Audit of the Office of the 

Secretary’s Oversight of 

Document Scanning Services 

 A10-03 

 

 

Office of Inspector Inspector General General

FEDERAL MARITIME COMMISSION 

March 2010 
FEDERAL MARITIME COMMISSION

Office of Inspector General

Washington, DC 20573-0001 

March 1, 2010

Office of Inspector General

TO: Karen V. Gregory 

 Secretary 

 

FROM: /Adam R. Trzeciak/ 

 Inspector General 

SUBJECT: Audit of the Office of the Secretary’s Oversight of Document Scanning Services 

The Office of Inspector General conducted a review of contract oversight by the Office of 

the Secretary (OS) for scanning services at the Federal Maritime Commission. The overall 

objective was to assess whether the contract was adequately competed and monitored. 

This review of the agency’s contract was part of the annual financial statement audit. 

This contract was selected based on the total awarded obligation and its impact on the financial 

statements. 

We thank OS staff for its help and cooperation throughout the review. 

cc: Assistant Secretary 

Managing Director 

Special Assistant 

 

 
Audit of the Office of the Secretary’s Oversight 

of Document Scanning Services 

The Office of Inspector General (OIG) conducted a review of contract oversight by the 

Office of the Secretary (OS) for scanning services at the Federal Maritime Commission (FMC). 

The objective of this review was to assess whether the agency followed Federal Acquisition 

Regulations (FAR) principles in the procurement of this contract and that the contractor was 

adequately monitored. 

Background 

A contract is a mutually binding legal relationship obligating the seller to furnish 

products and/or services and the buyer to pay for them. In fiscal year (FY) 2009, the agency 

awarded $2.3 million in contracts for the purchase of goods and services to help the agency meet 

its mission-related needs. 

The Director of the Office of Management Services (OMS) serves as the agency’s 

Contracting Officer (CO). The FMC also has a service level agreement with the Bureau of 

Public Debt (BPD) to assist the agency with contracting for goods and services and other 

procurement functions. 

When BPD serves as the CO on FMC procurements, BPD’s procurement specialist 

directs the procurement action from start to finish. The specialist works with the FMC’s 

program office to define the requirements and procure the service or item necessary to meet the 

agency’s needs. All contracts, whether processed by FMC or BPD staff, are assigned a 

Contracting Officer’s Technical Representative (COTR) to provide technical direction on the 

contract within the scope of the contract. The COTR’s delegated responsibilities include 

monitoring contract performance, evaluating work progress, inspecting and accepting 

deliverables, approving invoices for payment and assisting the CO with the contractor’s 

performance evaluation. 

In February 2008, the Office of the Secretary entered into a contract to scan the 

Commission’s current and historical official paper documents for the OS, the Office of the 

General Counsel (OGC), and the Bureau of Enforcement (BOE) into an electronic file format. 

Program staff prepared a Procurement Request (PR) identifying the services needed and 

estimated cost, and a Performance Work Statement (PWS) to initiate the contract action.1

 The 

PR was entered into BPD’s procurement system - PRISM. The requisition was approved by the 

Secretary, the Office of Budget and Finance (OBF) for budgetary clearance and OMS. 

The BPD served as the CO on the procurement of scanning services. Based on the PR 

and the PWS, it identified qualified vendors and requested bids from them. Six vendors 

submitted proposals competing for the stated services. Staff from the Secretary’s office and 

 

1

 A performance work statement identifies project tasks, deliverables and milestones. 
OGC evaluated each proposal. The winning contractor was selected after a review of its 

technical approach and past performance on similar projects. The contract provides the FMC 

with a full-time contractor employee to work at FMC Headquarters to perform scanning services 

at a fee of $26.12 per hour worked for the duration of the contract (per order number TPD-FMC08-00004). The FMC provides the contractor with needed hardware/software to perform the 

duties. 

The contract was awarded for $52,240 a year, with the option to exercise four additional 

years, totaling $261,200. The FMC is currently in the first option year of this labor-hour 

contract. 

Objectives, Scope and Methodology 

The objective of this review was to assess whether the agency followed FAR principles in 

the procurement of this contract and that the contract was adequately monitored. 

We reviewed applicable FAR and FMC guidelines for the procurement of services, the 

PWS to document contract milestones and deliverables, the contract, contract modifications and 

contract evaluation summaries. We also reviewed “Productivity Standards” provided to the 

contractor, completed timesheets and associated invoices. 

We interviewed the COTR and the FMC Secretary to document OS’s processes for 

monitoring the contract. We also spoke to representatives at BPD to document its procurement 

procedures and to discuss applicable FAR requirements. 

