SMALL BUSINESS ADMINISTRATION’S FUNDING OF 

INFORMATION TECHNOLOGY CONTRACTS AWARDED TO 

ISIKA TECHNOLOGIES, INC. 

Report Number: 11-14 

Date Issued: June 2, 2011 
 

U.S. Small Business Administration 

Office of Inspector General Memorandum

To: Jonathan I. Carver 

Chief Financial Officer 

Date: June 2, 2011 

From: John K. Needham /s/ 

Assistant Inspector General for Auditing 

Subject: Small Business Administration’s Funding of Information Technology Contracts Awarded to 

Isika Technologies, Inc., Report No. 11-14 

This report presents the results of our audit of the Small Business Administration’s 

(SBA’s) funding of information technology (IT) hardware and software contracts 

awarded to Isika Technologies, Incorporated (iTechnologies). This is the second in a 

series of audit reports related to our ongoing audit of IT 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

 The objective of this 

audit was to determine whether SBA officials properly funded contracts awarded to 

iTechnologies for the procurement of IT hardware and software. 

To achieve the audit objective, we reviewed pertinent Code of Federal Regulations 

(CFR), Federal Acquisition Regulations (FAR), the U.S. Government Accountability 

Office (GAO) Principles of Federal Appropriations Law (Red Book), and SBA’s 

iTechnologies contract files. We also interviewed personnel from SBA’s Office of the 

Chief Information Officer (OCIO) and the Office of the Chief Financial Officer (OCFO). 

In addition, on February 25, 2011, we referred details of Indefinite Delivery/Indefinite 

Quantity (IDIQ) contract SBAHQ-09-D-0009 to the GAO for a decision on whether 

the SBA violated principles of appropriations law. As of the date of this report, GAO had 

not issued a decision. We conducted our review between January and March 2011 in 

accordance with Government Auditing Standards prescribed by the Comptroller General 

of the United States. 

BACKGROUND 

Contracts Awarded to iTechnologies. During fiscal year (FY) 2009 and FY 2010, the 

SBA awarded two IDIQ contracts, a Blanket Purchase Agreement (BPA), and five 

purchase order contracts totaling nearly $7,600,000 to iTechnologies for the procurement 

of IT hardware and software, as follows in Table 1: 

 

1

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

 Inc., February 25, 2011. 
2 

Table 1. Contracts Awarded to iTechnologies for the 

Procurement of IT Hardware and Software

Date Contract Vehicle Contract Number Initial 

Contract 

Value 

Contract Value 

Including 

Modifications 

9/21/2009 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 

2/18/2010 BPA SBAHQ-10-A-0001 1,372,260 1,372,260 

3/11/2010 Purchase Order SBAHQ-10-M-0111 76,369 76,369 

3/19/2010 Purchase Order SBAHQ-10-M-0118 16,198 16,198 

3/19/2010 Purchase Order SBAHQ-10-M-0119 11,847 11,847 

4/05/2010 Purchase Order SBAHQ-10-M-0130 40,067 40,067 

4/10/2010 Purchase Order SBAHQ-10-M-0135 3,287 3,287 

 TOTAL: $ 8,520,028 $ 7,590,508

IDIQ contracts are appropriate for procuring supplies and services when the government 

anticipates recurring requirements but cannot determine the precise quantities that will be 

needed within a specific period. An IDIQ contract establishes a minimum quantity or 

value of supplies and services to be purchased and may establish a maximum as well. 

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

purchase supplies and services that fulfill the government’s needs. 

Appropriating and Obligating Federal Funds. Congress appropriates funds to Federal 

agencies to carry out their mission. Funds are only available to meet a legitimate or bona 

fide need arising in the specified period for which the appropriation was made. This 

concept is known as the bona fide needs rule. Most funds discussed in this report were 

annual funds; therefore, they were available only during FY 2009 and FY 2010, 

respectively. After September 30 of each respective year, the annual appropriations 

expired and were no longer available for incurring and recording new obligations. 

In terms of appropriation law and its use in this report, an appropriation is available for 

use based on the concept of “obligating” the government. An agency must record an 

“obligation” against an appropriation at the time it incurs a legal liability for payment. 

An agency can incur a legal liability, that is, a claim that may be legally enforced against 

the government, by signing a contract. When an agency executes an indefinite-quantity 

contract such as an IDIQ contract, the agency must record an “obligation” in the amount 

of the required minimum purchase. At the time of award, the government has a fixed 

liability for the minimum amount to which it has committed. Additional obligations 

occur as task or delivery orders are issued and are charged to the fiscal year in which the 

order is placed. Thus, in the case of an IDIQ contract, the government incurs a legal 

liability in the amount of the guaranteed minimum at the time of contract award. 

An inappropriate obligation of funds arises when an agency obligates fixed-period funds 

on a contract in an attempt to both extend the life of those funds beyond their availability 

and to circumvent appropriations law. Inappropriately obligated funds are then used to 

procure goods or services in a subsequent fiscal year in the mistaken belief that the funds 

are no longer subject to the appropriation’s expiration and remain available indefinitely. 

As a result, agencies risk violating the Anti-Deficiency Act (ADA), which prohibits 
3 

agencies from making or authorizing an expenditure or obligation under an appropriation 

or fund in excess of the amount available. Insofar as annual funds expire at the end of the 

applicable fiscal year, they are no longer available for incurring and recording new 

obligations. Use of these expired funds may violate the ADA if an agency does not have 

access to available funds to cover these inappropriate obligations. 

The GAO is an independent, nonpartisan legislative branch agency that among other 

things, maintains the publication, Principles of Federal Appropriations Law, also known 

as the Red Book, which presents a basic reference work summarizing the Comptroller 

General’s decisions that clarify established federal fiscal laws. The Red Book was used 

as a reference during this review. 

