained of these discussions. We 

interviewed contracting staff at the DOD ordering facilities we did 

9

 FAR 7.102. 

10 FAR 10.001(a) (3). 

11 In October 2004, military departments and defense agencies were directed by internal DOD policy to 

establish procedures for reviewing and approving the use of non-DOD contract vehicles, including those 

through non-DOD entities. Among other things, the procedures were to include an evaluation as to 

whether using a non-DOD contract was in the best interest of DOD. 
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not visit and they told us that they had not conducted market 

research before placing orders through FedSource. 

FedSource Did Not Perform Market Research at the Task Order 

Level

FedSource’s files for the 26 task orders also lacked evidence of 

market research. In this regard, we determined that FedSource did 

not consider contract vehicles other than a multiple award, 

indefinite delivery/indefinite quantity (IDIQ) contract12 established 

by ARC specifically for FedSource’s use (referred to as the 

FedSource 9).13

FasTrac Tasks Orders Were Not Competed

Four task orders in our sample valued at $2.8 million were related 

to FasTrac, a program intended to provide federal agencies the 

capability of e-learning and other computer- and web-enabling 

assistance. We determined that from February 2005 to March 

2007, FedSource issued a total of 125 FasTrac task orders, with a 

total value of $38.2 million, which were not adequately competed, 

lacked proper price analysis, and lacked award documentation. 

In February 2005, FedSource issued the initial, no-cost FasTrac 

task order with a 1-year base period and three 1-year option 

periods. In February 2006, FedSource exercised the first option 

year. According to FedSource, the second option year has also 

been exercised, extending the period of performance to February 

2008.

The FAR requires that contracting officers provide full and open 

competition through use of the competitive procedures that are 

best suited to the circumstances of the contract actions.14 In 

addition, the fiscal year 2002 NDAA required that for all service 

12 An IDIQ contract is a type of contract used when the precise amounts of supplies or services during a 

specific period cannot be determined. 

13 The FedSource 9 contract was developed to provide administrative support services. In total, there 

were 9 awardees, including three small business concerns. FedSource used this contract vehicle to 

solicit proposals when fulfilling customer agency needs for these types of services. 

14 FAR 6.101(b). 
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orders exceeding $100,000 placed under multiple award contracts 

(which applies to the four FasTrac task orders in our sample), the 

contracting officer should contact as many schedule holders as 

practical who are capable of performing the work, to ensure that at 

least three responses are received.15

Neither ARC nor FedSource files contained documentation 

supporting how the FasTrac task orders conformed to the FAR and 

other contracting requirements. For example, FedSource requested 

proposals for the FasTrac program from only two small business 

concerns under the FedSource 9 multiple award contract. The 

reason for limiting the request for proposals to just these small 

business concerns was not documented. 

The ARC contracting officer involved with the initial task order 

award could not explain why ARC used the FedSource 9 contract 

vehicle for the FasTrac requirements. The current ARC contracting 

officer for the FasTrac program acknowledged that that the 

FasTrac requirements were inconsistent with the FedSource 9 

contractor’s statement of work.

Recommendations 

Previously, we recommended that FedSource ensure that the 

contract files for all new task order awards and modifications to 

existing task orders include documentation of required competition, 

market research, and price reasonableness. In its response to the 

report, management concurred with the recommendation and 

stated that actions had been taken including the issuance of new 

policies and procedures and training.16 This finding reaffirms the 

need for continued focus to ensure that these actions are 

implemented and effective. 

Management also stated in its response that FedSource market 

research is done at the overarching contract level in the acquisition 

15 National Defense Authorization Act for Fiscal Year 2002, § 803, Pub. L. No. 107-107 (Dec. 28, 

2001). 

16 The management response was provided by the Treasury Deputy Chief Financial Officer to whom 

FedSource reported at that time. Effective April 2007, responsibility for program direction and oversight 

of FedSource was transferred to BPD. 
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planning stages. We noted in our prior report that market research 

was still required to determine the best approach to acquire the 

specific services and property requested by DOD. The need for 

acquisition planning and market research at the task order level is 

clearly demonstrated by the problems noted with the FasTrac task 

orders. To avoid such problems in the future and to address 

contracting deficiencies for the FasTrac program, we are making 

two new recommendations. 

Specifically, we recommend that the Commissioner of BPD should 

do the following: 

1. issue guidance to FedSource as to the market research to be 

conducted and documented at the task order level. 

