Performance Audit Report

The SBA Mismanaged Certain 8(a) Information Technology Contracts
REPORT TRANSMITTAL

REPORT NO. 13-08

DATE: December 3, 2012

TO: Jonathan I. Carver

Chief Financial Officer

SUBJECT: The SBA Mismanaged Certain 8(a) Information Technology Contracts

This report presents the results of our audit on The SBA’s Management of Information Technology 

Contracts Awarded to Isika Technologies, Inc. Our audit objective was to determine whether the Small 

Business Administration (SBA) effectively managed information technology (IT) contracts awarded to 

Isika Technologies, Inc. (iTechnologies). We have incorporated the formal comments from the Office of 

the Chief Financial Officer into this report.

Please provide your response to this report for each recommendation on the attached SBA Forms 1824,

Recommendation Action Sheet, by January 2, 2013.

Consistent with OMB Circular A-50, your response should include the corrective action(s) taken or 

planned for each recommendation and the target date(s) for completion. If you disagree with the 

recommendations, please fully explain the reasons for disagreement. Please include the legal basis for 

disagreement based on interpretation of law, regulations, or the authority of officials to take or not to 

take action. You may also propose alternative actions to those recommended that you believe would 

better address the issues presented in this report.

Consistent with our responsibility under the Inspector General Act, we are providing copies of our report 

to the appropriate congressional committees with oversight and appropriate responsibility over the 

Small Business Administration. We will also post this report on the Office of Inspector General website 

for public dissemination.

We appreciate the courtesies and cooperation of the Office of the Chief Financial Officer, Office of the 

Chief Acquisition Officer, and the SBA’s Suspension and Debarment Official during this audit. If you have 

any questions concerning this report, please call me at (202) 205-7390 or Riccardo R. Buglisi, Director, 

Business Development Programs Group, (202) 205-7489.

***

/S/ original signed

John K. Needham

Assistant Inspector General for Auditing
The SBA Mismanaged Certain 8(a) Information Technology Contracts.

What OIG Audited

This is the final Office of Inspector General (OIG) 

report in a series of three audit reports related to 

our audit of information technology (IT) hardware 

and software contracts awarded by the SBA to Isika 

Technologies, Inc. (iTechnologies). The objective of 

this audit was to determine whether the SBA 

effectively managed IT contracts awarded to 

iTechnologies. Specifically, we determined whether 

the prime contractor and its subcontractor 

performed contract requirements in accordance 

with 8(a) program policies, guidance, and statutory 

requirements. We also determined whether the 

SBA’s contracting personnel administered IT 

contracts in accordance with federal and SBA 

policies, guidance, and statutory requirements. To 

achieve our audit objectives, we obtained and 

analyzed the SBA’s contract files on iTechnologies, 

conducted interviews, subpoenaed records, and 

reviewed pertinent policies, guidance, and statutory 

requirements. 

OIG Recommendations and Agency Comments

The OIG recommended a total of 15 specific actions. 

We addressed 2 actions to the SBA’s Suspension and 

Debarment official and 13 actions to the SBA’s Chief 

Financial Officer. On November 5, 2012, 

management submitted formal comments. 

Management generally concurred with our findings 

and recommendations but emphasized that the 

information technology contracts identified in the 

report predated the transition of the SBA’s 

acquisition function to the Office of the Chief 

Financial Officer (OCFO).

Actions Taken

As of report issuance, suspension and debarment 

proceedings against iTechnologies were under 

review. Further, in response to previous 

recommendations, the SBA’s Chief Financial Officer 

terminated each of the contracts awarded to 

iTechnologies.

What OIG Found

The SBA did not adequately manage IT hardware and 

software contracts awarded to iTechnologies. 

Specifically, we determined that:

Contractor misrepresentations and contracting 

personnel’s lack of due diligence caused the SBA 

to inappropriately award and administer 8(a) 

contracts to iTechnologies.

Contracting personnel at the SBA did not 

properly administer the contracts as they did 

not conduct price reasonableness analyses for 

contracts it awarded to iTechnologies.

Deficiencies within the SBA’s invoicing 

procedures established an environment ripe for 

improper payments.

As a result, the SBA overpaid for IT hardware and 

software by approximately $343,854 due to 

multiple layers of markup. Further, the SBA 

improperly paid 100 percent of iTechnologies’ 

invoices.

Layers of Markup on iTechnologies Contracts

SBA

•Average of 

22 Percent 

Markup

iTechnologies/

(TLE)

•Second Layer 

of Markup

Manufacturer 

or Wholesaler

•First Layer 

of Markup
Table of Contents

Introduction ..................................................................................................................................................1

Results...........................................................................................................................................................3

Finding: iTechnologies Subcontracted Nearly 100 Percent of the SBA’s Contract Requirements and 

Made Several Misrepresentations to the SBA..........................................................................................3

Prime and Subcontractor Misrepresented their Relationship..............................................................4

Examples of Contractor Misrepresentations during the Contract Performance Period ......................5

Subcontractor Performed Nearly 100% of the SBA’s Contract Requirements.....................................5

Conclusion.............................................................................................................................................7

Management Actions Taken and In Process.........................................................................................7

Recommendations................................................................................................................................7

Finding: SBA Contracting Personnel Did Not Establish Price Reasonableness for Contracts Awarded to 

iTechnologies............................................................................................................................................8

The SBA Did Not Comply with FAR Criteria for Establishing Price Reasonableness.............................8

SBA’s Procurement Costs Increased with Additional Broker Markups...............................................10

Conclusion...........................................................................................................................................11

Management Actions Taken and In Process.......................................................................................11

Recommendations..............................................................................................................................11

Finding: SBA’s Invoicing Procedures Contributed to Improper Payments ............................................12

Examples of Ineffective Invoice Processes by Procurement Personnel .............................................13

Examples of Ineffective Invoice Processes by the Denver Finance Center.........................................14

Conclusion...........................................................................................................................................16

Recommendations..............................................................................................................................16

Agency Comments and Office of Inspector General Response ..................................................................17

Actions Required.........................................................................................................................................24

Appendix I: Scope and Methodology.........................................................................................................25

Use of Computer Processed Data ...........................................................................................................25

Prior Coverage.........................................................................................................................................25

Appendix II: Contracts Awarded to iTechnologies.....................................................................................27

Appendix III: Indefinite Delivery Indefinite Quantity Contracts.................................................................28

Appendix IV: Agency Comments.................................................................................................................29
1

Introduction

This report presents the results of our audit of the SBA’s management of information 

technology (IT) hardware and software contracts awarded to iTechnologies. Our first report 

addressed the planning and award of contracts to iTechnologies for the procurement of IT 

hardware and software.

1

 Our second report addressed the funding of IT contracts awarded to 

iTechnologies.

2

 For additional information on the results of these reports, please see

Appendix I. 

Objectives

The objective of this audit was to determine whether the SBA effectively managed IT contracts 

awarded to iTechnologies. Specifically, whether:

1. The prime contractor and its subcontractor(s) performed contract requirements in 

accordance with 8(a) Business Development Program policies, guidance, and statutory 

requirements; and 

2. Contracting and Office of the Chief Information Officer (OCIO) personnel administered IT 

hardware and software contracts awarded to iTechnologies in accordance with SBA and 

federal policies, guidance, and statutory requirements.

We conducted our audit between August 2010 and May 2012 in accordance with Government 

Auditing Standards prescribed by the Comptroller General of the United States. Those 

standards require that we plan and perform the audit to obtain sufficient, appropriate evidence 

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

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

conclusions based on our audit objectives.

Background

The SBA oversees the 8(a) Business Development program. The purpose of the 8(a) program is 

to assist eligible small, disadvantaged businesses compete in the American economy through 

business development. Participants in the 8(a) program undergo a screening process to be 

admitted to the program and receive, among other things, contracting preferences and business 

development advice while participating. One of these benefits includes the award of sole 

source contracts, which enable participants to receive federal contracts without competing 

amongst large businesses.

Participants in the 8(a) program are required by federal regulations to perform certain

percentages of work on any contract received through the program. This requirement, known 

as the limitation on subcontracting, is to protect the 8(a) program from fraud by ensuring 

contracts selected for the 8(a) program are performed by 8(a) participants. Absent the 

limitation on subcontracting, companies not participating in the 8(a) program could take 

 

1

SBA OIG Report Number 11-08, SBA’s Procurement of Information Technology Hardware and Software through

 Isika Technologies, Inc., February 25, 2011

2

SBA OIG Report Number 11-14, SBA’s Funding of Information Technology Contracts Awarded to Isika

 Technologies, Inc., June 2, 2011
2

advantage of preferential opportunities, which may deny those same development 

opportunities to legitimate program participants. These preferential opportunities may include 

federal set-aside contracts.

An Indefinite Delivery/Indefinite Quantity (IDIQ) contract is appropriate for procuring supplies 

and services when the government anticipates recurring requirements but cannot determine 

the precise quantities that it will need within a specific period. It establishes a minimum 

quantity or value of supplies and services to be purchased and may establish a maximum as 

well.3 Contracting officers then issue task or delivery orders against the IDIQ contract to 

purchase supplies and services that fulfill the government’s needs at a particular time.

The IDIQ contracts discussed in this audit are of the indefinite-quantity type. A Blanket 

Purchase Agreement (BPA) is similar to an IDIQ contract in that it allows the government to 

order supplies and services when there are a variety of similar products required. 

The difference being that the exact items and quantities are unknown.

iTechnologies, an 8(a) firm, established a prime and subcontractor relationship with The Look 

Enterprises (TLE) to obtain contracting opportunities through the SBA’s 8(a) Business 

Development Program.

4

 Through this relationship, iTechnologies and TLE submitted a proposal 

to the SBA, which awarded a series of sole-source 8(a) contracts to iTechnologies. 