RESULTS IN BRIEF 

Contracting and OCIO personnel did not properly fund IDIQ contract 

SBAHQ-09-D-0009 because they obligated $3.151 million2

 during FY 2009 and 

FY 2010 by issuing contract modifications without identifying specific requirements for 

IT hardware and software. Because the SBA did not use these obligated annual funds to 

purchase IT hardware or software during FY 2009 and FY 2010, we determined that the 

SBA was inappropriately obligating annual funds that otherwise would not have been 

available for use in a subsequent fiscal year. According to SBA personnel, this occurred 

because contracting officers did not review contract modification details prior to issuance 

and cited fiscal year-end constraints as the rationale for not performing a review3. As a 

result, the SBA: 1) violated the bona fide needs rule relating to its FY 2009 and FY 2010 

annual appropriations; 2) risked violating the ADA by obligating expired FY 2010 annual 

funds during FY 2011 with no assurance that the agency had funds available to cover 

these inappropriate expenditures; and 3) reported the inappropriate obligation of funds to 

the Federal Procurement Data System – Next Generation (FPDS-NG), which resulted in 

an overstatement of obligations to Small Disadvantaged Businesses (SDBs) in the 

FY 2009 Small Business Goaling Report and may also lead to incorrect SDB reporting in 

the FY 2010 Small Business Goaling Report. We did not identify any material funding 

issues for the IDIQ contract4

, the BPA5, or the five purchase orders6 awarded during FY 

2010. 

To address the funding issues identified in our audit, we recommended that the Chief 

Financial Officer (CFO) establish procedures to discontinue the SBA’s practice of 

inappropriately obligating funds on contracts in anticipation of future needs, de-obligate 

inappropriately obligated funds, and develop and provide training to OCIO and 

contracting personnel on the bona fide needs rule. We also recommended that the CFO 

 

2

 $266,000 and $1,025,000 in FY 2009 annual funds and $235,000, $45,000, and $1,580,000 in FY 2010 annual funds. See 

 Appendix A and B. 

3 FAR Subpart 1.602, “Contracting Officers,” states that no contract shall be entered into unless the contracting officer ensures that all 

requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have 

been met and that sufficient funds are available for obligation. 4 SBAHQ-10-D-0001

5 SBAHQ-10-A-0001

6 SBAHQ-10-M-0111; SBAHQ-10-M-0118; SBAHQ-10-M-0119; SBAHQ-10-M-0130; and SBAHQ-10-M-0135.
4 

determine whether the SBA violated the ADA and take appropriate action if a violation 

exists, review all ongoing SBA IDIQ contracts to ensure that task orders are being issued 

in accordance with FAR Subpart 16.505, and based on the IDIQ contracts review results, 

determine whether administrative actions are warranted against the contracting officers. 

Finally, we recommended that the CFO revise FPDS-NG data for contract SBAHQ-09-

D-0009 to ensure that inappropriately obligated funds are not included in the FY 2010 

Small Business Goaling Report. 

Management neither concurred nor non-concurred with the recommendations. However, 

management stated in their comments that actions were generally underway or 

improvements had already been made to address the deficiencies noted in the audit. 

Therefore, we consider management’s comments to be responsive to five of the 

recommendations, partially responsive to one of the recommendations, and nonresponsive to one of the recommendations. 

RESULTS 

SBA Obligated Funds Without Identifying a Bona Fide Need 

On September 21, 2009, the SBA awarded IDIQ contract SBAHQ-09-D-00097

 to 

iTechnologies for the procurement of IT hardware and software. The contract included a 

minimum guaranteed amount of $290,000 and a contract ceiling of $5 million. At the 

time the contract was awarded, the SBA obligated $290,0008

 of FY 2009 funds to meet 

the minimum guaranteed amount, as required by the FAR. 

However, the SBA did not identify a bona fide need to procure specific IT hardware and 

software items in conjunction with the obligation of these FY 2009 annual funds. 

Further, the SBA issued modifications 0001, 0004, 0005, and 0006, which obligated a 

total of $2,885,000 in FY 2009 and FY 2010 annual funds to the contract without 

identifying a specific need for IT hardware and software. Instead, the Agency identified 

specific needs for IT hardware and software at the task order level in subsequent fiscal 

years. 

SBA Inappropriately Obligated Funds to Extend Appropriations Beyond 

Availability 

At the end of FY 2009 and FY 2010, the SBA inappropriately obligated annual funds 

on IDIQ contract SBAHQ-09-D-0009 in an attempt to extend the available life of funds 

by circumventing appropriations law. When the contract was awarded on 

September 21, 2009, the SBA obligated the minimum guaranteed amount using FY 2009 

funds. Of the $290,000 that was obligated, $266,000 was FY 2009 annual funds 

 

7 SBAHQ-09-D-0009 is an IDIQ contract comprised of a base year beginning on September 21, 2009, and four 1 year options 

 beginning approximately on September 21 of 2010, 2011, 2012, and 2013. 8 SBAHQ-09-D-0009 initial funding included an additional $24,000 of no-year funding for a total obligation of $290,000 ($266,000 

 annual funds + $24,000 no-year funds). We are not questioning the obligation of $24,000 because those funds did not expire.
5 

and $24,000 was FY 2009 no-year funds9. One week later, on September 28, 2009, 

the SBA unilaterally modified the contract to increase the minimum guaranteed amount 

by $1,025,000, obligating additional FY 2009 annual funds. Since a minimum had 

already been established for this contract and no other contract terms were changed, 

the SBA received no benefit by increasing the minimum guaranteed amount. 

Federal funds are made available to agencies through appropriations acts and the 

subsequent administrative actions that release appropriations for obligation and 

expenditure. Unless otherwise stated in an appropriations act, all appropriations are 

presumed to be annual and may only be obligated within the fiscal year10for which they 

were appropriated. Further, the obligation must be for the needs of the current fiscal 

year, rather than the needs of a future fiscal year. 11 

According to SBA contracting personnel, annual funds were obligated on the IDIQ at the 

end of their respective fiscal years to extend the life of the appropriations. Contracting 

personnel further stated that once funds were obligated to an IDIQ contract, those funds 

were available over the life of the contract and did not expire until the contract was 

terminated. However, this assumption is false. Funds obligated to IDIQ contract 

SBAHQ-09-D-0009 in FY 2009 were annual funds12 and therefore, were available only 

for procurements that met the bona fide needs rule on task orders issued between 

September 21 and September 30, 2009. During this period, no task orders were awarded 

and the SBA did not procure any IT hardware and software until FY 2010. As a result, 

all FY 2009 annual funds obligated to meet the minimum guaranteed amount expired on 

October 1, 2009. 