2. take appropriate actions to ensure that that future e-learning 

products and services under the FasTrac program are acquired 

using an appropriate contract vehicle and adequately competed.

Management Response BPD instructed FedSource to suspend the 

issuance of new task orders effective October 1, 2007. Although 

FedSource is in the process of shutting down its procurement 

activities, BPD’s Division of Procurement Services will implement 

these recommendations, as applicable, to existing FedSource task 

orders.

OIG Comment The actions proposed by the BPD, if implemented as 

described, satisfy the intent of the recommendations. 

Finding 2 Task Order Files Lacked Adequate Evidence of Price 

Reasonableness

 Contracting officers are responsible for obtaining adequate 

information to evaluate price reasonableness and for documenting 

this information and how it was obtained.17 Of the 28 task order 

files that we reviewed, we determined that 8, with a total value of 

$4.6 million, did not contain adequate evidence of price 

reasonableness. Three of the 8 task order files did not contain an 

17 FAR 15.402. 
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independent Government cost estimate (IGCE), which is the 

Government’s basis for comparing costs proposed by contractors. 

Five of the 8 task orders files, 3 of which were FasTrac task 

orders, contained IGCEs that were not dated or dated on or after 

the same day as the task order award.

The FAR states that before making the award the contracting 

officer must determine and document that the proposed price is fair 

and reasonable by competitive quotes or offers and if only one 

response is received, a statement of price reasonableness is 

included in the contract file. The contracting officer may base the 

price reasonableness on a combination of comparative analysis 

such as: (1) market research; (2) comparison of the proposed price 

with prices found reasonable on previous purchases; (3) current 

price list, catalogs, or advertisements; (4) a comparison of similar 

items in a related industry; (5) the contracting officer’s personal 

knowledge of the item; (6) comparison of an IGCE; and (7) any 

other reasonable basis.18 In accordance with FedSource Acquisition 

Procedure Memo 05-06, dated June 22, 2005, the IGCE is to be 

prepared in advance of receiving any information from the 

contractor, and is to be signed and dated by the preparer. 

Our review of the task order files included determining whether 

two or more responsible proposals had been submitted to fulfill the 

task order requirement. If two or more proposals were received and 

the task order was awarded to the lowest bidder, we determined 

the pricing was based on adequate competition. If the award was 

made to a bidder other than lowest bidder, we looked at the 

technical evaluation, the IGCE, and other evidence supporting price 

reasonableness. We looked for reasonable sources of data used by 

the contracting officer, such as Department of Labor’s wage 

determinations and General Services Administration price 

schedules, historical cost data, salary.com data, and market survey 

data. Such data should have been documented on the IGCE. If the 

IGCE was not included in the file, lacked such data, or the 

technical evaluation was flawed as discussed in Finding 3, we 

determined that the evidence of price reasonableness was not 

adequate. Additionally, if the IGCE included reasonable data but 

18 FAR 13.106-3(a). 
ACQUISITIONS: Although Weaknesses Still Exist, Page 16 

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was not properly dated and signed, we concluded that price 

reasonableness had not been timely determined.

Recommendation 

Previously, we recommended that FedSource ensure that the 

contract files for all new task order awards and modifications to 

existing task orders include documentation of price reasonableness. 

We reaffirm this recommendation. To address the deficiencies 

noted with IGCEs in this audit, we are making one new 

recommendation.

Specifically, we recommend that the Commissioner of BPD direct 

FedSource to ensure that IGCEs are prepared timely and dated 

accurately.

Management Response BPD instructed FedSource to suspend the 

issuance of new task orders effective October 1, 2007. Although 

FedSource is in the process of shutting down its procurement 

activities, BPD’s Division of Procurement Services will implement 

this recommendation, as applicable, to existing FedSource task 

orders.

OIG Comment The actions proposed by the BPD, if implemented as 

described, satisfy the intent of the recommendations. 

Finding 3 FedSource Did Not Always Document Its Decision 

Process

According to the FAR, the contracting officer shall document in the 

contracting file the rationale for placement and price of each task 

order, including the basis for award and the rationale for any 

tradeoffs among cost or price and non-cost considerations in 

making the award decision. That being said, this documentation 

need not quantify the tradeoffs that led to the award decision.19

Sixteen of the 28 task orders that we reviewed lacked adequate 

documentation to support their decision process. The 16 task 

19 FAR 16.505 
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orders, with a total value of $8.4 million, were issued by two of 

the three FedSource centers from which we selected samples for 

review—Baltimore and Los Angeles. 