We analyzed cost data to compare contracting out verses hiring a full-time equivalent 

(FTE) employee to perform scanning services in keeping with recent guidance from the Office of 

Management and Budget’s (OMB) M-09-25, Improving Government Acquisition, dated July 29, 

2009. This memorandum requires each agency to develop a plan to save 3.5 percent of baseline 

contract spending in FY 2010 and 3.5 percent in FY 2011, for a total of 7 percent. We estimated 

federal salary and benefit costs using various assumptions based on grade – and FTE availability. 

We conducted the audit in September 2009 through January 2010, 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 these objectives. 

Audit Findings and Recommendations 

The Office of the Secretary and BPD met FAR requirements in procuring the scanning 

services. OS initiated a requisition with a PWS that identified the need, reviewed proposals and 

rated the contractors based on their technical approach and prior scanning work experience. OS 

assigned a COTR who monitored the contractor through her review of work tasks and certified 

2 
the contractor’s timesheets and invoices. Timesheets maintained by the contractor tied to the 

monthly contractor invoices. With a minor exception, the invoices were accurate and submitted 

timely. Contractor staff performed well and appeared to meet PWS workload targets. 

However, we also identified some monitoring activities where improvement is possible. 

One significant oversight, in our opinion, involves monitoring funding availability. We found 

that the COTR made an unauthorized commitment of funds to maintain services after funding 

authority had expired. In other words, the contractor was assigned tasks to perform even though 

there were no funds obligated to pay for the services provided. We also found that the COTR 

did not record when the contractor worked in lieu of a lunch break. Consequently we could not 

review the accuracy of these occurrences. 

The COTR maintained a non-disclosure statement signed by the contractor as required in 

the PWS because of the contractor’s access to sensitive data, but when the contractor went on 

extended leave, her substitute did not complete the form. Finally our cost-benefit analysis 

indicated that the agency could save money by hiring this employee over continuing to contract 

out for services, but it would lose the expertise of the vendor for special needs. 

These and other findings, along with recommendations to address the noted deficiencies, 

are provided below. 

Finding 1. The Agency made an Unauthorized Commitment of Funds to the 

Contractor 

Federal Acquisition Regulation 1.602-3, defines an unauthorized commitment as an 

agreement that is not binding solely because the government representative who made it lacked 

the authority to enter into that agreement on behalf of the government. Ratification is the act of 

approving an unauthorized commitment by an official who has the authority to do so. 

The Department of the Treasury’s Acquisition Regulations (DTAR) requires that a case 

file be prepared for all ratifications above the micro-purchase threshold ($2,5002) that includes 

all relevant documents and facts concerning the commitment, the name of the individual making 

the unauthorized commitment, whether s/he previously made other unauthorized commitments 

and a statement indicating corrective action taken to preclude recurrence. Legal review must be 

obtained for all ratifications exceeding 10 percent of the simplified acquisition threshold 

($10,000).3

Section 13(g) of Commission Order 112, Procurement, states that no employee shall 

enter into a formal or informal agreement to acquire services unless that employee has been 

delegated specific written authority to do so. The order goes on to state that the requesting office 

must not direct a contractor to perform services prior to being notified that a requisition has been 

approved and a signed order is in place. 

 

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 The FAR effective November 13, 2009, changed the micro-purchase threshold to $3,000. 

3

 According to the service level agreement between the FMC and BPD, BPD will process all transactions in 

accordance with both the FAR and DTAR. 

3 
On January 5, 2009, the COTR prepared a requisition to exercise option year one of the 

contract for scanning services. A purchase order was signed on January 21, 2009. The period of 

performance for the first option year would begin on March 3, 2009. Because the agency was 

funded under a continuing resolution at the time, the first option year was only funded for 10 

days at $1,880.64. 

The January 21, 2009, order clearly stated on its face that the contract was incrementally 

funded through March 13, 2009.... and that the contractor may not perform work in excess of 

the obligation amount of the contract. (Emphasis added.) This prohibition on working without 

obligated funds was further emphasized by the BPD contract specialist on January 22, 2009. In 

an e-mail to the contractor and to the COTR, the contract specialist reiterated that the contract 

was only partially funded through March 13, 2009, and that no work beyond that date is 

authorized without another contract modification to add additional funds. 

The FMC received its appropriation for the remainder of FY 2009 on March 11, 2009. 

However, we found no obligating documents to fund the scanning task (beyond the March 13, 

2009 ending point) until June 12, 2009, when the contract was fully funded for the remainder of 

the contract year. Notwithstanding the contract specialist’s reminder, and agency and FAR 

requirements prohibiting the provision of services without funding authority, the contractor 

continued to provide the agency scanning services for approximately three months (431 hours) at 

a cost to the agency of $11,258. 