Between September 21 and September 30, 2009, the SBA obligated $1,291,000 

in FY 2009 annual funds to IDIQ contract SBAHQ-09-D-0009. The Agency 

inappropriately obligated these annual funds in FY 200913, but waited until FY 2010 to 

use the funds to issue task orders to procure IT hardware and software. The OCIO 

established a self-described “draw down” spreadsheet to track the use of expired FY 2009 

annual funds as they were used to issue task orders in the subsequent fiscal year. 

As the OCIO identified specific goods to procure, funds were liquidated or “drawn 

down” as task orders were issued for contract SBAHQ-09-D-0009. The “draw down” 

account constituted a second use of the same expired appropriation, an inappropriate 

practice of fiscal law. In addition, since FY 2009 annual funds expired on 

September 30, 2009, task orders issued throughout FY 2010 should have been funded 

using FY 2010 appropriations. However, during FY 2010, the SBA inappropriately 

issued 27 task orders valued at $1,109,900 using previously obligated and expired 

FY 2009 annual funds. Appendix A identifies the inappropriately obligated FY 2009 

annual funds and the associated task orders issued against those expired funds. 

 

9 A no-year appropriation is available for obligation without fiscal year limitation. 10 The Federal Government fiscal year runs from October 1 to September 30. 11 31 U.S.C. 1502(a) 12 Of $1,315,000 obligated on IDIQ contract SBAHQ-09-D-0009, $1,291,000 was FY 2009 annual funds and $24,000 was no-year 

funds. 

13 We are not questioning the obligation of $24,000 for the original minimum guaranteed amount.
6 

Between September 9, 2010 and September 24, 2010, the SBA repeated the practice of 

inappropriately obligating funds by issuing three contract modifications14 that obligated 

$1,860,000 in FY 2010 annual funds but did not identify a need to procure IT hardware 

or software. SBA personnel stated that the purpose of obligating these FY 2010 annual 

funds was to provide funding for task orders issued at the beginning of FY 2011, since 

funds are not normally available at the beginning of a fiscal year. Under the FY 2011 

Continuing Resolution (CR),15 the SBA issued eight task orders valued at $245,313 using 

previously obligated FY 2010 annual funds. However, these FY 2010 annual funds 

expired on September 30, 2010 and therefore, were not available for use in FY 2011. 

Appendix B identifies the inappropriately obligated FY 2010 annual funds and the 

associated task orders issued against those expired funds. 

SBA Potentially Violated the Anti-Deficiency Act 

The ADA prohibits government officials from making or authorizing an expenditure 

or obligation under an appropriation or fund in excess of the amount available. Since 

October 1, 2010, the SBA has issued eight task orders valued at $245,313 using expired 

FY 2010 annual funds. The Federal government operated under a CR until April 8, 2011, 

when Congress finalized the FY 2011 budget. The CR authorized government agencies 

to continue operations at current or reduced funding levels. Since the SBA had not 

received full funding and did not know how much funding it would receive for FY 2011, 

it was possible that the Agency would not have had sufficient funds to cover the 

inappropriate expenditure of FY 2010 annual funds during FY 2011, as required by 

the ADA. 

SBA’s Annual Goaling Report 

In FY 2009, the SBA reported the original $290,000 obligation on IDIQ contract 

SBAHQ-09-D-0009 to the FPDS-NG. This obligation was included in the FY 2009 

Small Business Goaling Report. The Small Business Act requires that the President 

establish annual government-wide goals for Federal procurement contracts awarded to 

small business concerns at not less than 23 percent of the total value of all prime contract 

awards for each fiscal year. The SBA prepares the annual Small Business Goaling 

Report to measure each agency’s performance against small business goals. Each year, 

the Small Business Goaling Report is provided to the President and Congress. 

The SBA’s practice of inappropriately obligating funds on a contract without a specific 

bona fide need contributed to inaccuracies in the FY 2009 Small Business Goaling 

Report. Specifically, the $290,000 reported in the FY 2009 Small Business Goaling 

Report was not used to procure IT hardware and software under IDIQ contract 

SBAHQ-09-D-0009 during FY 2009. The practice of inappropriately obligating funds 

resulted in the SBA claiming an SDB purchase of $290,000 for obligations that were not 

used to procure IT hardware and software. As a result, the SBA recorded a purchase 

 

14 SBAHQ-09-D-0009 Modification 0004 valued at $235,000; Modification 0005 valued at $45,000; Modification 0006 valued at 

$1,580,000. 15 Public Law 111-242, “Continuing Appropriations Act, 2011” 
7 

from an SDB in FY 2009; however, the SBA did not identify a specific bona fide need, 

the SDB performed no work, and the Agency received no goods or services in FY 2009. 

Reports for FY 2010 from FPDS-NG for IDIQ contract SBAHQ-09-D-0009 included 

obligations made during FY 2009 and FY 2010, totaling $2,885,000 in inappropriately 

obligated funds. These reports included a contract modification that inappropriately 

obligated $1,025,000 in FY 2009 annual funds and four contract modifications that 

inappropriately obligated an additional $1,860,000 in FY 2010 annual funds. These 

inappropriately obligated funds expired at the end of their respective fiscal years. 