Although not required but nevertheless a good practice, FedSource 

used a technical evaluation scoring process when awarding task 

orders. Neither the Baltimore nor the Los Angeles FedSource 

center, however, had a standardized weighting system for scoring 

technical evaluations or a documented methodology for performing 

technical evaluations. The two centers assigned numeric scores to 

express a vendor’s ability to perform the required work, but the 

task order files lacked any documentation of the methodology used 

to derive the scores and no documentation was provided during the 

review. The task order files that we reviewed noted that technical 

evaluation criteria when combined are significantly more important 

than cost or price. When this is the case, the rationale or 

methodology should support the numerical scores. 

We also found that the Baltimore center inappropriately added 

points to the technical evaluations of bidders who proposed using 

subcontractors and personnel that DOD had suggested. Nothing in 

FAR allows a contracting officer to give additional points to a 

bidder who proposes using a suggested source, and such a 

practice gives that bidder an unfair advantage. 

Managers at both the Baltimore and Los Angeles FedSource 

centers said that they did not have a standard methodology for 

performing technical evaluations, but were in the process of 

updating their price negotiation memoranda procedure, which 

would include a methodology for technical evaluations. The lack of 

a standard process along with the lack of documentation to 

support what took place in this area can open the door to 

questions about whether the selection process followed applicable 

procedures and whether valid criteria were used to acquire the 

services and supplies DOD required.

The third FedSource center from which our sample was selected, 

San Antonio, used a standardized system for scoring and 

documenting technical evaluations. No exceptions with respect to 
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technical evaluations were noted in the sampled task orders from 

the San Antonio center. 

Recommendation 

We recommend that the Commissioner of BPD direct FedSource to 

ensure that a standard technical evaluation methodology is 

established and used for all task orders at all centers. This is a new 

recommendation.

Management Response BPD instructed FedSource to suspend the 

issuance of new task orders effective October 1, 2007. Although 

FedSource is in the process of shutting down its procurement 

activities, BPD’s Division of Procurement Services will implement 

these recommendations, as applicable, to existing FedSource task 

orders.

OIG Comment The actions proposed by the BPD, if implemented as 

described, satisfy the intent of the recommendations. 

Finding 4 FedSource’s Quality Assurance Surveillance 

Documentation Remains Inadequate 

Previously, we reported that FedSource task orders lacked 

adequate evidence of quality assurance surveillance. The DOD OIG, 

in its audit, also reported a lack of adequate evidence of quality 

assurance surveillance. Specifically, we found that not all task 

order files contained a surveillance plan. We observed improvement 

in this area since our prior audit—we found during this audit that 

QASPs had been developed for each task order in our sample. For 

2 of the 28 task order files, surveillance was performed and 

documented. Overall, however, we identified continued deficiencies 

in contractor surveillance. Specifically we found the following: 

x For 19 task orders, the frequency of surveillance as identified in 

the QASP did not correspond to the frequency of surveillance 

described in the statement of work. 

x For 2 task orders, the QASP did not identify the frequency of 

surveillance.
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x For 11 task orders, the statements of work were written too 

broadly to create meaningful measures of performance in the 

related QASPs. Likewise, the performance standards in the 

QASPs were too broad to measure. 

x For 5 task orders, the QASPs lacked sufficiently specific 

performance standards. Three simply said, “see statement of 

work,” and two had deliverables that were not included in the 

statement of work. 

x For 26 task orders, FedSource’s files lacked documentation of 

surveillance.

We also noted for one task order, issued on August 25, 2006, for 

commercially available software licenses under the FasTrac 

program, the product was not received until October 12, 2006, 12 

days after the period of availability of the DOD appropriation used 

to fund the order.20 FedSource’s task order file did not show what 

follow-up was done to obtain the items before the end of the fiscal 

year. Under appropriations law, the concept of funds availability 

has three elements: purpose, time, and amount. All three must be 

observed for an obligation or expenditure to be legal. In that the 

licenses appeared to be ordered in sufficient time to be received 

before the end of the fiscal year and were in fact received shortly 

thereafter, we concluded that this was not a significant exception. 

However, FedSource needs to ensure commercial items ordered 

late in the fiscal year of funding are timely received. 

During our audit, we interviewed the DOD project officers for the 

sampled task orders about their methods and documentation of 

surveillance. We also reviewed the project officers’ records at 4 

DOD facilities covering 13 of sampled task orders. The project 

officers interviewed told us that they were generally unfamiliar of 

the QASPs but had independently developed their own methods of 

surveillance. For example, project officers for service-type task 

orders indicated that they approved contractor employee timecards 

and assessed contractor employee performance on a periodic basis. 