The OIG confirmed through contractor timesheets that the contactor worked during the 

period March 13 through June 12. OS officials confirmed that they did not instruct the 

contractor not to work during this period. However, we noted that the agency was not billed for 

these services until May 8, 2009; previous invoices had been sent by this contractor monthly.4

 

The Secretary informed us that the FMC was not billed timely because the contract manager 

responsible for invoicing was on extended leave during this period. 

Whether the COTR told the contractor to work or simply permitted the contractor to 

work, the action resulted in an unauthorized commitment of funds. For funding to be provided 

for services already received, the contracting officer is required to ratify the action. We found no 

evidence in the file indicating that the action was ratified, that documentation was prepared by 

OS explaining the need for ratification or that legal review was sought (since the ratification 

exceeded $10,000). 

In addition to violating FAR and agency rules, the action also put the COTR, the 

contractor and the agency at risk: the COTR (or whoever allowed the contractor to continue 

working without authorization) could have been personally liable for the obligation, the 

contractor risked not being reimbursed by continuing to work without a valid contract and the 

agency could have potentially faced a costly lawsuit. 

 

4

 The OIG confirmed that the invoice was not paid until June 25, 2009, just after the order obligating the 

funds was signed. 

4 
OS officials informed the OIG during the period in question (March 13 – June 12) that 

there was confusion within OS as to whether BPD, OMS or the COTR was to initiate a 

requisition to fully exercise the contract. However, since this occurrence the Secretary stated 

that the COTR is now aware of her responsibilities. If the Commission doesn’t receive its FY 

2010 appropriations in time to fully exercise option year two (2), the Secretary indicated that the 

office will incrementally fund the contract until the full appropriation is in place. The OIG 

found numerous additional instances of unauthorized commitments in other FMC bureaus and 

offices during fieldwork on our annual financial statement audit. These, along with an OIG 

recommendation for corrective action, will be reported in the management letter to the financial 

statements in the coming weeks. 

 

Finding 2. Recordkeeping of Work In Lieu of Lunch Needs Improvement 

According to GAO’s Standards for Internal Control in the Federal Government, 

transactions need to be clearly documented, and the documentation should be readily available 

for examination. Transactions should be promptly recorded to maintain their relevance and 

value to management in controlling operations. We found that OS generally has controls in 

place to review contractor work production and timesheets timely. 

For each document scanned for the Secretary’s office, OGC and BOE, the contractor 

maintains a log containing the document name, date received and date completed. When 

documents are received by the contractor for scanning, she initials and dates the back of the 

document; she also initials and dates the document when she completes the scanning process. 

Documents are scanned into a daily folder where the COTR reviews the files for clarity before 

the original files are shredded by FMC staff. 

On the 15th and the last day of each month, the contractor submits a signed timesheet to 

the COTR identifying the contractor’s hours worked. The timesheet identifies the date, time-in, 

time-out, description of work performed, hours worked and project name. The COTR verifies 

the information on the timesheet, initials and dates the timesheet before it is submitted to the 

contractor’s supervisor. Once the contractor’s supervisor certifies the timesheet it is submitted to 

the COTR to reconcile with the monthly invoice. 

The invoice is submitted to the BPD where it is logged in and forwarded to the FMC’s 

OBF. The invoice is provided to the COTR with a due date. The COTR reconciles it with the 

timesheets and certifies the invoice is proper (and accurate) for payment. The COTR also 

maintains an invoice log that provides a monthly opening balance, monthly invoice activity and 

closing balance. The invoice is provided to the Secretary who, along with the COTR, certifies it 

for final payment. As a final step the invoice is returned to BPD for final processing. 

For the most part, our review noted that the contractor was signed in for 8.5 hours: eight 

hours billed to the agency and 30 minutes for lunch. On 27 occasions, we noted that the 

contractor signed in for between six and eight hours, but made no deduction for lunch. Our 

observations are presented in the following table: 

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Table 1. Arrival/Departure Times 