In addition to the inappropriately obligated FY 2009 and FY 2010 annual funds reported 

to FPDS-NG during FY 2010, the SBA reported, for a second time, obligations for 

purchases of IT hardware and software through a series of task orders issued in FY 2010 

and FY 2011 using previously obligated and expired FY 2009 and FY 2010 annual funds 

totaling $1,355,213.16 Since the FY 2010 Small Business Goaling Report has yet to be 

issued, the SBA should exclude the inappropriately obligated funds to avoid double 

counting. Without corrective action prior to issuance of the FY 2010 Small Business 

Goaling Report, the SBA will overstate contract awards to SDB’s by $2,885,000. 

Appendices A and B identify the inappropriately obligated funds and the task orders 

issued against those expired funds. 

RECOMMENDATIONS 

We recommend that the Chief Financial Officer: 

1. Establish procedures to discontinue the SBA’s practice of inappropriately obligating 

funds on contracts in anticipation of future needs. 

2. Direct the contracting officer to de-obligate inappropriately obligated funds on 

contract SBAHQ-09-D-0009. 

3. Develop and provide training to OCIO, current contracting personnel and newly hired 

staff regarding the establishment of a bona fide need. 

4. Determine whether the SBA violated the Anti-Deficiency Act under the FY 2011 

continuing resolution and take action consistent with the Anti-Deficiency Act if the 

SBA determines there is a violation. 

5. Review all ongoing SBA indefinite delivery/indefinite quantity contracts as part of 

good financial management practices to ensure that task orders are being issued in 

accordance with Federal Acquisition Regulation, Subpart 16.505 and not as a tool to 

inappropriately obligate funds. 

6. Based on the review of all ongoing SBA indefinite delivery/indefinite quantity 

contracts, determine whether contracting officers violated FAR Subpart 1.602, 

“Contracting Officers”, and if so, take appropriate administrative actions. 

 

16 $1,109,900 in FY 2009 annual fund “draw downs” and $245,313 in FY 2010 annual fund “draw downs”. 
8 

7. Revise FY 2009 and FY 2010 FPDS-NG data for contract SBAHQ-09-D-0009 to 

ensure that inappropriately obligated funds are not included in the FY 2010 Small 

Business Goaling Report. 
9 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

On March 25, 2011, we provided a draft of this report to SBA’s OCFO for comment. 

On May 24, 2011, OCFO submitted formal comments, which are contained in their 

entirety in Appendix C. Management did not state whether it concurred or non-concurred 

with the recommendations. Because some actions were either underway or 

improvements had already been made to address the deficiencies noted in the audit, we 

consider management’s comments to be responsive to be responsive to five of the 

recommendations, partially responsive to one of the recommendations, and nonresponsive to one of the recommendations. A summary of management’s comments and 

our response follows. 

Management Comments

Comment 1

Management stated that it believes the contracts awarded to iTechnologies were properly 

structured but that “the timing of the task orders did not result in proper contract 

utilization and obligation.” The OCFO also stated that the contracts were for both 

supplies and services. They explained the difference between severable and nonseverable services and implied that the contracts awarded to iTechnologies could have 

been for severable services. The OCFO further explained that contracts for severable 

services may cross fiscal years while being funded entirely with funds from the first fiscal 

year. However, management clarified that there was no evidence that services had been 

procured under these contracts. 

OIG Response

We disagree with management’s assertion that the IT hardware and software contracts 

awarded to iTechnologies were for both supplies and services. While the Scope of 

Objectives (SOO) did state that the SBA sought to obtain IT hardware, software, and 

related services, no documentation was provided to identify the services that would be 

performed under the IT hardware and software contracts awarded to iTechnologies. 

Specifically, the acquisition plan, SOO, iTechnologies’ response to the SOO, and IDIQ 

contract SBAHQ-09-D-0009 do not identify any services to be performed by 

iTechnologies. The fact that this was a contract for supplies rather than services is 

demonstrated by OCFO’s comment that they could “find no evidence that any services 

were purchased under the [iTechnologies] contract.” Simply adding the words “related 

services” to the SOO and contract does not transform a supplies contract into a services 

contract. 

Comment 2

Management stated that the agency must adhere to the bona fide needs rule when 

procuring supplies and explained that the bona fide needs rule prohibits the use of 
10 

appropriated funds to procure items for a different fiscal year. The OCFO stated that 

there are two exceptions to the bona fide needs rule, including: (1) stock-level or 

inventory exception; and (2) lead-time exception. In addition, management asserted that 

the inventory exception applied because the OCIO created a list of supplies needed by the 

end of the fiscal year. 

OIG Response

The audit team maintains its position that the SBA violated the bona fide needs rule. 

Neither the contract file nor SBA personnel, including OCIO personnel, had evidence to 

support the argument that the SBA had a bona fide need in FY 2009 to procure IT 

hardware or software through iTechnologies. IDIQ contract SBAHQ-09-D-0009 

incorporated a generic supply list, which documented 307 contract line items available 

for order by the SBA over the life of the contract. This generic list of supplies did not 

establish quantities to be procured or reflect historical usage rates. In addition, no 

documentation was presented to indicate that the SBA knew what IT hardware and 

software they needed. Further, the contract does not adequately demonstrate the SBA’s 

intent to order any or all of the items available under the contract in FY 2009. Lastly, 

since the SBA did not establish quantities or products it required at the end of FY 2009 

and FY 2010, the SBA obligated funds in anticipation of future needs. 

Recommendation 1

Management Comments

Management stated that it recognizes the importance of properly obligating Federal funds 

on SBA contracts. The OCFO’s comments also discussed various policies and 

regulations, including SOP 00 11 1, “Small Purchases, Contracts, Grants and Cooperative 

Agreements.” Management explained that the OCFO is updating SOP 00 11 1 and is redrafting an internal controls SOP to reinforce sound procurement and obligation 

procedures. Further, management indicated that the OCFO takes its responsibility to 

prevent the inappropriate obligation of funds on contracts in anticipation of future needs 

very seriously. 

OIG Response

We consider management comments to be responsive to our recommendation. However, 

we stress the importance of ensuring that SOP 00 11 1 and the new internal controls SOP 

are formalized in a timely manner. 