We consider the procedures as described by the project officers to 

be a reasonable approach for the particular task order. In the 

project officers’ files we reviewed, we saw some evidence of 

20 LOS015623. 
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surveillance including notes related to contractor employee 

performance, time worked, and products produced. However, there 

was generally lacking a standard approach to documenting 

surveillance by the DOD project officer and providing evidence of 

surveillance to FedSource. Without such evidence, FedSource lacks 

assurance that contractors are performing at acceptable levels. 

Recommendations 

We reaffirm the recommendation in our prior audit report that 

FedSource work with DOD to establish controls to ensure that 

(a) quality assurance surveillance plans are established for all task 

orders; (b) contracting officer’s technical representative designation 

letters clearly delineate who is responsible for performing 

monitoring, consistent with quality assurance surveillance plan 

instructions, and how monitoring is to be documented for each 

assigned task order; and (c) documented monitoring occurs before 

contractors are paid. To more explicitly address the problems with 

contractor surveillance noted during our second audit, we are 

making two new recommendations. 

Specifically, we recommend that the Commissioner of BPD direct 

FedSource to do the following: 

1. ensure that task order statements of work allow the 

establishment of measurable standards and QASPs that 

correspond to statements of work. 

2. establish QASPs for DOD and other customer agencies as 

appropriate that specify: (a) all work requiring surveillance and 

the method of surveillance to be used, (b) areas of customer 

agency responsibility and areas of FedSource responsibility, and 

(c) when and in what form surveillance results should be 

provided by the customer agency to FedSource. 

Management Response BPD recognizes the challenges and benefits 

of promoting the use of performance-based-acquisition criteria in all 

eligible service acquisitions. In support of that effort, BPD 

scheduled a performance-based work statement writing course in 

November 2007 for Division of Procurement Services personnel. 
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Providing adequate surveillance of the remaining FedSource task 

orders also continues to be an area of concern. Acquisition Center 

Procedure Memo 07-03, dated January 19, 2007, was issued as a 

result of continued compliance findings related to surveillance. This 

policy requires that the designated Project Officer at each customer 

agency sign a letter of acceptance of responsibility for their role to 

monitor and report performance information to the contracting 

officer’s technical representative at FedSource. As FedSource 

staffing levels decline, it is anticipated that BPD procurement 

personnel will become more involved in oversight and surveillance 

to supplement the staff on continuing orders through completion, 

currently scheduled to end no later that September 30, 2008. 

OIG Comment The actions proposed by the BPD, if implemented as 

described, satisfy the intent of the recommendations. 

Finding 5 ARC Compliance Reviews of FedSource Identified 

Contracting Deficiencies But Did Not Ensure Corrective 

Action Was Taken 

In June 2004, ARC established a program whereby it would 

conduct “assistance visits” to FedSource’s centers on a 3-year 

cycle for the purpose of encouraging and facilitating improved 

FedSource acquisition operations, fostering the use of industry best 

practices, and assessing the center’s compliance with federal 

acquisition requirements. ARC also developed an extensive guide 

for conducting and reporting on the visits.21

We reviewed ARC’s reports for assistance visits conducted during 

2006 at FedSource’s Baltimore, Los Angeles, and Seattle centers. 

The reports identified deficiencies that were consistent with our 

findings in the areas of price reasonableness, QASP 

documentation, and technical evaluations. In general, the reports 

evidenced that ARC’s review process was substantive. 

However, the reporting process described in the ARC guide was 

not followed for these reviews and action plans were not 

established to correct the noted deficiencies. In this regard, the 

21 FedSource Acquisition Assistance Visit Guide dated June 8, 2004, Division of Procurement, ARC. 
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ARC guide provides that the reviewer issue a draft report on each 

visit and obtain, within 30 days, the FedSource center’s comments 

along with its corrective action plan and schedule for identified 

deficiencies. The reviewer is to then analyze the comments and the 

corrective action plans and schedules, and if considered 

satisfactory issue a final report within 14 days. The final report is 

to incorporate and address as appropriate the comments and 

corrective action plans and schedules. 