Specifically, during fiscal year 2009 through 2011, the SBA awarded two IDIQ contracts, a BPA, 

and six purchase order contracts totaling over $7.6 million to iTechnologies for the procurement 

of IT hardware and software. Prior to receiving these contract awards, iTechnologies’ focus had 

been on IT consulting, rather than IT hardware and software procurement. These contracts are 

listed in the table, below:

Table 1 Contracts Awarded to iTechnologies

Award Date Contract Vehicle Contract Number Initial 

Contract 

Value

Contract Value 

Including 

Modifications

09/21/2009 IDIQ SBAHQ-09-D-0009 $ 5,000,000 $ 4,070,480

12/09/2009 IDIQ SBAHQ-10-D-0001 2,000,000 2,000,000

02/18/2010 BPA SBAHQ-10-A-0001 1,372,260 1,372,260

03/11/2010 Purchase Order SBAHQ-10-M-0111 76,369 76,369

03/19/2010 Purchase Order SBAHQ-10-M-0118 16,198 16,198

03/19/2010 Purchase Order SBAHQ-10-M-0119 11,847 11,847

04/05/2010 Purchase Order SBAHQ-10-M-0130 40,067 40,067

04/10/2010 Purchase Order SBAHQ-10-M-0135 3,287 3,287

01/20/2011 Purchase Order SBAHQ-11-M-0065 23,694 23,694

TOTAL: $ 8,543,722 $ 7,614,202

Note: While the contract value for all contracts and BPA’s reached $7.6 million, the SBA obligated only $3.1 million 

against these contracts. In response to Report Number 11-14, Small Business Administration’s Funding of 

Information Technology Contracts Awarded to Isika Technologies, Inc., the SBA terminated all contracts to 

iTechnologies before the SBA reached the contract ceiling.

 

3

See Appendix III for additional information on IDIQ contracts.

4

The contract proposal identified iTechnologies as the prime contractor with TLE served as its subcontractor.
3

Nature of Limited or Omitted Information

We did not omit information due to confidentiality or sensitivity, nor were there limitations to

information in this audit.

Review of Internal Controls

The SBA’s Standard Operating Procedures5(SOPs) provide guidance on the implementation of 

internal control systems. The Office of Management and Budget (OMB) Circular A-123, 

Management’s Responsibility for Internal Control requires agency managers to continuously 

monitor and improve the effectiveness of internal controls. The OMB Memorandum for Chief 

Acquisition Officers, Conducting Acquisition and Conducting Acquisition Assessments under

OMB Circular A-123, provides a required approach for conducting acquisition reviews under this 

guidance. However, SBA management has not conducted an internal control review of its 

acquisition function since fiscal year (FY) 2007. During our review, we identified significant 

internal control deficiencies related to SBA’s contract administration and payment process. 

Implementing the recommendations in this report should improve SBA’s contract administration 

and payment controls.

Results

Finding: iTechnologies Subcontracted Nearly 100 Percent of the SBA’s Contract 

Requirements and Made Several Misrepresentations to the SBA

The president of iTechnologies and personnel from The Look Enterprises (TLE) knowingly 

misrepresented their prime and subcontractor relationship throughout the award and 

performance phases of 8(a) contracts with the SBA. For example, iTechnologies falsely claimed 

that it possessed the necessary relationships with vendors, manufacturers, and suppliers to 

fulfill the SBA contract requirements. iTechnologies also violated 8(a) program rules for 

subcontracting by allowing its subcontractor, TLE, to perform nearly 100 percent of the contract

requirements. The firms’ misrepresentations occurred because iTechnologies authorized TLE to 

use its status as an 8(a) firm to obtain nine contracting vehicles for which it did not qualify.

The SBA’s contracting personnel also did not perform due diligence in reviewing iTechnologies’ 

proposal and its ability to perform the contract requirements. Moreover, SBA contracting 

personnel did not adequately monitor contractor performance on its contracts awarded to 

iTechnologies. As a result, the SBA paid $3.3 million to TLE, a non-8(a) program 

participant;however, iTechnologies’ received only $32,000, according to President and Chief 

Executive Officer, Mr. Philip Isika.

According to the Federal Acquisition Regulations (FAR), misrepresentations through false 

statements and falsified documentation are serious offenses and serve as grounds for debarring 

the contractor.

6

For example, it is illegal for a Government contractor to submit false 

statements and misrepresent the size or ability of its firm to perform the requirements of a 

 

5

SBA SOP 00 02 2: Internal Control Systems

6

FAR 9.406-2(a)(3), Debarment, Suspension, and Ineligibility
4

government contract. In addition, for service contracts, the Code of Federal Regulations (CFR) 

states that an 8(a) contractor must perform at least 50 percent of the cost of the contract 

incurred for personnel with its own employees.

7

 Further, the FAR specifies that “Government 

business shall be conducted in a manner above reproach,

8

” and “Government contractors must 

conduct themselves with the highest degree of integrity and honesty.

9

”

Prime and Subcontractor Misrepresented their Relationship

iTechnologies and TLE made false statements to the SBA that resulted in 8(a) set-aside contract 

awards to iTechnologies. The firms’ misrepresentations occurred because iTechnologies 

authorized TLE to use its status as an 8(a) firm to obtain nine contracting vehicles for which it did 

not qualify. In addition, iTechnologies falsely claimed that it possessed the necessary 

relationships with vendors, manufacturers, and suppliers to fulfill SBA’s contract requirements. 

As a result, the SBA awarded $7.6 million in contracts to iTechnologies that were passedthrough to TLE, a non-8(a) program participant.

According to Mr. Isika, TLE approached him regarding an SBA requirement to procure IT 

hardware and software that was set-aside for 8(a), Historically Underutilized Business Zone 

(HUBZone), Service Disabled Veteran, or other SBA priority status vendors. The Look Enterprises

proposed teaming with iTechnologies to obtain this contract award as iTechnologies was an 8(a) 

participant and therefore eligible for the contract award. According to Mr. Isika, TLE prepared 

the statement of work and submitted the proposal to the SBA without Mr. Isika performing a 

final review of the proposal. Our review of the proposal and responses to SBA’s clarification 

questions found numerous false statements, such as the size of both companies, the companies’ 

roles in performing the contract, and prior work history. The proposal also stated, “There is 

absolutely no adverse impact on our ability to perform the requirement of this contract if The 

Look Enterprises does not enter into a teaming agreement with us.” These misrepresentations 

were presented as clarifications to the statement of work, which was used by the contracting 

officer to determine the contractor’s ability to perform the contract requirements.

iTechnologies did not possess the necessary relationships with vendors, manufacturers, and 

suppliers to fulfill the SBA’s contract requirements. By stating that it would serve as the prime 

contractor and perform the majority of work to meet the SBA’s contract requirements, 

iTechnologies misrepresented the prime and subcontractor relationship between iTechnologies 

and TLE. During OIG interviews, Mr. Isika admitted that iTechnologies’ served as a 

“pass-through” to TLE. Mr. Isika explained that TLE did not qualify to receive these awards 

because TLE did not have an 8(a) certification status, and iTechnologies did not possess the 

working relationships with vendors, manufactures, and suppliers necessary to execute SBA’s 

contract requirements.

 

7

CFR Title 13, Part 125, Section 125.6(a)(1), Prime Contractor Performance Requirements

8

FAR Subpart 3.101-1, Standards of Conduct – General

9

FAR Subpart 3.1002, Contractor Code of Business Ethics and Conduct – Policy
5

Examples of Contractor Misrepresentations during the Contract Performance Period

A contract performance period begins from the date of the award of the contract to the end of

the contract period. For purposes of this audit, we examined actions occurring between

September 2009 and January 2011. See Appendix II for additional contract action dates.

Mr. Isika admitted that his original intention when entering into the subcontracting 

arrangement with TLE was initially to rely upon TLE to order goods for the SBA. 

Once iTechnologies hired additional staff, Mr. Isika intended to transition the ordering function 

in-house. However, he stated that it was not cost-effective for iTechnologies to hire the 

personnel necessary to meet the SBA’s contract requirements because profit margins were low. 

Rather than being forthcoming with the SBA, iTechnologies and TLE concealed iTechnologies’ 

inability to perform the work required by its contracts with the SBA. Instead, iTechnologies 

permitted TLE to perform nearly 100 percent of the work required of a prime contractor, and 

both firms perpetuated their practice of misrepresenting which firm would perform the contract 

work. Recognizing the seriousness of iTechnologies’ and TLE’s false statements and 

misrepresentations, we recommended that the SBA initiate debarment proceeding against both 

companies.

Throughout the contract performance period, TLE personnel continued to perform the work 

required to meet SBA’s contract requirements, which included:

leading the kick-off meeting held with the SBA;

providing price quotes to SBA personnel;

accepting orders from the SBA;

processing orders through its relationships with vendors, manufacturers, and suppliers;

submitting invoices to the SBA; and 

paying its vendors, manufacturers, and suppliers for products procured by the SBA.

Personnel from TLE continued to represent themselves as employees of iTechnologies, 

throughout the course of the OIG’s audit. For example, during the audit team’s first interview 

with Mr. Selmon, president of TLE, he introduced himself as the Senior Accounts Manager for 

iTechnologies. Similarly, TLE’s secretary answered her TLE business telephone number by 

thanking the caller for calling iTechnologies. As the audit progressed, Mr. Selmon changed his 

position by stating he represented TLE instead of iTechnologies.

Subcontractor Performed Nearly 100% of the SBA’s Contract Requirements

iTechnologies violated 8(a) program rules and federal regulations for subcontracting by allowing 

its subcontractor, TLE, to perform nearly 100 percent of its contract requirements. As a result, 

the SBA paid iTechnologies $3.3 million of which iTechnologies claimed to have only

kept $32 thousand with the remaining funds going to TLE, its subcontractor. This “pass-through” 

to a non-8(a) participant occurred because SBA contracting personnel did not perform due 
6

diligence10 in reviewing iTechnologies’ proposal, effectively assessing the firm’s ability to 

perform the contract requirements, or adequately monitoring contractor performance.

In the case of government contracting, as outlined in the FAR Subpart 1.6, contracting officers 

are required to act with due diligence by “ensuring performance of all necessary actions for 

effective contracting, ensuring compliance with the terms of the contract, and safeguarding the 

interests of the United States in its contractual relationships and by performing other such 

duties.”