Recommendation 2

Management Comments

Management stated that the OCFO took corrective action by making appropriation 

account adjustments. The OCFO explained that these adjustments ensured that 
11 

appropriated funds were used only to pay for equipment and materials procured during 

the associated fiscal year; thus, items procured in FY 2010 were purchased using FY 

2010 annual funds and items purchased in FY 2011 were purchased using FY 2011 

annual funds. 

OIG Response

We consider management comments to be responsive to our recommendation. 

Recommendation 3

Management Comments

Management stated that the OCFO is responsible for carrying out the Agency’s Senior 

Procurement Executive (SPE) and Chief Acquisition Officer (CAO) duties. The OCFO 

explained that CAO responsibilities include developing and maintaining the acquisition 

career management program, as well as developing strategies and planning for the hiring, 

training, and professional development of acquisition personnel. Management comments 

emphasized that the Agency is following guidance on training and that the SBA provided 

agency-wide COTR training, which covered the bona fide needs rule. 

OIG Response

We consider management comments to be partially responsive to our recommendation. 

While we agree with management’s decision to provide training to acquisition personnel, 

management’s response did not specify what that training was or that it would also be 

provided to OCIO personnel. We emphasize that Recommendation 3 states that the CFO 

should develop and provide training to OCIO, current contracting personnel, and newly 

hired staff regarding the establishment of a bona fide need. 

Recommendation 4 

Management Comments 

Management stated that there were two ways to view the ADA in this situation: first, 

SBA may have violated the bona fide needs rule, but has since cured the violation. 

The OCFO explained that the SBA cured any potential violation of the ADA, with regard 

to bona fide need, by making adjustments to its appropriation accounts. This added 

sufficient unobligated funds to cover the cost of all supplies ordered under IDIQ contract 

SBAHQ-09-D-0009. Second, management stated that it was possible that the SBA 

violated the ADA by obligating funds in advance of the FY 2010 appropriation. The 

OCFO explained that such a violation would not be subject to cure because there were no 

FY 2010 funds available in September 2009 to meet the bona fide needs of FY 2010. 

Therefore, this potential violation would be subject to reporting under the Principles of 

Federal Appropriations Law. Management explained that OMB Circular No. A-11, 

“Preparation, Submission, and Execution of the Budget” provides instructions on 
12 

reporting potential ADA violations. Further, the OCFO stated that they are in the process 

of reporting this potential ADA violation in accordance with OMB Circular No. A-11. 

OIG Response 

We consider management comments to be responsive to our recommendation. 

Recommendation 5 

Management Comments 

Management stated that the Acquisition Division of the OCFO reviews all contracts, 

including IDIQ contracts, in accordance with Government-wide and SBA-specific 

guidance. Management emphasized they will comply with FAR Subpart 16.505. 

OIG Response 

We consider management comments to be responsive to our recommendation. 

Recommendation 6 

Management Comments 

Management stated that SBA’s contracting program complies with FAR, Subpart 

1.6, “Career Development, Contracting Authority, and Responsibilities,” and added that 

the OCFO would continue its investigation into this situation. Management confirmed 

that, if warranted, administrative action would be taken. 

OIG Response 

We consider management comments to be responsive to our recommendation. 

Recommendation 7 

Management Comments 

Management stated that the SBA is responsible for the Annual Small Business Goaling 

Report and explained that the report is used to determine whether each Federal agency is 

meeting its goal for making contract awards to small businesses. Management 

emphasized that FPDS-NG data fluctuates throughout the year but the Annual Small 

Business Goaling Report is based upon a snapshot of FPDS-NG data taken on a certain 

date. Due to the constant data fluctuation, management stated that revising the FY 2009 

and FY 2010 data in FPDS-NG would be “inefficient and uneconomical.” Therefore, the 

OCFO decided not to correct prior FPDS-NG data, but will ensure the accuracy of data 

reporting to FPDS-NG in the future. Further, management stated that the SBA is 

developing an alternative data validation plan and intends to hire an internal verification 

and validation contractor. 
13 

OIG Response 

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

While we acknowledge management’s effort for taking actions to ensure the accuracy of 

SBA’s future data in FPDS-NG and the hiring of a new internal verification and 

validation contractor, management’s comments disregarded the audit recommendation to 

revise the inappropriate obligations the SBA reported to FPDS-NG for FY 2009 and 

FY 2010. Based on management’s comments, it appears that the Agency intends to 

knowingly issue the Annual Small Business Goaling Report for FY 2010 with inaccurate 

information. By ignoring the data inaccuracies for FY 2009 and FY 2010, the SBA is 

perpetuating its practice of double counting obligations to SDBs within the Annual Small 

Business Goaling Report. Further, as the Agency responsible for the Annual Small 

Business Goaling Report, the SBA is setting an example that data accuracy is irrelevant, 

which diminishes the significance and accuracy of the Annual Small Business Goaling 

Report. 

ACTIONS REQUIRED

Please provide your management decision for each recommendation on the attached SBA 

Forms 1824, Recommendation Action Sheet, within 30 days from the date of this report. 

Your decision should identify the specific action(s) taken or planned for each 

recommendation and the target date(s) for completion. 

We appreciate the courtesies and cooperation of the Small Business Administration 

during this review. If you have any questions concerning this report, please call me at 

(202) 205-7390 or Riccardo R. Buglisi, Director, Business Development Programs Group 

at (202) 205-7489. 
14 

Appendix A: FY 2009 Inappropriate Obligations and Use of Expired Funds 

The table below details how SBA OCIO and contracting personnel inappropriately 

obligated FY 2009 Salaries and Expenses annual funds on IDIQ contract 

SBAHQ-09-D-0009 and issued task orders to “draw down” these funds in FY 2010. 

Table 2. FY 2009 Salaries and Expenses Apportionment 

 

1 SBAHQ-09-D-0009 initial funding included an additional $24,000 of no-year funding for a total obligation of $290,000 

 ($266,000annual funds + $24,000 no-year funds). We are not questioning the obligation of $24,000 because those funds did not 

 expire. 