We found that the three reports issued on the 2006 assistance 

visits did not include the FedSource centers’ comments and 

corrective action plans and schedules. We also noted that the 

reports on the Los Angeles and Seattle centers were not dated, or 

indicated whether the reports were draft or final. The report on the 

Baltimore center was dated August 31, 2006, but the report was 

also not marked as either draft or final. ARC did receive comments 

from the Baltimore center dated November 2006. The comments, 

while disputing some of ARC’s findings, did make a general 

statement that the center would implement ARC’s 

recommendations. However, the comments did not include a 

detailed corrective action plan and schedule. 

We interviewed ARC’s lead reviewer for the 2006 assistance visits. 

The reviewer confirmed our observations that the reports did not 

include FedSource’s comments. The reviewer stated that 

comments were not provided by the Los Angeles and Seattle 

centers, and ARC did not try to obtain the comments. Additionally, 

the reviewer stated that detailed corrective actions plans and 

schedules were not obtained from any of the 3 centers reviewed. 

The reviewer acknowledged that the Baltimore center’s November 

2006 comments did dispute some of the review findings; however, 

the reviewer considered the findings to be valid. We asked why the 

reporting process in the ARC guide was not followed for these 

reviews. The reviewer stated that while the process was the 

preferred way to go, ARC at the time did not have management 

authority over FedSource to force corrective action. The reviewer 

also stated that the areas found deficient in the 2006 reviews 

would be the initial focus of subsequent reviews. 
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We also interviewed the ARC contracting officer with overall 

responsibility for the assistance visit program. The contracting 

officer stated in November 2006, the assistance visit program was 

put on hold when Treasury initiated a review of the FedSource 

model. In April 2007, Treasury decided to transition out of the 

FedSource business by September 2008 and further assistance 

visits are not contemplated. Accordingly, we are making no 

recommendations to address the weaknesses noted with the 

reporting process for the assistance visits. However, should ARC 

reinstitute this program, it should ensure that appropriate corrective 

actions plans and schedules are developed and implemented to 

address noted deficiencies. 

Finding 6 ARC and FedSource Did Not Have Adequate Controls to 

Prevent Contract Ceilings From Being Exceeded 

As discussed in our prior audit report, Treasury’s Office of General 

Counsel informed the Department that contracting and budgetary 

control weaknesses exist in the franchise fund and may have 

allowed a potential violation of both the Competition in Contracting 

Act (CICA) and the Antideficiency Act for exceeding a contract 

ceiling without proper competition. The contract in question was 

an IDIQ contract for copiers and related services awarded by ARC 

in 2001 with a contract ceiling of $50 million. FedSource issued 

task orders against the contract on behalf of its customer agencies. 

In October 2006, the Department referred the matter to the 

Treasury OIG Office of Investigations. The OIG investigation 

substantiated the CICA violation on the contract and identified 

three other contracts for which the contract ceiling had been 

exceeded. The investigation also determined that no crimes or 

serious employee misconduct had occurred. However, the 

investigation noted that either certain Treasury procurement and 

management officials lacked CICA knowledge or those who 

understood CICA requirements did not view a CICA violation as 

being a significant issue. These matters were communicated to the 

Commissioner of BPD by the Assistant Inspector General for 

Investigations in a memorandum dated April 18, 2007. 
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CICA requires procurement through full and open competitive 

procedures. Contracting officers are required, with certain limited 

exceptions, to promote and provide for full and open competition in 

soliciting offers and awarding Government contracts.22 For 

indefinite-quantity contracts, such as those ARC established for 

FedSource, the contracting officer should establish a reasonable 

maximum quantity based on market research, trends on recent 

contracts for similar supplies or services, survey of potential users, 

or any other rational basis. The solicitation and contract for an 

indefinite quantity must specify the total minimum and maximum 

quantity of supplies or services the Government will acquire under 

the contract.23 The DTAR requires that all contract modifications 

increasing the estimated value of the contract by 50 percent or 

more must be approved by the Treasury bureau chief procurement 

officer prior to execution. The contracting officer must include in 

the contract file a determination that a proposed modification is 

within the general scope of the agreement. Additionally, the DTAR 

requires that legal counsel be consulted in doubtful or unusual 

situations such as when modifications, other than original contract 

options increase the total contract price by 20 percent or more.24

We expanded the scope of our review to determine whether the 

ceiling was exceeded on any additional ARC-awarded contracts. 

Our work did identify one additional contract where this deficiency 

occurred. The amount by which the ceilings on all five contracts 

were exceeded totaled nearly $200 million as of August 2007. This 

amount included approximately $47 million associated with the 

copier contract that was referred to Treasury OIG for investigation.