Date of Occurrence Arrival/Departure 

Times 

Hours 

Reported 

Worked 

Actual 

Hours 

Worked 

April 15, 2008 9:30 am – 5:00 pm 7.50 7 

May 19, 2008 10:30 am – 5:30 pm 7 6.50 

June 2, 2008 11:00 am – 5:00 6 5.50 

June 19, 2009 9:00 am – 5:00 pm 8 7.50 

July Timesheet* 90.50 90 

August 8, 2008 9:30 am – 5:00 pm 7.50 7 

August 15, 2008 10:00 am – 5:00 pm 7 6.50 

August 19, 2008 8:30 am – 3:00 pm 6.50 6 

August 26, 2008 9:30 am – 5:30 pm 8 7.50 

September 18, 2008 8:30 am – 2:30 pm 6 5.50 

September 29, 2008 8:45 am – 5:00 pm 7.45 7.25 

December 4, 2008 8:30 am – 2:30 pm 6 5.50 

December 15, 2008 10:00 am – 5:00 pm 7 6.50 

January 9, 2009 8:45 am – 5:00 pm 8 7.75 

January 30, 2009 9:00 am – 4:45 pm 7 7.255

February 19, 2009 8:30 am – 3:00 pm 6.50 6 

March 3, 2009 9:15 am – 5:15 pm 8 7.50 

March 31, 2009 8:15 am – 2:30 pm 6 5.75 

April 15, 2009 8:30 am – 3:00 pm 6.50 6 

May 4, 2009 8:30 am – 2:30 pm 6 5.50 

June 5, 2009 11:00 am – 5:00 pm 6 5.50 

June 8, 2009 8:30 am – 3:00 pm 6.50 6 

June 9, 2009 10:00 am – 5:00 pm 7 6.50 

June 19, 2009 9:00 am – 5:00 pm 8 7.50 

June 22, 2009 8:40 am – 3:30 pm 6.75 6.25 

June 29, 2009 8:00 am – 2:30 pm 6.50 6 

July 27, 2009 9:30 am – 5:00 pm 8 7.50 

*inaccurately added and certified by the COTR 

The Fair Labor Standards Act of 1938 does not require an employer to provide meal 

periods for their employees. However, under Code of Federal Regulation (CFR) (29 CFR 

785.19 – Meal) when meals periods or rest breaks are provided employees must be completely 

relieved from duty for the purpose of eating regular meals. Ordinarily 30 minutes or more is 

sufficient for a bona fide meal period. The Department of Labor (DOL) defines a bona fide meal 

period as time that is not compensable and not spent working. 

 

During the exit conference, the COTR told us that on each of the occasions identified, the 

contractor worked through lunch. However, we found no notes or annotations on any timesheets 

to support the COTR’s claim. As a result, we could not perform tests to verify that the COTR 

was aware of the contractor’s decision not to take a lunch break. 

 

5

 The OIG also identified one instance where the contractor under billed the FMC by one-quarter of an hour 

($6.53). 

6 
Although most contracts do not address lunch breaks, it is important for the COTR to 

monitor lunch breaks to ensure that only the time spent working is billed to the agency, 

especially on labor hour contracts where the agency is billed for time spent performing work 

tasks. 

Recommendation 1. The OIG recommends that the COTR annotate the timesheet when the 

contractor works through lunch to ensure that appropriate deductions are 

made. 

 

Finding 3. COTR Files did not Contain a Non-Disclosure Statement for One 

 Temporary Contractor 

Agency contracts require contractors to sign non-disclosure forms. A non-disclosure 

agreement prohibits an individual or firm from releasing, disseminating or transferring, whether 

orally or by any other means, any part of confidential information, to any person or entity, and 

provides recourse for the Commission should any confidential information be released. 

The performance work statement prepared by OS and provided to the contractor states 

that the work to be performed is considered sensitive, therefore, any personnel performing tasks 

on the contract is required to sign a non-disclosure statement. 

We reviewed the COTR’s file and found a non-disclosure agreement for the full-time 

contract staff. However, in March 2008 this employee was on extended leave and another 

contract employee substituted for her. A non-disclosure form was not obtained for this 

individual. 

Recommendation 2. We recommend the COTR ensure that all contractor employees assigned 

to agency tasks submit a non-disclosure form. 

 Finding 4. Cost-Analysis of Contractor vs. Federal Employee 

The Office of Management and Budget issued M-09-25; Improving Government 

Acquisition dated July 29, 2009. This OMB memorandum requires agencies to review their 

existing contracts and acquisition practices and develop a plan to save 7 percent of baseline 

contract spending by the end of FY 2011(3.5 percent in FY 2010 and another 3.5 percent in FY 

2011). Using FY 2009 contract figures, the agency needs to save about $81,000 annually to 

meet the goal. 

The OIG assessed whether hiring a full-time staff dedicated to scanning documents and 

other technical duties would help the agency to meet the OMB requirement. Clearly, $52,000 

per year would go a long way toward satisfying the agency’s contribution toward this goal. 