Modification/Task Order 

Number 

Date of Award Inappropriate 

Obligations 

Draw Down 

SBAHQ-09-D-0009 21 September 2009 $266,000.001

Modification 0001 28 September 2009 $1,025,000.00 

SBA0003 10 November 2009 $7,140.00

SBA0004 10 November 2009 $46,857.00

SBA0005 6 January 2010 $15,043.90

SBA0006 6 January 2010 $8,904.00

SBA0007 6 January 2010 $6,745.00

SBA0008 25 January 2010 $28,598.00

SBA0010 27 January 2010 $92,798.00

SBA0016 18 March 2010 $109,384.00

SBA0017 30 March 2010 $2,720.00

SBA0018 30 March 2010 $11,350.00

SBA0019 30 March 2010 $31,526.00

SBA0020 30 March 2010 $1,229.00

SBA0021 21 April 2010 $1,653.00

SBA0022 21 April 2010 $33,775.00

SBA0024 22 April 2010 $6,210.00

SBA0025 22 April 2010 $4,320.00

SBA0026 23 April 2010 $43,729.00

SBA0028 28 June 2010 $208,992.00

SBA0029 25 June 2010 $68,180.25

SBA0031 11 August 2010 $80,768.00

SBA0032 11 August 2010 $98,871.00

SBA0033 11 August 2010 $42,830.00

SBA0044 2 August 2010 $6,303.00

SBA010 10 August 2010 $45,400.00

SBA0046 9 September 2010 $45,100.00

SBA0049 11 September 2010 $28,830.00

SBA0050 11 September 2010 $32,644.00

 TOTAL: $1,291,000.000 $1,109,900.15
15 

Appendix B: FY 2010 Inappropriate Obligations and Use of Expired Funds 

The table below details how SBA OCIO and contracting personnel inappropriately 

obligated FY 2010 Salaries and Expenses annual funds on IDIQ contract 

SBAHQ-09-D-0009 and issued task orders to “draw down” these funds in FY 2011. 

Table 3. 2010 Salaries and Expenses Apportionment 

Modification/Task 

Order Number 

Date of Award Inappropriate 

Obligations 

Draw Down 

Modification 0004 9 September 2010 $235,000.00 

Modification 0005 22 September 2010 $45,000.00 

Modification 0006 24 September 2010 $1,580,000.00 

SBA0055 15 October 2010 $107,408.00

SBA0056 26 October 2010 $3,369.00

SBA0057 22 November 2010 $19,020.00

SBA0057, Mod 0001 22 November 2010 $580.00

SBA0058 16 November 2010 $1,365.00

SBA0059 8 December 2010 $21,350.00

SBA0060 22 December 2010 $51,032.00

SBA0061 22 December 2010 $41,189.00

 TOTAL: $1,860,000.00 $245,313.00
16 

Appendix C: Agency Comments

To: Peter L. McClintock 

 Deputy Inspector General 

From: Jonathan I. Carver /s/ 

 Chief Financial Officer 

Date: May 24, 2011 

Re: Response to Draft Report, Small Business Administration’s Funding of 

Information Technology Contracts Awarded to Isika Technologies, Inc. (Project 

10018A) 

SBA is providing this revised response to the draft audit entitled “Small Business 

Administration’s Funding of Information Technology Contracts Awarded to Isika 

Technologies, Inc.” (Project 10018A). 

We have reviewed the Isika Technologies, Inc. contract and the circumstances 

surrounding the obligation of funds for the contract. We believe that, as structured, it was 

possible for the Isika contract to have been utilized to purchase supplies that were 

properly obligated. However, unfortunately, the timing of the task orders did not result in 

proper contract utilization and obligation. 

The Statement of Work for the Isika contract was for a mix of services and supplies. 

Severable services may be obligated in one fiscal year and provided for up to a 12-month 

period into the next fiscal year. 41 U.S.C. 253 l. Nonseverable services may be 

obligated in one fiscal year and provided for until the service is completed. See 23 

Comp. Gen. 370 (1943). However, we can find no evidence that any services were 

purchased under the Isika contract. If they had been, then these authorities would serve 

to legitimize the services purchased within the legal timeframes (depending upon whether 

the services were severable or nonseverable). 

Purchases of supplies are governed by a different set of rules. A bona fide need for 

supplies must be identified in the fiscal year in which the agency needs or consumes 

them. 31 U.S.C. 1502(a); See Betty F. Leatherman, Dept. of Commerce, 44 Comp. 

Gen. 695 (1965). The bona fide need rule restricts the current year’s appropriated funds 

from being used to fund the next year’s requirements. The rule has its genesis in section 

31 U.S.C. §1502(a), which states: 

U.S. SMALL BUSINESS ADMINISTRATION

 WASHINGTON, D.C. 20416
17 

“The balance of an appropriation or fund limited for obligation to a definite 

period is available only for payment of expenses properly incurred during the 

period of availability, or to complete contracts properly made within that period 

of availability and obligated consistent with section 1501 of this title.” 

There are basically two exceptions to the bona fide needs supplies rule that supplies are 

the bona fide need of the year ordered: (1) the stock-level (inventory) exception (supplies 

ordered to meet authorized stock levels are the bona fide need of the year of purchase, 

even if the agency does not use them until a subsequent fiscal year (See Farmers Home 

Admin. Purchase of Office Chairs, 73 Comp. Gen. 259, 262 (1994); and (2) the leadtime exception (supplies are not available on the open market when ordered because the 

time to order, produce, and deliver the supplies requires the agency to purchase them in a 

prior fiscal year (see Chairman, United Staes Atomic Energy Commission, 37 Comp. 

Gen. 155, 159 (1957). With the Isika contract, SBA had identified a list of supplies to 

purchase in FY 2009 as evidenced by the Proposed CLIN/ Product List in the contract’s 

Section J, Attachment A. We understand that SBA did intend to purchase supplies under 

the Isika contract using the stock-level (inventory) exception to the bona fide needs rule. 