According to ARC and FedSource personnel, the violations 

occurred because neither FedSource nor ARC was monitoring task 

order awards against the contract ceilings in a coordinated manner. 

Both thought the other was tracking the contract ceiling. In fiscal 

years 2005 and 2006, ARC and FedSource were tracking contract 

ceilings through a combination of manual spreadsheets. The ARC 

spreadsheets tracked only task order base year obligations that 

FedSource was entering into BPD’s accounting system. ARC did 

22 FAR 6.101, which references competition requirements cited in 10 U.S.C. 2304 and 41 U.S.C. 253. 

23 FAR 16.504 

24 DTAR 1043.102 
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not realize until early fiscal year 2005 that this was inadequate 

because the values in BPD’s spreadsheets did not reflect 

substantial potential option year values of the FedSource task 

orders. ARC required that FedSource begin to track and report an 

“all options value” of its task orders within its system and report 

this to ARC. FedSource had to have its systems development 

contractor create a field within its database, which was populated 

with the all options values so that reports could be run. By late 

spring 2006, reports were being run that better tracked obligations 

associated with issued task orders against contract ceilings. 

Despite this control procedure, contract ceilings are still at risk of 

being exceeded according to a January 2007 study by Treasury’s 

Office of the Procurement Executive. This can occur if FedSource 

is invoiced for rendered services in an amount that exceeds the 

amount that FedSource obligated for the task order. FedSource and 

ARC management told us that they agreed this risk existed and 

that corrective action is needed. 

Recommendations 

We recommend that the Commissioner of BPD do the following: 

1. direct ARC and FedSource to assess whether additional controls 

are necessary to ensure amounts obligated for FedSource task 

orders more closely match the amounts expected to be invoiced 

for work done under those task orders. The purpose of this 

recommendation is to address the risk identified by the Office of 

the Procurement Executive that contract ceilings could still be 

exceeded as contractors submit invoices to FedSource for 

payment.

2. ensure that ARC and FedSource contracting personnel are 

reminded of requirements to ensure full and open competition in 

accordance with CICA. 

These are new recommendations. 

Management Response On November 6, 2006, BPD implemented a 

daily reporting strategy called the Control Model Process, which 
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requires every order transaction anticipated by FedSource to be 

reported prior to award to BPD for approval and tracking against 

contract ceilings. Additionally, effective October 1, 2007, 

FedSource has not awarded any new task orders. Consequently, 

competition training is not scheduled for FedSource personnel. 

However, Competition in Contracting Act training is scheduled for 

all BPD contracting officers in December 2007. There are no future 

excesses anticipated as a result of the control model tracking.

OIG Comment The actions taken or proposed by BPD, if 

implemented as described; satisfy the intent of the 

recommendations.

Finding 7 ARC Does Not Know If Small Business Contractors 

Complied With Requirements Governing Use of Personnel 

During our audit, we found that ARC does not know whether two 

of its three small business contractors under the FedSource 9 

multiple award contracts are meeting the requirement that 50 

percent of the cost of services performed under such contracts be 

expended for services provided by the contractor’s own 

employees. Specifically, the FAR requires that entities awarded 

small business set-aside contracts,25 or procurements for which 

they have claimed a 10 percent small disadvantaged business price 

evaluation preference,26 agree that, in the case of service contracts 

(except construction), at least 50 percent of the contract cost for 

personnel will be for services provided by its own employees.27

FAR makes it the contracting officer’s responsibility to ensure 

compliance with this requirement.28

ARC has three small business contractors under the FedSource 9 

multiple award contract. For the contractors to report compliance 

with the 50 percent requirement, the ARC contracting officer 

25 Set-asides are procurements reserved totally or partly for a certain type of contractor, such as small 

businesses.

26 Small businesses that have been certified by the Small Business Administration as small 

disadvantaged businesses may qualify for a price evaluation adjustment of up to 10 percent when they 

submit bids on certain competitively awarded federal contracts. 27 FAR 52.219-14. 

28 FAR 1.602-2. 
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provided each with a spreadsheet on which to enter the 

percentages of personnel service costs billed by the prime 

contractor and by subcontractors. ARC’s unwritten process calls 

for follow-up by the contracting officer only if a contractor reports 

that it has not met the 50 percent requirement. ARC’s unwritten 

process did not include verification of spreadsheet reports 

submitted.