Prior to awarding a contract, contracting personnel are required to only award contracts to 

responsible prospective contractors.11 However, contracting personnel at the SBA did not

perform the necessary due diligence to effectively assess whether iTechnologies could comply 

with 8(a) program and contract requirements. This enabled iTechnologies and TLE to 

misrepresent the size and capabilities of iTechnologies without detection. For example, in its 

responses to the SBA’s Request for Proposal, iTechnologies claimed to employ 33 full and 

part-time employees, 7 of whom would be dedicated to supporting the SBA’s contract 

requirements. However, since its inception, iTechnologies never employed more than

two people. Mr. Isika admitted that he was the sole employee of iTechnologies at the time TLE 

submitted iTechnologies’ proposal to the SBA and during the period of its contracts with the 

SBA. In addition, the proposal stated that iTechnologies’ past performance included a $3 million 

contract with the National Aeronautics and Space Administration. We performed a query of the 

Federal Procurement Data System – Next Generation (FPDS-NG) and were unable to locate the 

contract (NASA-RD-0021-07). Mr. Isika later confirmed that iTechnologies never contracted with 

NASA and added that, before these contracts with the SBA, iTechnologies had never acted as 

the prime contractor on a federal procurement. 

Despite iTechnologies’ misrepresentations, SBA contracting personnel had a duty to perform 

due diligence in reviewing iTechnologies’ proposal and responses to follow-up questions.

Had SBA’s contracting personnel performed its due diligence, they could have determined that 

iTechnologies falsified its responses and could not execute the SBA’s contract requirements. 

Similarly, if SBA contracting personnel researched contract NASA-RD-0021-07, they could have 

discovered that this contract never existed. However, we found no evidence in the contracting 

files suggesting that contracting personnel performed this due diligence. Therefore, contracting 

personnel did not exclude iTechnologies from consideration based upon its false statements and 

misrepresentations.

Sufficient contract monitoring by SBA contracting personnel could have deterred iTechnologies 

from permitting its subcontractor, TLE, to perform nearly 100 percent of the work necessary to 

meet SBA’s contract requirements. According to SBA personnel with knowledge of the 

iTechnologies contract, they believed that iTechnologies and TLE were the same company 

despite the statement of work that clearly delineated the companies’ prime and subcontractor 

relationship. Had SBA’s contracting personnel conducted a cursory review of TLE’s website they 

could have determined that all of their communication to procure hardware and software was 

 

10 Due diligence is defined as a measure of prudence, activity, or assiduity, as is properly to be expected from, and

 ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any

 absolute standard, but depending on the relative facts of the special case. 

11 FAR Subpart 9.1, Responsible Prospective Contractors.
7

with TLE officials.

12 This practice violated federal regulations, which require a prime contractor 

to perform at least 50 percent of the contract work. However, since contracting personnel did 

not adequately monitor performance on the contracts awarded to iTechnologies the violation 

went undetected. For example, contracting personnel should have determined that TLE was 

performing nearly 100 percent of the work necessary to meet SBA’s contract requirements.

As a result, the SBA allowed TLE to receive over $3.3 million under the IT hardware and software 

contracts awarded on a sole-source basis to iTechnologies, an 8(a) firm.

Conclusion

The SBA inappropriately awarded $7.6 million in IT contracts. Misrepresentations made by 

iTechnologies and TLE personnel violated federal law that went undetected since SBA 

contracting personnel did not perform adequate due diligence to determine whether 

iTechnologies was capable of performing the contract requirements. Had contracting personnel 

performed an adequate review of the contract proposal, it should have determined that the 

proposal included false statements regarding iTechnologies’ work history with the Federal

government.

Management Actions Taken and In Process

We referred our case to the SBA’s Suspension and Debarment Official and recommended that 

he take action to debar iTechnologies from future contracting with any agency of the Executive 

Branch of the United States Government. As of report issuance, suspension and debarment 

proceedings against iTechnologies were under review.

Recommendations

We recommend that the SBA’s Suspension and Debarment Official:

1. Take action to complete debarment proceedings for iTechnologies to prohibit future 

contracting with any agency of the Executive Branch of the United States Government.

2. Initiate debarment proceedings for TLE and its officials to prohibit future contracting with 

any agency of the Executive Branch of the United States Government.

We recommend that the SBA’s Chief Financial Officer:

3. Establish and implement a procedure that aligns with the FAR to require contracting officers 

to determine whether prospective contractors are “responsible” prior to awarding a 

contract.

 

12 TLE’s website included biographies with pictures of its key employees, including its president and vice

 president, James Selmon and Barbara Jean (BJ) Selmon, respectively.
8

Finding: SBA Contracting Personnel Did Not Establish Price Reasonableness for 

Contracts Awarded to iTechnologies 

Contracting personnel at the SBA did not ensure that the agency obtained IT hardware and 

software purchased through iTechnologies at fair and reasonable prices. This occurred because 

the fair market price was not established through competition, since contracts were awarded to 

iTechnologies on a sole-source basis. In addition, contracting officers did not perform price 

analyses; in failing to do so, the contracting officers inhibited the SBA’s ability to negotiate 

contract prices with iTechnologies. Further, iTechnologies acted as a broker13 and increased the 

price of each item that the SBA procured. Because contracting officers did not encourage 

competition, the SBA paid approximately $343,854 more than the fair and reasonable price that 

a qualified distributor should have charged. Moreover, SBA contracting officers did not fulfill 

their fundamental fiduciary responsibility to the government, thereby wasting taxpayer dollars.

According to the FAR,

14 contracting officers must purchase supplies from a responsible source at 

a fair and reasonable price. In establishing fair and reasonable pricing, the FAR prescribes a 

variety of techniques15 that contracting personnel may use to determine the fair market value16

of commercial items,

17 such as IT hardware and software. The FAR18 also states that adequate 

competition establishes fair and reasonable prices. When competition is not present, the FAR 

requires that contracting officers include the facts and rationale to justify deviating from full and 

open competition. This justification must include a determination by the contracting officer that 

the anticipated cost to the government will be fair and reasonable. In the absence of 

competition, the FAR19 requires the contracting officer must use price analyses to establish a fair 

and reasonable price.

The FAR states that “the purpose of performing cost or price analyses is to develop a negotiation 

position that permits the contracting officer and the offeror an opportunity to reach agreement 

on a fair and reasonable price.

20” The FAR also states that a contracting officer’s primary 

concern is the price the government will pay. 21 The contracting officer’s objective is to 

negotiate a contract of a type and with a price providing the contractor the greatest incentive 

for efficient and economical performance.

The SBA Did Not Comply with FAR Criteria for Establishing Price Reasonableness

In OIG Report Number 11-08, SBA’s Procurement of Information Technology Hardware and 

Software Through Isika Technologies, Inc., the OIG reported that the SBA’s requirement for IT 

 

13 A broker is a concern that adds no material value to an item being supplied to a procuring activity, or that does

 not take ownership, possession of, or handle the item being procured with its own equipment or facilities. 

14 FAR Subpart 15.402(a), Pricing policy.

15 These techniques include but are not limited to historical pricing, parametric estimating methods, comparison of

 published prices, independent cost estimates, comparison through market research, and analyses of price

 information provided by the offeror.

16 FAR Subpart 19.001 defines “fair market price” as a price based on reasonable costs under normal competitive

 conditions and not on lowest possible cost. 

17 FAR Subpart 15.403-3(c)(1), Requiring Information Other Than Cost or Pricing Data.

18 FAR Subpart 15.404-1(b)(2)(i), Proposal Analysis Techniques.

19 FAR Subpart 19.806, Pricing the 8(a) contract and FAR Subpart 19.807, Estimating fair market price.

20 FAR Subpart 15.405(a), Price negotiation.

21 FAR Subpart 15.405(b), Price negotiation.
9

hardware and software did not qualify for an 8(a) sole-source procurement. We found that 

inadequate contract planning resulted in the SBA inappropriately awarding two IDIQ contracts,

a BPA, and six purchase orders to iTechnologies on a sole-source basis.22 By awarding these 

contracts on a sole-source basis, the SBA prevented competition from establishing the fair 

market price.

When awarding a contract, contracting officers are required to evaluate price in every source 

selection.23 However, iTechnologies’ proposal did not include any factors relating to price, and 

contracting personnel did not question the firm’s ability to provide a fair and reasonable price.

For example, the SBA should have anticipated that it would pay inflated prices to iTechnologies 

because the proposal indicated that it would use third party suppliers.

24 However, we found 

that the SBA did not conduct price analyses. As a result, contracting officers failed to protect 

taxpayer interests.

The SBA awarded two IDIQ contracts and a BPA to iTechnologies, which designated 

iTechnologies as the exclusive provider of IT hardware and software to the SBA. When a 

contracting officer awards an IDIQ contract or BPA, such as those that SBA awarded to 

iTechnologies, the contracting officer must issue task orders to execute these contracting 

vehicles. Contracting officers executed 123 contract actions including task and delivery orders, 

BPA calls, purchase orders, and requisitions. We reviewed these contract actions25 and 

determined that for 54 of the actions, SBA contracting personnel did not perform analyses to 

determine price reasonableness. Specifically, the contract files for these 54 actions did not 

contain evidence that indicated that contracting personnel assessed price reasonableness.

Similarly, the contract files for 68 additional contract actions contained unsupported statements 

within the Basis of Award claiming that contracting personnel had evaluated price 

reasonableness and determined:

Prices were fair and reasonable because the contractor’s proposed prices were 

10 percent less than those of similar IT equipment on the General Services 

Administration (GSA) schedules; 

The contractor’s pricelist in the IDIQ contract was previously determined to contain fair 

and reasonable prices; and 

The prices of items listed on an existing BPA were previously determined to be fair and 

reasonable. 