However, we also reviewed the overall fiscal impact on the agency resulting from the additional 

funded FTE (full-time equivalent) and the trade offs in flexibility and staffing expertise. While 

7 
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the conversion to this position would have little fiscal impact, we believe the benefits gained 

through contracting, in this instance, outweigh the benefits from hiring full time. 

 The OIG performed a cost analysis under various pay-rate assumptions over a five year 

period. We used the Office of Personnel Management’s 2009 pay scale along with a projected 

two-percent annual cost of living adjustment and a fringe benefit rate of 36.45 percent. 

The current award for the contract is $52,240, each year for a five year total of $261,200. 

The following table projects fully loaded salary for five years at the GS-5 – GS-7 pay scales. For 

example, salary and benefits for a GS-5 employee, with annual step increases, totals to $245,409. 

The difference between $245,409 and $261,200 (contract cost) is $15,791, or the estimated 

savings from hiring staff verses contracting out for five years. As the table indicates, however, 

this cost savings to the agency disappears as the grade-scale level increases: 

Table 2. Cost Comparison for Five Years 

Grade/Step Total 

Yearly 

Salary 

Total 

Projected 

COLA 

Total 

Fringe 

Benefits 

Grand 

Total for 

All Steps 

Difference 

from 

Entire 

Contract 

GS-5/1 through GS-5/46 $176,326 3,527 65,556 $245,409 $15,791 

GS-6/1 through GS-6/4 $196,544 3,931 73,073 $273,548 ($12,348) 

GS-7/1 through GS-7/4 $218,416 4,368 81,205 $303,989 ($42,789) 

Although the OMB guidelines do not require such a cost/benefit analysis, it is useful for 

decision makers when considering among positions to hire when the function performed by the 

contractor is still needed by the agency. Not reflected in the above analysis are the nonbudgetary factors, including the added flexibility contracting brings and the finite number of FTE 

that the agency cannot exceed. Currently, OS does not have an FTE to use on this or any 

position it wishes to create. It would have to compete with other FMC bureaus and offices, each 

having unmet staffing needs of their own. Further, the added flexibility the contractual 

relationship brings is useful and can save the agency money too. For example, a technological 

impasse can be brought to the contractor supervisor’s attention and addressed, without the need 

to encumber staff time on projects where it lacks expertise. 

The Secretary recognized the advantages and disadvantages (listed above) to contracting 

out the scanning function. She indicated that she has no plans to hire full time for the position. 

The OIG concurs with her decision. 

 

6

 A government employee at a step four within grade has a waiting period of two years before eligible for a 

step five. 
Fo

 (Rev. 07-89)

rm FMC-2 UNITED STATES GOVERNMENT FEDERAL MARITIME COMMISSION 

Memorandum

TO : Inspector General DATE: February 25, 2010 

FROM : Secretary 

SUBJECT: Response of OS to the OIG’s Draft Audit Report on the Secretary’s Oversight of 

Document Scanning Services 

This memorandum constitutes management’s response to the subject OIG 

Audit Report re-transmitted in draft form on the week of February 16th, and 

subsequent to a follow-up OIG exit conference with OS staff and Managing Director 

staff on February 4, 2010. 

The OS concurs with all of the OIG’s findings and recommendations. The OS 

has either already taken steps to address findings and adopt recommendations or 

will do so as discussed below. 

Finding 1. The Agency made an Unauthorized Commitment of Funds to the 

Contractor 

The OS agrees with this finding and has taken the following step(s) to address 

this issue. As indicated in the OIG’s finding, the COTR is now aware of her 

responsibilities in this area. If the Commission does not receive its FY 2010 

appropriations in time to fully exercise option year two (2), the office will 

incrementally fund the contract until the full appropriation is in place. 

Finding 2. Recordkeeping of Work In Lieu of Lunch Needs Improvement 

Recommendation 1 – The OIG recommends that the COTR annotate the 

timesheet when the contractor works through lunch to ensure that appropriate 

deductions are made. 

The OS agrees with this recommendation and the COTR has implemented the 

recommendation. 
2

Finding 3. COTR Files did not Contain a Non-Disclosure Statement for One 

Temporary Contractor 

Recommendation 2 – We recommend the COTR ensure that all contractor 

employees assigned to agency tasks submit a non-disclosure form 

The OS agrees with this finding and has taken the following steps to address this 

issue. The COTR was given an electronic copy of the standard Non-Disclosure 

form issued by the Commission’s Office of Information Technology for 

contractors and has made it a policy to have each contractor fill it out and sign 

the Non-Disclosure form before they are issued a Contractor Building Pass by 

the Commission’s Office of Management Services. 

 /Karen V. Gregory/ 

Secretary 

Cc: Managing Director 

 (Audit Follow-up Official)