To date, only one of the three small business contractors has 

provided ARC with a completed spreadsheet. The other two have 

not submitted the spreadsheet to report percentages of personnel 

cost for the past 4 years. According to the ARC contracting officer, 

Treasury has no idea whether these two contractors are complying 

with the 50 percent rule. We asked the contracting officer why 

ARC had not done anything more to obtain the information. The 

contracting officer stated only that she sent them the spreadsheet, 

they did not respond, and she did not follow up. 

If Treasury does not enforce small business contractors’ with the 

50 percent requirement, it is not ensuring that the objectives of the 

Government’s small business program are being achieved.

Recommendation 

We recommend that the Commissioner of BPD instruct ARC to 

develop and implement written procedures to ensure that small 

business contractors are complying with contractual requirements 

for the percentage of work that must be provided by their own 

employees. This is a new recommendation. 

Management Response Guidance has been issued internally to 

BPD’s Division of Procurement regarding monitoring and reporting 

procedures to be applied to all appropriate small business 

contracts. Language has been drafted and a form is now provided 

to small businesses responsible for reporting under the Limitations 

on Subcontracting clause 52.219-14, to ensure appropriate 

tracking of performance percentages on applicable contracts. 

OIG Comment The actions taken by BPD, if implemented as 

described, satisfy the intent of our recommendation. 
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* * * * * * 

We appreciate the courtesies and cooperation extended to our staff 

during this audit. The major contributors to this report are identified 

in appendix 5. If you have any questions, please contact me at 

(202) 927-4879. 

Cynthia S. Milanez 

Acting Director, Manufacturing and Procurement Audits 
 Appendix 1 

 Objective, Scope, and Methodology 

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The Treasury franchise fund, through its FedSource and 

Administrative Resources Center components, provides contracting 

assistance to the Department of Defense (DOD) for a fee. As 

required by section 811 of the National Defense Authorization Act 

(NDAA) for Fiscal Year 2006, the DOD Office of Inspector General 

(OIG) and our office jointly reviewed the procurement policies, 

procedures, and internal controls of the Treasury franchise fund. 

Our objective, stated in the law, was to determine whether 

Treasury is or is not compliant with DOD procurement requirements 

based on its fiscal year 2006 procurement of property and services 

on behalf of DOD. In accordance with NDAA we previously audited 

Treasury compliance with DOD procurement requirements during 

fiscal year 2005. We determined in our prior audit that Treasury 

was not compliant with DOD procurement requirements but had a 

program to significantly improve compliance.29

We reviewed applicable DOD appropriations laws and applicable 

Federal Acquisition Regulation and DOD regulations and 

procurement requirements. Additionally, we reviewed FedSource’s 

procurement policies, procedures, and internal controls applicable 

to the procurement of property and services on behalf of DOD, 

including policies and procedures established in response to our 

previous report. We also interviewed Treasury franchise fund 

officials and staff. 

To test compliance with DOD procurement requirements, DOD OIG 

identified a universe of 143 FedSource task orders representing 

high dollar amounts and DOD ordering offices with high volume 

transactions between July 1 and September 30, 2006 and selected 

a sample of 57 task orders from this universe for detailed testing. 

We concurred with DOD OIG’s approach and reviewed FedSource’s 

files for 28 of the 57 task orders. We also interviewed the DOD 

project officers for the task orders and for 13 task orders, visited 

the DOD ordering facility to review the project officers’ files.30 The 

amount funded by DOD for the 28 task orders totaled $12.9 million 

and were awarded by FedSource’s centers in Baltimore, Maryland; 

San Antonio, Texas; and Los Angeles, California. We examined the 

29 OIG-07-026. 

30 DOD OIG concurrently reviewed 29 of the 57 sample task orders using the same methodology. 
 Appendix 1 

 Objective, Scope, and Methodology 

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files for documentation supporting compliance with applicable 

Federal Acquisition Regulation and DOD procurement requirements, 

specifically requirements related to market research, competition, 

price reasonableness, funding, and contractor surveillance. 

We also reviewed contract files at the Administrative Resource 

Center, located at the Bureau of the Public Debt in Parkersburg, 

West Virginia, for the multiple-award contract and two blanket 

purchase agreements that were master contract vehicles under 

which FedSource awarded the 28 task orders we tested. We also 

reviewed additional contracts to determine whether Treasury had 

exceeded the contract ceilings.

We reviewed the policies and procedures established by ARC to 

perform compliance monitoring of FedSource procurement 

activities. We also reviewed ARC’s reports on compliance reviews 

that had been completed at the FedSource Baltimore, Los Angeles, 

and Seattle centers during 2006.