The contract files for these 68 contract actions, however, did not contain detailed narratives to 

substantiate these claims. For example, the contracting officer stated that the “proposed prices 

were 10 percent less than similar items on GSA schedules,” but support for these claims, such as 

screen shots of the GSA schedules, was not included. Contracting officers should have 

documented the comparable prices established within the GSA schedules. Contracting officers 

also claimed that the IDIQ pricelist was “previously determined to be fair and reasonable” but 

 

22 For additional details, please see Appendix II.

23 FAR 15.304(c)(1), Source Selection: Evaluation factors and significant subfactors.

24 iTechnologies stated they would rely upon third party suppliers such as, Ingram Micro, Tech Data, Sun Micro

 Systems, CDW, and other distributors to supply the SBA with IT hardware and software. 

25 The audit team reviewed 103 task and delivery orders, 5 BPA calls, 6 purchase orders, and 9 requisitions that

 were not placed on contract. However, SBA personnel were unable to provide any contracting documentation

 for purchase order SBAHQ-10-M-0111. 
10

this statement was inaccurate. The IDIQ contracts did not include price lists, nor were prices 

considered in awarding the contracts to iTechnologies. Similarly, contracting officers 

inaccurately claimed that the prices of the items included in BPA SBAHQ-10-A-0001 were 

previously determined to be fair and reasonable.

The SBA’s failure to perform price analyses inhibited the contracting officer’s ability to negotiate 

fair and reasonable prices for contracts awarded to iTechnologies. Despite the FAR’s specificity, 

the contracting officers did not negotiate prices for any of the contract actions executed in 

relation to iTechnologies’ IT hardware and software provisioning. The contracting officers’ 

failure to analyze the proposed prices or to negotiate the prices resulted in the government 

overpaying for goods ordered through iTechnologies. As such, contracting officers did not 

perform their fundamental fiduciary responsibility to obtain supplies at fair and reasonable 

prices.

SBA’s Procurement Costs Increased with Additional Broker Markups

The SBA unnecessarily paid approximately $343,854 to iTechnologies because of multiple layers 

of markup. iTechnologies relied on its subcontractor, TLE, to place orders with distributors, 

which led to excessive markups on many of the items that the SBA ordered. For additional 

details, please see Figure 1, below.

Figure 1 Layers of Markup on iTechnologies Contracts

We evaluated the prices that the SBA paid to iTechnologies. According to Mr. Isika, TLE placed 

all orders on behalf of iTechnologies and was also responsible for paying each distributor.

Upon the OIG’s request, TLE provided us with complete or partial vendor invoices for 80 of the 

123 contract actions that the audit team reviewed. While analyzing these 80 contract actions, 

we calculated that the SBA unnecessarily paid excessive percentages of markup on individual 

items that increased the cost of the contract actions by nearly $343,854, since each layer within 

the procurement process added markup, thus increasing the SBA’s price for each item.

For example, the SBA procured labeling tape under IDIQ contract SBAHQ-10-D-0001, to which 

SBA

•Average of 22 

Percent 

Markup

iTechnologies/

(TLE)

•Second Layer 

of Markup

Manufacturer 

or Wholesaler

•First Layer of 

Markup
11

iTechnologies added a price markup of over 85 percent. Specifically, iTechnologies paid $8.81 

per roll of labeling tape and charged the SBA $60.00 per roll of labeling tape, representing a 

$51.19 markup per roll. Similar examples exist for higher end items, such as $43,900 in markups 

charged to the SBA for laser printers. Had the agency properly planned and awarded its 

contracts directly to qualified distributors the SBA could have saved approximately $343,854

that it unnecessarily paid to iTechnologies.

To demonstrate the magnitude of iTechnologies’ markups based on our analyses of the 80 

contract actions, the OIG developed Table 2, which (1) identifies iTechnologies’ total profit 

earned for each of its contracts with the SBA, (2) highlights the highest percentage of markup on 

a single item under each contract, and (3) identifies the average percentage of markup charged 

by iTechnologies under each of its contracts with the SBA.

Table 2 Analysis of 80 Contract Actions for Which Complete or Partial Invoices Were Provided

Contract Number Excess Payment High

Markup (%)

Average

Markup (%)

SBAHQ-09-D-0009 $163,956 68.25 17.65

SBAHQ-10-D-0001 130,378 85.32 20.40

SBAHQ-10-A-0001 17,817 69.12 32.22

Purchase Orders 5,523 13.05 10.92

Unrelated Requisitions 26,180 69.12 27.43

Total: $343,854 21.94

Conclusion

The SBA inappropriately awarded a series of sole-source contracts to iTechnologies for the 

procurement of IT hardware and software. In the absence of competition, contracting officers 

did not conduct price analyses or negotiate prices to be good stewards of taxpayer dollars. 

Instead, the SBA accepted the prices submitted by iTechnologies without determining whether 

the government received a fair and reasonable price for the goods it procured. As a result of 

contracting officers’ ignoring their fiduciary responsibility, the contracts awarded to 

iTechnologies resulted in additional charges to the government of $343,854.

Management Actions Taken and In Process

In OIG Report Number 11-08, we recommended that the Chief Financial Officer immediately 

terminate IDIQ contracts SBAHQ-09-D-0009, SBAHQ-10-D-0001, and BPA SBAHQ-10-A-0001.

In response to our recommendations, SBA contracting personnel terminated these contracts. 

Recommendations

We recommend that the Chief Financial Officer:

4. Demonstrate that SBA contracting personnel are proficient at conducting price analyses 

used to establish whether proposed prices are fair and reasonable and in accordance with 

FAR requirements.
12

5. Require contracting personnel to maintain all records used to establish a fair and reasonable 

price, consistent with FAR requirements.

6. Establish and implement a procedure to verify routinely that contracting officers are 

documenting price analyses used to establish price reasonableness.

Finding: SBA’s Invoicing Procedures Contributed to Improper Payments

The SBA improperly paid 100 percent of invoices submitted under its contracts with 

iTechnologies, including invoices for goods the agency may not have received. This occurred 

because the SBA did not have sufficient internal controls in place to ensure the adequacy of its 

invoice approval process. Specifically, unauthorized and unidentified individuals approved 

iTechnologies’ invoices for payment. Similarly, payment personnel at the Denver Finance Center 

did not validate whether the signatories on iTechnologies’ invoices had authority to approve the 

invoices. For example, payment personnel routinely paid any invoice received as long as it 

displayed a signature. In addition, payment personnel did not obtain and review the required 

supporting documentation to substantiate that approved invoices were for goods and services 

that the SBA actually received. Further, the SBA’s procurement and accounting systems did not

fully interface, which exposed the SBA to vulnerabilities to making improper payments.

As a result, the SBA inappropriately paid over $180,000 directly to iTechnologies’ subcontractor, 

TLE, and overpaid iTechnologies by more than $12,000. 

According to the FAR, contracting officers have the authority to administer government 

contracts, which includes approving contractor invoices.

26

 The Code of Federal Regulations 

(CFR) states that only the contracting officer may delegate his or her duties to a Contracting 

Officer’s Technical Representative (COTR), and must do so via a written letter of delegation.27

The FAR specifies that the contracting officer or an appropriately delegated COTR must 

determine whether an invoice is proper, prior to approval, by evaluating the ten elements of a 

proper invoice.

28 Similarly, the FAR also requires that agencies support all invoice payments 

with a receiving report or any other documentation authorizing payment such as a government 

certified voucher.

29

According to the United States Code, certifying officers30 are personally accountable for verifying 

that invoice payments were legal, proper, and correct. Therefore, the certifying officers may be 

liable for reimbursing the Federal government for all payments that were illegal, improper, or 

incorrect.

31 In addition, OMB requires agencies to publish a Corrective Action Plan for each

root cause of improper payments for its programs and activities.

32

 Further, the OMB requires 

agency managers to continuously monitor and improve the effectiveness of internal controls 

associated with their programs.

33

 

26 FAR Subpart 1.602-1(a), Career Development, Contracting Authority, and Responsibilities: Contracting Officers.

27 Title 48, Code of Federal Regulations (CFR) Subpart 2901.603-71, Contracting Officer’s Technical Representatives.

28 FAR Subpart 32.905(a)-(b)(1), Payment Documentation and Process.

29 FAR Subpart 32.905(c), Payment Documentation and Process.

30 Certifying officers refer to Denver Finance Center personnel officially delegated to serve as certifying officers. 

31 Title 31 United States Code, Subchapter 3528, Responsibilities and relief from liability of certifying officials.

32 OMB Circular A-136, Revised, Part II.58, IPIA Reporting Details, Subpart III, Corrective Actions.

33 OMB Circular A-123, Revised, Part IV, Assessing Internal Control.
13

Examples of Ineffective Invoice Processes by Procurement Personnel

Deficiencies within SBA’s invoice review and payment processes at the procurement and 

payment levels, and its lack of internal controls, significantly contributed to the approval of 

$3.3 million in improper payments34 to iTechnologies. Federal regulations and formal guidance 

have established the requirements that agencies must follow throughout their invoicing and 

payment processes. However, the SBA did not have adequate internal guidance to implement 

the Federal regulations or controls in place to ensure consistency within its operations and 

compliance with the law.

In general, the SBA’s invoice review and payment processes consisted of receiving an invoice, 

signing the invoice to signify approval, and forwarding the signed invoice to the Denver Finance 

Center for payment. These inadequate invoice processing procedures enabled both the 

contracting officer and unauthorized personnel to approve each of the 179 ineligible 

iTechnologies invoices. These unauthorized approvers included SBA personnel serving in the 

COTR35 capacity without written delegations from the contracting officer, unidentified 

individuals, and an SBA contractor. We determined that unauthorized personnel approved 28 of 

the 179 iTechnologies invoices, approximately 16 percent, valued at $301,851.54. Examples 

include:

Two individuals serving in the COTR capacity without delegated authority admitted to 

approving iTechnologies’ invoices despite having never read the iTechnologies contract 

or its associated task orders. 

Three unidentifiable signatories approved iTechnologies invoices. 

An SBA contractor approved one invoice that may have resulted in an overpayment of 

$12,385.29 to iTechnologies. 