A long list of needed supplies and equipment was drafted by the Office of Chief 

Information Officer. Unfortunately, no task order was issued for the needed supplies and 

equipment by the close of the funding fiscal year. 

Thus, so far as can be ascertained, there was no intent to inappropriately or improperly 

obligate previous fiscal year funds to purchase the supplies. This was more an issue of 

erroneous contract implementation and administration than of willful and improper 

contract formation. SBA has taken many steps to control erroneous contract formation 

from taking place since the procurement function was moved, effective October 1, 2010, 

from the Office of Management and Administration, Office of Procurement and Grants 

Management, to the Office of the Chief Financial Officer and Performance Management, 

Denver Finance Center, Acquisition Division. SBA has cancelled the Isika contract and 

adjusted appropriation accounts to properly reflect that supplies ordered in a fiscal year 

were funded out of that fiscal year’s appropriations. SBA has also provided training to its 

Contracting Officers and Contracting Officers Technical Representatives on proper 

contract formation and administration. SBA also developed automated links between 

PRISM and ORACLE so that the contracting and finance databases are integrated. SBA 

also has plans to update and issue revised procurement and obligation guidance. 

With this in mind, SBA offers the following revised responses to OIG Project 10018A. 

Recommendations and Responses 

1) Establish procedures to discontinue SBA’s practice of inappropriately 

obligating funds on contracts in anticipation of future needs. 

OCFO recognizes the necessity of properly obligating Federal funds on 

SBA contracts. The Federal Government has a comprehensive system to 

ensure correct payments to vendors. The Treasury, Financial Management 

Service (FMS), ensures internal controls for electronic payments from 
18 

Agencies to vendors through its Automated Clearinghouse (ACH) and 

Electronic Funds Transaction (EFT) programs (i.e., Fedwire). See FMS 

Programs at www.fms.treas.gov/index/html. In addition, the Federal 

Acquisition Regulations provide guidance to Agencies on contractor 

payments. See 48 C.F.R. Part 32, Contract Financing. In addition, SBA 

has procedures to obligate contracts in the Disbursement Functions SOP 20 

17 2, Ch. 3, Commercial Vouchers (Dec. 4, 1998) and the On-Line 

Payment and Collection (OPAC) Administrative Procedures SOP (Jan. 23, 

1998). OCFO is also in the process of updating Small Purchases, 

Contracts, Grants and Cooperative Agreement SOP 00 11 1 and is 

redrafting a new Internal Controls SOP that has been in clearance. OCFO 

will pursue incorporating the appropriate steps to reinforce sound 

procurement and obligation procedures. OCFO, as the office now housing 

the Agency’s certifying officers, takes its responsibility very seriously to 

ensure that there is no pattern or practice of “inappropriately obligating 

funds on contracts in anticipation of future needs” at SBA. 

2) Direct the Contracting Officer to de-obligate inappropriately obligated 

funds on contract SBAHQ-09-D-0009. 

SBA has made current and prior year appropriation account adjustments to 

make sure that all equipment and materials purchased from Isika, Inc. have 

been paid with funds from the fiscal year available when the equipment and 

materials were purchased. In other words, FY 2010 funds were used to pay 

for all equipment and materials purchased in FY 2010 and FY 2011 funds 

were used to pay for all equipment and materials purchased in FY 11 from 

Isika, Inc. On the accounts and records of the SBA, no FY 2009 funds are 

obligated for any equipment or materials purchased from Isika, Inc.. 

3) Develop and provide training to OCIO, current contracting personnel 

and newly hired staff regarding the establishment of bona fide need. 

OCFO takes its responsibilities as the Agency’s Senior Procurement 

Executive (SPE) and Chief Acquisition Officer (CAO) seriously. The 

Chief Acquisition Officer advises and assists the agency head and other 

senior officials to ensure that the agency mission is achieved through the 

management of the agency’s acquisition activities. 41 U.S.C. 414. The 

functions of the Chief Acquisition Officer include monitoring the agency’s 

acquisition activities, evaluating them based on applicable performance 

measurements, increasing the use of full and open competition in agency 

acquisitions, making acquisition decisions consistent with applicable laws, 

and establishing clear lines of authority, accountability, and responsibility 

for acquisition decision-making and developing and maintaining a 
19 

acquisition career management program. The Chief Acquisition Officer, as 

a part of the statutorily required annual strategic planning and performance 

evaluation process, assess agency requirements for agency personnel 

knowledge and skills in acquisition resources management and, if 

necessary, develop strategies and plan for hiring, training and professional 

development. The Senior Procurement Executive, reporting to the CAO, is 

responsible for management direction of the procurement system of the 

executive agency, including implementation of the unique procurement 

policies, regulations, and standards of the executive agency. SBA 

participates in the Chief Acquisition Officers Council 

(http://www.caoc.gov/) and implements best practices learned at the 

Agency. SBA also follows the guidance of the Office of Federal 

Procurement Policy (OFPP) regarding training of contracting personnel. 

More details on the CAO and SPE functions and the training of the 

acquisition staff are provided in the Acquisition Career Development 

Program SOP 39 15 2 (July 22, 2010). Under this guidance, SBA has 

provided several agency-wide COTR trainings, including training on the 

bona fide needs issue, and will continue to provide ongoing training to all 

acquisition staff. 

4) Determine whether the SBA violated the Anti-Deficiency Act under the 

FY 2011 Continuing Resolution and take action consistent with the 

Anti-Deficiency Act if SBA determines there is a violation. 

There are two possible ways to look at the Anti-Deficiency Act (ADA) in this 

situation. 