We performed our audit fieldwork between October 2006 and April 

2007. Our audit was conducted in accordance with generally 

accepted government auditing standards. 
Appendix 2 

Schedule of Task Order Exceptions 

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Task Order No. Amount 

Market

Research Competition 

Price

Reasonableness 

Technical 

Evaluation

Quality Assurance 

Surveillance Plan 

BAL119918 $248,309 X X X – 3,5 

BAL119945 161,888 X X X – 1,3,4,5 

BAL119880 352,260 X X X X – 1,5 

BAL119863 51,425 X X X – 1,3,5 

BAL119858 238,000 X X X – 4,5 

BAL119946 258,229 X X – 1,5 

BAL119908 320,055 X X X – 1,5 

BAL119886 300,000 X X X X – 1,2,5 

LOS015545 329,179 X X X – 3,5 

LOS015648 898,728 X X X X – 1,3,5 

LOS015595 6,666 X X X – 4,5 

LOS015694 2,390,480 X X X – 3,5 

LOS015627 42,677 X X – 1,3^ 

LOS015635 276,350 X X – 1,2,3^ 

LOS015699* 1,694,620 X X X X X – 5 

LOS015634* 518,118 X X X X X – 3,5 

LOS015623* 179,250 X X X X X – 1,5 

LOS015714* 414,644 X X X X X – 3,5 

SAN009018 143,780 X X – 1,5 

SAN008986 1,773,134 X X – 1,3,5 

SAN009002 212,060 X X – 1,5 

SAN009022 518,601 X X – 1,5 

SAN008978 84,691 X X – 1,5 

SAN009016 885,725 X X – 1,4,5 

SAN009013 268,410 X X – 1,5 

SAN009014 105,730 X X – 4,5 

SAN009000 148,617 X X – 1,5 

SAN008992 108,180 X X – 1,5 

Totals $12,929,806 26 4 8 16 28 

Legend:

X - Exception to procurement requirements noted. 

* - Task order was part of the FasTrac program. 

1 - The frequency of surveillance method as identified in the quality assurance surveillance plan 

(QASP) did not correspond to the frequency of surveillance described in the statement of work. 

2 - The QASP did not identify the frequency of surveillance. 

3 - The statement of work was written too broadly to create meaningful measures of performance 

in the related QASP. Likewise, the performance standards in the QASP were too broad to 

measure.

4 - The QASP lacked sufficiently specific performance standards. 

5 - FedSource’s files lacked documentation of surveillance. 

 ^ - Task orders files that documented surveillance. 
Appendix 3 

Management Response 

ACQUISITIONS: Although Weaknesses Still Exist, Page 32 

 the Treasury Franchise Fund Improved Compliance With 

 DOD Procurement Requirements (OIG-08-002) 
Appendix 3 

Management Response 

ACQUISITIONS: Although Weaknesses Still Exist, Page 33 

 the Treasury Franchise Fund Improved Compliance With 

 DOD Procurement Requirements (OIG-08-002) 
Appendix 4 

Major Contributors to This Report 

 AQUISITIONS: Although Weaknesses Still Exist, Page 34 

 the Treasury Franchise Fund Improved Compliance With 

 DOD Procurement Requirements (OIG-08-002) 

Cynthia S. Milanez, Acting Director, Manufacturing and 

Procurement Audits 

Thomas E. Byrnes, Director, Manufacturing and Procurement 

Audits (Retired) 

Ricardo Cabarrouy, Auditor-In-Charge 

 Chereeka Straker, Auditor 

 Rufus Etienne, Auditor 

 Alicia Bruce, Auditor 

Rafael J. Cumba, Referencer 
Appendix 5 

Report Distribution 

 AQUISITIONS: Although Weaknesses Still Exist, Page 35 

 the Treasury Franchise Fund Improved Compliance With 

 DOD Procurement Requirements (OIG-08-002) 

Department of the Treasury

 Deputy Chief Financial Officer 

Office of Strategic Planning and Performance Management 

 Office of Accounting and Internal Control 

Bureau of the Public Debt

 Commissioner 

 Assistant Commissioner 

Treasury Franchise Fund

 Managing Director 

 Chief Executive Officer, FedSource 

Department of Defense

 Inspector General 

Office of Management and Budget

 OIG Budget Examiner 

The Congress

 U.S. Senate, Committee on Armed Services 

 U.S. House of Representatives, Committee on Armed Services