Contracting officers’ demonstrated a lack of due diligence by approving 151 of the 179 or 84 

percent of ineligible invoices. Had the SBA established adequate procedures, the invoice 

reviewer, at minimum, should have verified whether the contractor submitted a proper invoice. 

Similarly, the SBA should have had an invoice review process that required the approver to 

ensure the invoiced items were on the contract and matched contract requirements, and that 

the goods were received. Had these procedures been in place, the contracting officer should 

have withheld iTechnologies’ invoice approvals rather than forwarding them to the Denver 

Finance Center for payment.

We determined that invoice approval personnel neglected to perform steps to ensure that

the 179 iTechnologies invoices were appropriate or accurate prior to invoice approval.

As a result, SBA personnel approved invoices that a proficient approving official should have 

determined were ineligible for payment such as:

 

34 An improper payment is any payment that should not have been made or that is made in an incorrect amount

 under statutory, contractual, administrative, or other legally applicable requirements.

35 Title 48, Code of Federal Regulations (CFR) Subpart 2901.603-71, Contracting Officer’s Technical Representatives,

 states that only the contracting officer cognizant of the contract action may delegate a COTR. In addition, a

 COTR delegation must be issued in a written letter of delegation informing the individual by name of his or her

 COTR authority, including a delegation of applicable limitations and responsibilities. 
14

All 179 contained inaccurate vendor data;

145 or 81 percent did not contain the correct task order number;

59 or 33 percent were approved for payment prior to task order issuance;

13 were not authorized by a task order;

4 contained item quantities in excess of the task orders, which resulted in an 

overpayment of $26,265.00 to iTechnologies;

3 included items that were invoiced at a higher rate than authorized by the contract, 

which resulted in iTechnologies receiving $28,112.00 in excess profits;

2 were duplicative and resulted in an overpayment of $12,073.00 to iTechnologies; and

2 contained the name of TLE, iTechnologies’ subcontractor.

The SBA’s 100 percent improper payment rate on these invoices represents a systemic problem 

in the agency’s invoicing and payment processes. In the Agency’s Financial Report for FY 2011, 

the SBA Administrator acknowledged that its contracting program was at significant risk of 

improper payments and estimated that its improper payment rate was 89 percent. 

The SBA’s invoice review and approval processes, coupled with contracting personnel’s inability 

to adhere to established guidance, created an environment susceptible to making improper 

payments.

Examples of Ineffective Invoice Processes by the Denver Finance Center

We determined that deficiencies within the Denver Finance Center’s invoice payment process 

and its lack of internal controls significantly contributed to the SBA’s $3.3 million in improper 

payments on iTechnologies’ invoices. According to payment personnel, they processed every 

invoice for payment that they received as long as it had a signature and a purchase order 

number without validating the approving authority of the signatory. If such a requirement 

existed, these personnel should have found that unauthorized individuals approved 28 of the 

179 iTechnologies invoices. 

Similarly, the SBA did not have a procedure in place to ensure that payment personnel only 

processed payments for invoices that included a receiving report. However, personnel at the 

Denver Finance Center processed 179 iTechnologies invoices for payment that did not include a 

receiving report to substantiate the receipt of goods. To mitigate the risk of paying invoices for 

items not received by agencies, the FAR requires that agencies support all invoice payments 

with a receiving report or any other documentation authorizing payment such as a government 

certified voucher.

36

We performed a limited inventory review37 of items procured under contracts awarded to 

iTechnologies to validate whether the SBA obtained a benefit from the $3.3 million in invoice 

payments made to iTechnologies. We determined that the SBA could not locate approximately 

17 of the 18 invoiced items identified in our limited review. Thus, the SBA could not validate 

whether it received from the product or service called for in its contracts with iTechnologies. 

 

36 FAR Subpart 32.905(c), Payment Documentation and Process

37 The audit team performed an inventory review of 18 randomly selected items procured by the SBA under IDIQ

 contract SBAHQ-09-D-0009.
15

Management should have ensured that finance specialists determined whether the 179 

iTechnologies’ invoices were proper and included the required receiving report or supporting 

documentation prior to processing invoice payments. A more thorough review by the finance 

specialists should have detected and prevented the following payment errors:

Payments totaling $188,934.00 that were made directly to iTechnologies’ subcontractor, 

TLE;

$1,587,584.57 in payments that were sent to an unregistered bank account for 90 of 

iTechnologies’ invoices;38

28 iTechnologies invoice payments that were approved by unauthorized contracting 

personnel;

An overpayment of $12,073.00 that was made to iTechnologies; and

$267,943.50 in payments that were made on 22 of iTechnologies’ invoices prior to task 

order issuance, which may have created an unauthorized commitment or potential 

Antideficiency Act violation.

Had adequate internal controls existed and certifying officials performed oversight, finance 

specialists at the Denver Finance Center should have rejected each of iTechnologies’ 179 

invoices that contracting personnel and unauthorized individuals39 had improperly approved.

According to a division manager40 at the Denver Finance Center, the invoice payment process 

was vulnerable to improper payments due to known internal control weaknesses.

Another weakness resulted from the SBA not fully interfacing its procurement system, the

Procurement Information System for Management (PRISM41), and its accounting management 

system, Joint Administrative Accounting Management System (JAAMS42). Without fully 

interfacing PRISM and JAAMS, finance specialists at the Denver Finance Center processed 

payments manually using purchase order numbers rather than task order numbers.

This exposed the SBA to vulnerabilities in making improper payments because there was no 

guarantee that the procured items were placed on contract. Similarly, the SBA potentially 

violated the Antideficiency Act because the contracting officer may not have obligated the funds 

necessary to cover the cost of goods and services not placed on contract. By fully interfacing

information in PRISM and JAAMS, the SBA could significantly reduce its risk of future improper 

payments because the systems would automatically validate whether:

Contracts or task orders exist; 

The purchase order numbers corresponds with a contract or task order number; and

Invoices correspond with both the purchase order numbers and the contract or task 

order numbers.

 

38 The unregistered account belonged to iTechnologies but since the account was unregistered it violated contract

 terms and conditions.

39 See page 18 for a discussion on unidentified and unauthorized individuals approving iTechnologies’ invoices.

40 The division manager was a position within the SBA’s Administrative Accounting Division. 

41 PRISM is the procurement system used by the SBA to maintain its contracting actions. 

42 JAAMS is the accounts payable system that the SBA uses to process invoice payments.
16

Conclusion

Deficiencies within the SBA’s internal controls for its invoice review and approval process 

created an environment susceptible to significant improper payments. Safeguards were not in 

place to ensure that contracting officers reviewed vendor invoices and only approved proper 

invoices. Similarly, payment personnel failed to review vendor invoices and made payments 

without knowing whether the signatory had authority to approve the invoice or obtaining the 

necessary receiving reports to substantiate the receipt of goods. In addition, SBA management 

ignored known vulnerabilities within its contracting and payment systems that placed the SBA at 

high risk for making improper payments. Had SBA management taken action to address internal 

control weaknesses, its personnel should have rejected each of iTechnologies $3.3 million in 

invoices and withheld payments until iTechnologies’ invoices were proper and properly 

approved.

Recommendations

We recommend that the Chief Financial Officer:

7. Conduct an internal control review of SBA’s acquisition function in compliance with

OMB Circular A-123 and OMB Memorandum, Conducting Acquisition Assessments under 

OMB Circular A-123.

8. Based upon the SBA’s internal control review, update internal controls and implement 

procedures that are essential to an efficient, effective, and accountable acquisition process. 

9. Conduct an internal control review of SBA’s Denver Finance Center in compliance with 

OMB Circular A-123 and include the results in the annual Agency Financial Report (AFR).

10. Update payment processing internal controls and implement procedures that are essential 

to an efficient, effective, and accountable acquisition process. 

11. Recover $12,073 from iTechnologies for payments the contractor received in duplicate;

12. Establish and implement an invoice review processes that limits invoice review to 

contracting officers or individuals with appropriately delegated authority.

13. Establish and implement a procedure to provide payment personnel with a list of personnel 

authorized to approve invoices that should be updated at least quarterly and specific to the 

contracts that non-contracting officers are permitted to approve.

14. Establish and implement an invoice approval procedure that includes attaching and 

reviewing a receiving report to each invoice, prior to payment processing;

15. Establish and implement an automatic interface between PRISM and JAAMS to ensure that 

invoice payments are tied to contract numbers instead of purchase order numbers.
17

Agency Comments and Office of Inspector General Response

On September 28, 2012, we provided a draft of this report to the SBA’s Office of the Chief 

Financial Officer (OCFO) for comment. On November 5, 2012, the CFO submitted formal 

comments, which are included in their entirety in Appendix IV. The agency provided four 

technical comments on information contained in the draft report, as well as comments on each 

of the fifteen recommended actions. Overall, the CFO concurred with our findings and 

recommendations but emphasized that the information technology contracts identified in the 

report predated the transition of the SBA’s acquisition function to the OCFO. In addition, the 

CFO acknowledged that significant issues existed with these information technology contracts; 

however, the CFO stated that his office learned from past errors and took steps to improve the 

SBA’s acquisition process. We consider management’s comments to be responsive to 9

recommendations, partially responsive to 3 recommendations,and non-responsive to the 

remaining 3 recommendations. A summary of management’s technical comments, 

recommendation-specific comments, and our responses follows on the next page. 
18

Table 3 Agency Technical Comments and OIG Response

Comment 

Number Draft Report Agency Comment OIG Response

1

Review of Internal Controls

However, SBA management 

has not conducted an 

internal control review of its 

acquisition function since 

fiscal year (FY) 2007.

According to the CFO, the SBA’s Office of 

Internal Control performed this review 

during May 2012 and presented its 

assessment to the acquisition 

management team in October 2012.

We consider management’s 

comment to be non-responsive to 

the intent of this report. The 

OCFO’s Office of Internal Control 

performed a review. However, it 

did not comply with requirements 

established by the OMB in its 

memorandum titled Conducting 

Acquisition Assessments Under 

OMB Circular A-123, dated

May 21, 2008.