First, it is possible this was violation of the bona fide needs statute that has 

been cured. The Isika contract is similar to contracts in the GAO decision: 

Expired Funds and Interagency Agreements between GovWorks and the 

Department of Defense, B-308944 (July 17, 2007). In the GovWorks case, 

DOD ordered supplies through the Department of Interiors’ GovWorks 

service on an interagency agreement using FY 2004 funds. DOD failed to 

identify most of the ordered supplies with any specificity in FY 2004; 

GovWorks did not order any supplies until FY 2005. Since the purchase of 

supplies only identified in FY 2005 with FY 2004 funding violated the 

bona fide needs statute, GAO recommended DOD adjust its appropriations 

accounts to use FY 2005 funds for the ordered supplies. However, GAO 

provided that an ADA violation would only need to be reported if DOD had 

insufficient FY 2005 funds to pay for the FY 2005 supplies. Similarly, 

SBA had sufficient FY 2010 and FY 2011 funds to pay for all of the 

supplies ordered under the Isika contract and has adjusted its appropriation 

accounts. In other words, SBA cured any potential ADA violation by the 

adjustment of its appropriation accounts, which accounts had sufficient 
20 

unobligated funds to cover the cost of the supplies. The Acquisition 

Division has cancelled the Isika contract, deobligated all remaining funds 

on the contract, and properly adjusted the FY 2009, FY 2010, and FY 2011 

appropriations accounts related to supplies purchased under the Isika 

contract, on March 30, 2011. 

Second, it is possible that this was a violation of the ADA prohibition against 

obligating funds in advance of an appropriation. The ADA reads in pertinent 

part: 

(a) (1) An officer or employee of the United States Government or of the District 

of Columbia government may not— ... 

(B) involve either government in a contract or obligation for the payment of 

money before an appropriation is made unless authorized by law. 31 U.S.C. 

1341(a)(1)(B). 

Under this analysis, no FY 2010 funds were available in September 2009 to 

meet the bona fide needs for FY 2010. Therefore, the obligation of funds 

upon the Isika contract in FY 2009 arguably, obligated funds in advance of 

the FY 2010 appropriations. Since there were no available FY 2010 funds 

in September 2009, to cure a potential violation, the obligation of funds 

upon the Isika contract in FY 2009, may potentially be deemed to be not 

subject to cure, and in that event, subject to reporting. See II Principles of 

Federal Appropriations Law, pp. 6-39. 

OMB has issued instructions on preparing reports on ADA violations, which may 

be found in OMB Circular No. A-11, Preparation, Submission, and Execution of 

the Budget, § 145. Since the Isika situation could be analyzed in more than one 

way; and in order to adopt a conservative approach which favors maximum 

possible transparency; we are now in the process of pursuing appropriate 

reporting under the OMB Circular A-11 guidance. 

5) Review all ongoing SBA indefinite delivery/indefinite quantity 

contracts as part of good financial management practices to ensure 

that task orders are being issued in accordance with Federal 

Acquisition Regulation Subpart 16.505 and not as a tool to 

inappropriately obligate funds. 

The Acquisition Division of OCFO reviews all contracts in accordance with 

Government-wide (statutory, FAR, GSA, and OFPP guidance) and SBAspecific (SOPs) guidance. Contracts reviewed include all SBA indefinite 

delivery/indefinite quantity (IDIQ) contracts. We will continue to comply 

with FAR Subpart 16.5, Indefinite Delivery Contracts, including FAR 

section 16.505, Ordering. See 48 C.F.R Subpart 16.5. 
21 

6) Based on the review of all ongoing SBA indefinite delivery/indefinite 

quantity contracts, determine whether contracting officers violated 

FAR Subpart 1.602, “Contracting Officers,” and if so, take 

appropriate administrative actions. 

As stated previously, at the time of contract origination, the Isika contract 

funding was viable. SBA’s contracting program complies with FAR 

Subpart 1.6, Career Development, Contracting Authority, and 

Responsibilities. See 48 C.F.R Subpart 1.6. FAR Section 1.602 provides 

for authority, responsibilities, and ratification of unauthorized commitments 

by contracting officers. In particular, of relevance to this audit, FAR 

Section 1.602-2(a) provides that contracting officers “shall ensure that the 

requirements of section 1.602-1(b) have been met, and that sufficient funds 

are available for obligation.” FAR Section 1.602-1(b) provides that: “no 

contract shall be entered into unless the contracting officer ensures that all 

requirements of law, executive orders, regulations, and all other applicable 

procedures, including clearances and approvals, have been met.” We are 

continuing to investigate the facts of this situation and, if it is warranted, 

take appropriate administrative action. The OCFO will review ongoing 

indefinite delivery/indefinite quantity contracts and take appropriate 

administrative action if necessary. 

7) Revise FY 2009 and FY 2010 FPDS-NG data for contract SBAHQ-09-

D-0009 to ensure inappropriately obligated funds are not included in 

the FY 2010 Small Business Goaling Report. 

SBA is responsible for an Annual Small Business Goaling Report. 

Information on our Goaling Program can be found at 

http://www.sba.gov/about-sba-services/2636. At the end of each fiscal 

year, SBA requests a report from the Federal Procurement Data Center 

(FPDS) calculating the prime and subcontract statistical achievements for 

each agency and the Government-wide accomplishments. SBA forwards a 

copy of the report to each agency that negotiates goals with SBA. Each 

agency that fails to achieve any proposed prime or subcontract goal is 

required to submit a justification to SBA on why they failed to achieve a 

proposed or negotiated goal with a proposed plan of corrective action. In 

other words, each year’s Small Business Goaling Report is a snapshot of 

data mined from the Federal Procurement Data System (FPDS) as of a 

certain date. As the FPDS data is constantly in flux, it would be inefficient 

and uneconomical for SBA to continually alter the FPDS data as it changes 

on a daily basis. Therefore, it is not possible for SBA to change any 

previously collected FY 2009 and FY 2010 FPDS data for the Small 

Business Goaling Reports. However, SBA can and has taken steps to 
22 

ensure accurate small business procurement reporting by SBA of its 

contracts in future years for the next Small Business Goaling Report. 

SBA is working to develop an alternative data validation plan that meets 

OMB and FAR requirements, while taking into account SBA’s resources 

and workload. The OCFO will review all FPDS data in accordance with 

this plan. OCFO is in the process of hiring a new internal verification and 

validation contractor to do quality review.