2

P. 12, Finding

Further, the SBA’s 

procurement and accounting 

systems did not fully 

interface, which exposed the 

SBA to vulnerabilities to 

making improper payments.

According to the CFO, he agreed with 

this statement but emphasized that the 

procurement and accounting systems 

are currently interfaced, except the 

commitment to obligation phase, which 

remains a manual process.

We consider management’s 

comment to be non-responsive to 

the intent of this report. Until the 

SBA fully interfaces its 

procurement and accounting 

systems and discontinues its use 

of a manual process in the commit 

to obligate phase, the SBA will 

continue to expose itself to the 

vulnerabilities of making improper 

payments.

3

P. 15, Examples of 

Ineffective Invoice 

Processes by the Denver 

Finance Center

The CFO explained that interfacing the 

SBA’s procurement and accounting 

systems will be complete once the 

agency converts its commitment to 

obligation phase from a manual to 

electronically automated process. In 

addition, the CFO stated that the OIG’s 

report did not explain how an automatic 

interface between the procurement and 

accounting systems would reduce the 

number of improper payments. 

According to the CFO, he believed 

ensuring that contract data is complete, 

rather than interfacing these two 

systems, would reduce the SBA’s 

number of improper payments.

We consider management’s 

comment to be non-responsive to 

the intent of this report. Since the 

SBA did not fully integrate its 

procurement and accounting 

systems, the agency paid invoices 

based on purchase order 

numbers. Contracting personnel 

did not place these purchase 

orders on contracts, which 

resulted in numerous 

unauthorized commitments. 

Similarly, weak internal controls in 

the contract writing and payment 

systems enabled the SBA to issue 

improper payments.

4

P. 15, Examples of 

Ineffective Invoice 

Processes by the Denver 

Finance Center

Similarly, the SBA potentially 

violated the Antideficiency 

Act because the contracting 

office may not have 

obligated the funds 

necessary to cover the cost 

of the foods and services not 

placed on the contract.

The CFO stated that he disagreed with 

this statement. According to the CFO, 

mentioning the potential of an 

Antideficiency Act violation was 

redundant with a prior OIG report and 

out of scope for this audit.

We consider management’s 

comment to be non-responsive to 

the intent of this report. The OIG 

stands behind its statement that 

the SBA potentially violated the 

Antideficiency Act. The SBA’s 

practice of issuing payments 

based on purchase order numbers 

rather than contracts resulted in 

improper payments that may also 

have led to an Antideficiency Act 

violation. The SBA has not taken 

action on our previous 

recommendation to determine 

whether the SBA’s actions 

resulted in an Antideficiency Act 

violation.
19

Recommendation 1 – We recommend that the SBA’s Suspension and Debarment Official take 

action to complete debarment proceedings for iTechnologies to prohibit future contracting with 

any agency of the Executive Branch of the United States Government.

Agency Comments

Management neither concurred nor non-concurred with this recommendation. However, the 

CFO stated that this matter is under review.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Recommendation 2 – We recommend that the SBA’s Suspension and Debarment Official initiate 

debarment proceedings for TLE and its officials to prohibit future contracting with any agency of 

the Executive Branch of the United States Government.

Agency Comments

Management neither concurred nor non-concurred with this recommendation. However, the 

CFO stated that this matter is under review.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Recommendation 3 – We recommend that the SBA’s Chief Financial Officer establish and 

implement a procedure that aligns with the FAR to require contracting officers to determine 

whether prospective contractors are “responsible” prior to awarding a contract.

Agency Comments

Management concurred with this recommendation. Specifically, the CFO stated he agreed that 

contracting officers should follow the FAR when determining whether a prospective contractor 

is “responsible” prior to awarding a contract. However, the CFO emphasized that the 

contracting officers associated with the award of these information technology contracts no 

longer work for the SBA, and these actions occurred prior to the SBA transitioning the 

procurement function to the OCFO. In addition, the SBA is rewriting its SOP and contracting 

officer’s desk manual, which will establish a policy that defines the procedures a contracting 

officer should take to determine whether an prospective contractor is “responsible” prior to 

award.

OIG Response

We consider management’s comments to be responsive to this recommendation.
20

Recommendation 4 – We recommend that the Chief Financial Officer demonstrate that SBA 

contracting personnel are proficient at conducting price analyses used to establish whether 

proposed prices are fair and reasonable and in accordance with FAR requirements.

Agency Comments

Management concurred with this recommendation. According to the CFO, contracting 

personnel should conduct price analyses to establish whether proposed prices are fair and 

reasonable and in accordance with FAR requirements. However, the CFO reiterated that the 

contracting officers associated with these information technology contracts no longer work for 

the SBA, and he emphasized that the OIG’s report did not highlight an ongoing problem with the 

performance of price analyses. 

OIG Response

We consider management’s comments to be partially responsive to this recommendation.

The CFO stated his concurrence that contracting personnel should conduct price analyses to 

establish fair and reasonable prices. However, the CFO’s comments also imply that he does not 

believe the SBA currently has a problem with its price reasonableness determinations. 

Accordingly, the CFO did not identify a plan or his intention to ensure that contracting personnel 

establish fair and reasonable prices. To comply with this recommendation, the CFO should have 

SBA contracting personnel demonstrate proficiency at conducting price analyses in compliance

with the FAR. 

Recommendation 5 – We recommend that the Chief Financial Officer require contracting 

personnel to maintain all records used to establish a fair and reasonable price, consistent with 

FAR requirements.

Agency Comments

Management neither concurred nor non-concurred with this recommendation. Instead, the 

CFO requested that the OIG clarify this recommendation. The CFO stated that the contracting 

officers associated with these information technology contracts no longer work for the SBA,

and he emphasized that the OIG’s report did not highlight an ongoing problem with the 

establishment of fair and reasonable prices. In addition, the CFO referenced several FAR 

citations and discussed the requirements for awarding 8(a) contracts. The CFO concluded that 

the FAR does not require agencies to establish competition in order to make an 8(a) sole source 

award at a fair market price.

OIG Response

We consider management’s comments to be non-responsive to this recommendation.

The CFO accurately stated that the contracting officers and management originally responsible 

for these information technology contracts no longer work for the SBA. However, the SBA must 

do more than merely hiring new staff to prevent the continuation or recurrence of previous 

problems. While the CFO included several FAR citations, the CFO’s comments did not discuss 

the policies or procedures used by SBA personnel to document their determinations of fair and 

reasonable prices. The FAR requires contracting officers to purchase supplies from a responsible 
21

source at a fair and reasonable price, regardless of the vendor’s small business status.

Similarly, the FAR requires the head of each office performing contracting, contract 

administration, or paying functions to maintain records of all contractual actions, which includes 

price reasonableness determinations. The FAR explains that documentation within the 

contracting files must be sufficient to constitute a complete history of the transactions. This 

includes the following:

Providing a complete background as a basis for informed decisions at each step in the 

acquisition process;

Supporting actions taken;

Providing information for reviews and investigations; and

Furnishing essential facts in the event of litigation or congressional inquiries.

Recommendation 6 – We recommend that the Chief Financial Officer establish and implement a 

procedure to verify routinely that contracting officers are documenting price analyses used to 

establish price reasonableness.

Agency Comments

Management neither concurred nor non-concurred with this recommendation. The CFO stated 

that the FAR requires contracting officers to maintain a contract file that includes the data and 

information used to a establish price reasonableness determination. However, the FAR does not 

specify the type of documentation that should support a price analysis. According to the CFO, 

the SBA will revise its SOP and the contracting officer’s desk manual to provide guidance on the 

data and information that the contracting officer should maintain to support their price 

reasonableness determination.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Recommendation 7 – We recommend that the Chief Financial Officer conduct an internal control 

review of SBA’s acquisition function in compliance with OMB Circular A-123 and OMB 

Memorandum, Conducting Acquisition Assessments under OMB Circular A-123.

Agency Comments

Management concurred with this recommendation. According to the CFO, a review of internal 

controls was performed in compliance with OMB Circular A-123 during May 2012. The results of 

this review were presented to the Acquisition Division in October 2012.

OIG Response

We consider management’s comments to be non-responsive to this recommendation.

The OCFO’s Office of Internal Controls performed an internal control review and provided its 

results to the OIG in November 2012. However, the OCFO’s review did not comply with the 

requirements established by the OMB in its memorandum titled Conducting Acquisition 

Assessments under OMB Circular A-123, dated May 21, 2008. For example, the SBA did not 

assess internal controls related to the four cornerstones: 1) organizational alignment and 
22

leadership, 2) policies and processes, 3) human capital, and 4) information management and 

stewardship. The agency’s FY 2012 review was completed in accordance with OMB Circular A123, Appendix A: Internal Control over Financial Reporting, December 2 1, 2004.

Recommendation 8 – We recommend that the Chief Financial Officer based upon the SBA’s 

internal control review, update internal controls and implement procedures that are essential to 

an efficient, effective, and accountable acquisition process.

Agency Comments

Management concurred with this recommendation. The CFO stated he would update internal 

controls, associated procedures, and revise the SOP by December 2012.

OIG Response

We consider management’s comments to be partially responsive to this recommendation. We 

welcome an update to the SBA’s Standard Operating Procedures by December 2012. However, 

the update will likely not address all internal control weaknesses, as the SBA’s internal control 

review was not compliant with OMB Memorandum, Conducting Acquisition Assessments under 

OMB Circular A-123, May 21, 2008. To adequately address this recommendation, the SBA needs 

to conduct an internal control review that is compliant with this memorandum and update 

internal controls to address any weaknesses identified.

Recommendation 9 – We recommend that the Chief Financial Officer conduct an internal control 

review of SBA’s Denver Finance Center in compliance with OMB Circular A-123 and include the 

results in the annual Agency Financial Report (AFR).

Agency Comments

Management neither concurred nor non-concurred with this recommendation. Instead, the 

CFO requested that the OIG clarify the recommendation. In addition, the CFO stated that the 

agency’s internal control review is of processes rather than individual offices. As such, if SBA 

personnel responsible for conducting the internal control review identified a material weakness 

within the any of the SBA’s processes, that weakness would be reported within the annual 

Agency Financial Report.

OIG Response

We consider management’s comments to be non-responsive to this recommendation because 

SBA’s internal control review was not compliant with OMB’s Memorandum for Chief Acquisition 

Officers, Conducting Acquisition Assessments under OMB Circular A-123, May 21, 2008.

Recommendation 10 – We recommend that the Chief Financial Officer update payment 

processing internal controls and implement procedures that are essential to an efficient, 

effective, and accountable acquisition process.
23

Agency Comments

Management concurred with this recommendation. The CFO stated that once the SOP revision 

to acquisition process procedures is complete the Acquisition Division and Administrative 

Accounting management teams would coordinate to improve internal controls and implement 

procedures to improve the acquisition payment process.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Recommendation 11 – We recommend that the Chief Financial Officer recover $12,073 from 

iTechnologies for payments the contractor received in duplicate.

Agency Comments

Management neither concurred nor non-concurred on this recommendation. However, the CFO 

stated that his office would consult with the SBA’s Office of General Counsel on the recovery of 

$12,073 from iTechnologies.

OIG Response

We consider management’s comments to be responsive to the intent of this recommendation.

Recommendation 12 – We recommend that the Chief Financial Officer establish and implement 

an invoice review processes that limits invoice review to contracting officers or individuals with 

appropriately delegated authority.

Agency Comments

Management concurred with this recommendation. The CFO stated that the agency would 

implement its new invoice review process in December 2012 along with a corresponding SOP.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Recommendation 13 – We recommend that the Chief Financial Officer establish and implement 

a procedure to provide payment personnel with a list of personnel authorized to approve invoices 

that should be updated at least quarterly and specific to the contracts that non-contracting 

officers are permitted to approve.

Agency Comments

Management partially concurred with this recommendation. According to the CFO, the SBA 

completed corrective action by updating the list of certified Contracting Officer’s 

Representatives (COR) maintained within the SBA’s procurement system. 
24

OIG Response

We consider management’s comments to be partially responsive to this recommendation.

The OCFO’s stated action of updating the certified COR list within PRISM on a monthly basis is a 

good first step. However, updating the COR list without identifying which contracts the COR is 

assigned to will not help payment personnel determine whether invoices were approved by 

authorized personnel. Similarly, the CFO did not address the first portion of this

recommendation about establishing a policy and implementing a procedure requiring payment 

personnel to validate that an authorized individual approved each invoice for payment. 

Recommendation 14 – We recommend that the Chief Financial Officer establish and implement 

an invoice approval procedure that includes attaching and reviewing a receiving report to each 

invoice, prior to payment processing.

Agency Comments

Management concurred with this recommendation. The CFO stated that his office implemented 

invoice approval procedures that include attaching a receiving report prior to the invoice prior 

to payment. In addition, the CFO stated that this updated invoice approval procedure would be 

included in the revised SOP.

OIG Response

We consider management’s comments to be responsive to this recommendation. 

Recommendation 15 – We recommend that the Chief Financial Officer establish and implement 

an automatic interface between PRISM and JAAMS to ensure that invoice payments are tied to 

contract numbers instead of purchase order numbers.

Agency Comments

Management concurred with this recommendation. According to the CFO, since 2008 the OCFO 

has worked to interface PRISM and JAAMS. Once the interface is complete during FY 2013,

the contract number and purchase order number will be the same number.

OIG Response

We consider management’s comments to be responsive to this recommendation.

Actions Required

Please refer to the transmittal letter for specific instructions on providing your corrective 

action(s) and target dates for completion or reasons for disagreement on the final audit report.
25

Appendix I: Scope and Methodology

We conducted this audit from April 2011 to May 201243 in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on 

our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

The overall objective of this audit was to determine whether the SBA effectively managed information 

technology (IT) contracts awarded to Isika Technologies, Inc. (iTechnologies). Specifically, we 

determined whether the prime contractor and its subcontractor performed contract requirements in 

accordance with the 8(a) program policies, guidance, and statutory requirements. Additionally, we 

determined whether contracting personnel administered IT hardware and software contracts in 

accordance with federal and SBA policies, guidance, and statutory requirements.

To achieve our audit objectives, we reviewed the SBA's iTechnologies contract files, to include each 

Indefinite Delivery/Indefinite Quantity (IDIQ) contract, blanket purchase agreement (BPA), purchase 

order, task order and modification that the SBA maintained. We also interviewed personnel from the 

SBA's Office of the Chief Information Officer (OCIO), the Office of the Chief Financial Officer (OCFO),

iTechnologies, and iTechnologies’ subcontractor, The Look Enterprises, Inc. (TLE). Additionally, we 

obtained records held by Mr. Philip Isika, president and registered agent, of iTechnologies; the Texas 

Workforce Commission; Wells Fargo Bank; and Mr. James E. Selmon, president and chief executive 

officer of TLE. We also reviewed pertinent Code of Federal Regulations, Federal Acquisition Regulations, 

the United States Code, and the U.S. Government Accountability Office’s Principles of Federal 

Appropriations Law (Red Book).

Use of Computer Processed Data

We obtained view-only access to the SBA’s accounting management system, Joint Administrative 

Accounting Management System (JAAMS), in order to retrieve invoice payment data for iTechnologies 

invoices processed for payment within JAAMS. We validated these invoice payment reports with 

iTechnologies invoices maintained at the SBA Denver Finance Center. We determined that each invoice 

corresponded with one invoice payment within the JAAMS report. Because we could not obtain access 

to Automatic Clearing House (ACH) bank account information within JAAMS, we relied on personnel 

from the SBA Denver Finance Center to obtain the JAAMS bank account payment reports. Similarly, we 

relied on personnel from the SBA Denver Finance Center to obtain ACH bank account information for 

iTechnologies from the Central Contractor Registry.

Prior Coverage

The SBA OIG issued the following two reports that focused on the planning and award, and funding of IT 

hardware and software contracts awarded to iTechnologies:

1. Report Number 11-08, February 25, 2011, SBA’s Procurement of Information Technology 

Hardware and Software Through Isika Technologies, Inc., reported that the SBA 

inadequately planned and inappropriately awarded two 8(a) sole-source IDIQ contracts and 

 

43 This audit was suspended from August 2011 through February 2012 due to resource constraints.
26

a BPA to iTechnologies for the procurement of IT hardware and software. Specifically, the 

IDIQ contracts and BPA awarded to iTechnologies did not qualify as 8(a) sole-source 

procurements under the non-manufacturer rule.

2. Report Number 11-14, June 2, 2011, SBA’s Funding of Information Technology Contracts 

Awarded to Isika Technologies, Inc., reported that SBA officials improperly funded contracts 

awarded to iTechnologies for the procurement of IT hardware and software. Specifically, 

the SBA violated the bona fide needs rule relating to its FY 2009 and FY 2010 annual 

appropriations. The SBA also risked violating the Anti-Deficiency Act by obligating expired 

FY 2010 annual funds during FY 2011 with no assurance that the agency had funds available 

to cover these inappropriate expenditures.
27

Appendix II: Contracts Awarded to iTechnologies

During fiscal years 2009-2011, the SBA awarded two Indefinite Delivery/Indefinite Quantity (IDIQ) 

contracts, a Blanket Purchase Agreement (BPA), and six purchase order contracts to iTechnologies for 

the procurement of information technology (IT) hardware and software, totaling $7,614,202, as 

demonstrated in Table 4:

Table 4 Contracts Awarded to iTechnologies for the Procurement of IT Hardware and Software

Award Date Contract Vehicle Contract Number Initial 

Contract 

Value

Contract Value 

Including 

Modifications

09/21/2009 IDIQ SBAHQ-09-D-0009 $ 5,000,000 $ 4,070,480

12/09/2009 IDIQ SBAHQ-10-D-0001 2,000,000 2,000,000

02/18/2010 BPA SBAHQ-10-A-0001 1,372,260 1,372,260

03/11/2010 Purchase Order SBAHQ-10-M-0111 76,369 76,369

03/19/2010 Purchase Order SBAHQ-10-M-0118 16,198 16,198

03/19/2010 Purchase Order SBAHQ-10-M-0119 11,847 11,847

04/05/2010 Purchase Order SBAHQ-10-M-0130 40,067 40,067

04/10/2010 Purchase Order SBAHQ-10-M-0135 3,287 3,287

01/20/2011 Purchase Order SBAHQ-11-M-0065 23,694 23,694

TOTAL: $ 8,543,722 $ 7,614,202
28

Appendix III: Indefinite Delivery Indefinite Quantity Contracts

Indefinite Delivery/ Indefinite Quantity (IDIQ) contracts provide the indefinite quantity of services for a 

fixed time. They are used when the General Services Administration (GSA) cannot determine, above a 

specified minimum, the precise quantities of supplies or services that the government will require 

during the contract period. They help streamline the contract process and speed service delivery.

These contracts are most often used for service contracts and architect-engineering services. Awards 

are usually for base years and option years. The government places delivery orders (for supplies) or task 

orders (for services) against a basic contract for individual requirements. Minimum and maximum 

quantity limits are specified in the basic contract as either number of units (for supplies) or as dollar 

values (for services).

According to the FAR, there are three types of indefinite-delivery contracts: definite-quantity contracts, 

requirements contracts, and indefinite-quantity contracts. Further, “The appropriate type of indefinitedelivery contract may be used to acquire supplies and/or services when the exact times and/or exact 

quantities of future deliveries are not known at the time of contract award.

44” Pursuant to 

10 U.S.C. 2304d and section 303K of the Federal Property and Administrative Services Act of 1949, 

requirements contracts and indefinite-quantity contracts are also known as delivery-order contracts or 

task-order contracts.

 

44 FAR Subpart 16.501-2(a), Indefinite-Delivery Contracts
29

Appendix IV: Agency Comments

U.S. SMALL BUSINESS ADMINISTRATION

WASHINGTON, D.C. 20416

TO: John K. Needham

Assistant Inspector General for Auditing, Office of Inspector General

FROM: Jonathan Carver

Chief Financial Officer, Office of the Chief Financial Officer

DATE: November 5, 2012

SUBJECT: OCFO’s Response to OIG’s Draft Advisory Memorandum on SBA Mismanaged 

Certain 8(a) Information Technology Contracts dated September 28, 2012

OCFO concurs with the findings and recommendations found in the Draft Advisory Report 

entitled “The SBA Mismanaged Certain 8(a) Information Technology Contracts.” OCFO 

appreciates the opportunity to review this draft advisory opinion on the mismanagement of the 

ITechnologies 8(a) contracts. OCFO would like to highlight that this contract mismanagement 

occurred prior to the transition of the acquisition function to OCFO. Since the transition of the 

acquisition function to OCFO, the CFO and the Acquisition Division management have 

attempted to not only resolve the significant issues related to the award of the contracts but to 

learn from the past errors and improve the acquisition process at the SBA from award to closeout. 

The OCFO has the following specific comments on the draft report:

P. 3 of the Report, “Review of Internal Controls” paragraph, 2nd to last sentence in 

this paragraph that states “However, SBA management has not conducted an 

internal control review of its acquisition function since fiscal year (FY) 2007.”: This 

sentence is incorrect. The SBA’s Office of Internal Controls conducted an internal 

control review of the acquisition function in May 2012. The Office of Internal Controls 

presented its assessment to the acquisition management team in October 2012.
30

P. 12 of the Report, 1st paragraph, 2nd to last sentence that states “Further, the 

SBA’s procurement and accounting systems did not fully interface, which exposed 

the SBA to vulnerabilities to making improper payments.”: While OCFO does not 

disagree with this statement, OCFO would like to note that as stated in the OCFO 

comments to the OIG Proposed Management Challenge 11 that the procurement and 

accounting systems are currently interfaced with one exception, the commitment to 

obligation phase is a manual process.

P. 15, 2nd full paragraph: OCFO would like to note that as stated in the OCFO 

comments to the OIG Proposed Management Challenge 11 that the procurement and 

accounting systems are currently interfaced with one exception, the commitment to 

obligation phase is a manual process. OCFO would also like to include that the report 

does not state how automating and interfacing the systems could specifically reduce the 

number of improper payments. Ensuring that the contract data is complete would be a 

more accurate diagnosis of reducing improper payments than the system interface.

P. 15, 3rd bullet at the top of the page & 2nd full paragraph, 2nd to last sentence 

which states “Similarly, the SBA potentially violated the Antideficiency Act because 

the contracting officer may not have obligated the funds necessary to cover the cost 

of the foods and services not placed on the contract.” : OCFO continues to disagree 

with the OIG’s assessment of the potential ADA violation. OCFO expressed this 

disagreement in in response to OIG Report 11-14, Rec. 4. Furthermore, mentioning the 

potential ADA violation in this report is redundant and out of scope since the OIG 

already issued a report on this assertion and OCFO appropriately responded.

In addition to the draft report comments, OCFO submits the following comments on 

the recommendations offered in the draft report:

OIG Recommendations to CFO in BOLD

1) Take action to complete debarment proceedings for ITechnologies to prohibit future

contracting with any agency of the Executive Branch of the United States 

Government.

This matter is under review.

2) Initiate debarment proceedings for TLE and its officials to prohibit future 

contracting with any agency of the Executive Branch of the United States 

Government.

This matter is under review.
31

3) Establish and Implement a procedure that aligns with the FAR to require 

contracting officers to determine whether prospective contractors are "responsible" 

prior to awarding a contract:

The OCFO concurs with the OIG on the point that contracting officers should follow the 

FAR in determining whether prospective contractors are “responsible” prior to awarding 

a contract (and that if SBA determines a small business apparent successful offeror to be 

nonresponsible, it will refer the matter to SBA for a Certificate of Competency). 

However, the contracting officers associated with the matter discussed in this report are 

no longer employed at the SBA. These actions occurred prior to the transition of the 

acquisition function to OCFO. While OCFO concurs that the agency’s contracting 

officers should follow the FAR in determining whether a prospective contractor is 

responsible, the OIG has not indicated that SBA is currently not following the FAR in 

making this determination. Additionally, SBA is working on the Acquisition Division 

SOP Re-write and Contracting Officer’s desk manual, which will establish and 

implement procedures in determining whether prospective contractors are “responsible” 

prior to award. 

4) Demonstrate that SBA contracting personnel are proficient at conducting price 

analyses used to establish whether proposed prices are fair and reasonable and in 

accordance with FAR requirements.

The OCFO concurs with the OIG on the recommendation that contracting personnel

should conduct price analyses to establish whether proposed prices are fair and 

reasonable and according to FAR requirements. However, the contracting officers 

associated with the matter discussed in this report are no longer employed at the SBA. 

These actions occurred prior to the transition of the acquisition function to OCFO. While 

OCFO concurs that the agency’s contracting officers should follow the FAR in 

determining whether proposed prices are fair and reasonable, the OIG has not indicated 

that SBA is currently not following the FAR in making this determination.

5) Require contracting personnel to maintain all records used to establish a fair and 

reasonable price, consistent with FAR requirements.

OCFO would like the OIG to clarify this recommendation. OCFO would like to reiterate 

that the contracting officers and management associated with the matter discussed in this 

report are no longer employed at the SBA’s Acquisition Division. These actions 

occurred prior to the transition of the acquisition function to OCFO. There is no 

indication that the current contracting personnel and management do not properly 

establish a fair and reasonable price. For example, SBA follows FAR procedures when 

awarding sole source 8(a) contracts. According to the FAR 19.807, contracting officers 
32

estimate the fair market price of the work to be performed by the 8(a) contractor and may 

use cost or price analysis and consider commercial prices for similar products and 

services, available in-house cost estimates, data (including certified cost or pricing data) 

and data obtained from any other Government agency when making this determination. 

The FAR defines “fair market price” with regard to the small business program to mean 

“a price based on reasonable costs under normal competitive conditions and not on 

lowest possible cost (see 19.202-6).” FAR § 19.001. Thus, contrary to the OIG’s 

assertion, competition is not necessarily required to ensure a contract award is for a fair 

and reasonable price; agencies can and do issue 8(a) sole source awards at a fair market 

price. 

6) Establish and implement a procedure to verify routinely that contracting officers 

are documenting price analyses used to establish price reasonableness.

FAR 4.803(a)(17) states that data and information related to the contracting officer’s 

determination of a fair and reasonable price is a record normally contained in a contract 

file. The FAR does not necessarily require detailed narratives or “screen shots” to 

support a price analysis. However, SBA is working on the Acquisition Division SOP Rewrite and Contracting Officer’s desk manual, and will set forth guidance with respect to 

the data and information that should be in the contract file to support the contracting 

officer’s determination. 

7) Conduct an internal control review of SBA's acquisition function in compliance with 

OMB Circular A-123 and OMB Memorandum, Conducting Acquisition 

Assessments under OMB Circular A-123.

OCFO agrees with this recommendation and has already conducted the A-123 review of 

the acquisition function in May 2012. The Office of Internal Controls presented the 

results of the A-123 review to the Acquisition Division in October 2012.

8) Based upon the SBA's internal control review, update internal controls and 

implement procedures that are essential to an efficient, effective, and accountable 

acquisition process.

OCFO concurs with this recommendation and will begin the implementation process of 

these controls and procedures and SOP re-write is scheduled to be completed by 

December 2012.
33

9) Conduct an internal control review of SBA's Denver Finance Center in compliance 

with OMB Circular A-123 and include the results in the annual Agency Financial 

Report (AFR).

OCFO would like this recommendation clarified. Appendix A of OMB Circular A-123 

prescribes the review of processes, not offices such as SBA’s DFC. Furthermore, the 

Office of Internal Controls already reviews processes (i.e. cash receipting, cash 

disbursement, travel, financial reporting, procurement, etc.) that occur at DFC, in 

compliance with OMB Circular A-123, Appendix A. If the Office of Internal Controls 

finds materials weaknesses from these process reviews, then the Office of Internal 

Controls would include these material weaknesses in the AFR’s Assurance Statement.

10) Update payment processing internal controls and implement procedures that are 

essential to an efficient, effective, and accountable acquisition process.

OCFO concurs with this recommendation. Once the acquisition process procedures are 

in place from the SOP re-write, the Acquisition Division management and the 

Administrative Accounting management will coordinate to improve internal controls and 

implement procedures to improve the acquisition payment process.

11) Recover $12,073 from ITechnologies for payments the contractor received in 

duplicate.

OCFO will consult OGC on this recovery action. 

12)Establish and implement an invoice review processes that limits invoice review to

contracting officers or individuals with appropriately delegated authority.

OCFO concurs with this recommendation and the invoice review process will be 

implemented with the completion of the SOP re-write in December 2012.

13)Establish and implement a procedure to provide payment personnel with a list of 

personnel authorized to approve invoices that should be updated at least quarterly 

and specific to the contracts that non-contracting officers are permitted to approve.

OCFO partially concurs with this recommendation. OCFO has accomplished this 

recommendation on the acquisitions side by monthly updates of the certified COR lists in 

PRISM.
34

14)Establish and implement an invoice approval procedure that includes attaching and

reviewing a receiving report to each invoice, prior to payment processing. 

OCFO concurs with this recommendation and has already implemented invoice approval 

procedures that include attaching a receiving report prior to payment process. This 

invoice approval procedure will be included in the SOP re-write as well.

15)Establish and implement an automatic interface between PRISM and JAAMS to 

ensure that invoice payments are tied to contract numbers instead of purchase order 

numbers: OCFO agrees with this recommendation. 

OCFO has partially interfaced PRISM and JAAMS and began the interface production in 

2008. When OCFO completes the interface, the contract number and purchase order 

number will be the same number. OCFO anticipates completing the interface within 

FY2013.