Employing People With Blindness or Severe Disabilities: Enhanced Oversight of the AbilityOne Program Needed
Published: 2013-05-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 1938, Congress created a program providing employment opportunities for people who are blind and expanded it in 1971 to include people with severe disabilities. Now known as AbilityOne, the programs public-private structure consists of the federal, independent U.S. AbilityOne Commission (15 part-time presidentially-appointed members supported by 27 staff) to oversee the program; two central nonprofit agencies (CNAs) to administer much of the program; and hundreds of affiliated nonprofit companies employing people who are blind or severely disabled to provide products and services to federal agencies. Federal agencies are generally required to purchase such products and services through the program.
GAO examined how the AbilityOne Commission: (1) directs and oversees the CNAs; (2) adds products and services (hereafter called projects) to the program and assigns affiliates to provide them; and (3) prices program projects. GAO reviewed policies, procedures, relevant federal laws and regulations, and other documents; interviewed CNA and AbilityOne officials; held five focus groups with affiliates; and analyzed data on program products, services, and pricing reviews.
section_title: What GAO Found
paragraphs: Federal agencies need to exercise strong oversight to promote effectiveness and efficiency and prevent waste, fraud, and abuse--especially in a federal procurement program such as this, which is exempt from full and open competition requirements. However, although the AbilityOne Commission is ultimately responsible for overseeing the program, the Commission cannot control how CNAs (1) spend their funds, (2) set and manage their performance goals, or (3) set and implement governance policies and other internal controls. The Commission's authority to direct CNA budget priorities--including how much they compensate their executives and the level and growth of their reserves--is limited. As independent entities, the CNAs are responsible for determining their spending. Most of their money comes from fees they charge their affiliates as a percent of revenue earned from AbilityOne contracts. Moreover, the Commission does not have sufficient authority to set CNA performance and governance standards, so it depends on the CNAs to set and enforce such standards. Although the CNAs have instituted their own internal controls, the Commission does not have procedures to monitor alleged CNA control violations, nor is there an inspector general to provide independent audit and investigative capabilities for the program, including at the CNAs.
The AbilityOne Commission is responsible for determining which products and services can be suitably provided by the program. It delegates to the CNAs most of the responsibility for deciding which affiliates should develop and provide these projects. According to CNA and affiliate officials, the CNAs often do not fully disclose how they make these decisions. This limited transparency could increase the risk of biased decisions because CNA officials have wide latitude in determining which affiliate should be awarded a project. Although AbilityOne Commission officials have acknowledged the importance of transparency and equity in assigning projects, they have done little to indicate how these outcomes can be achieved.
The Commission has statutory responsibility for determining the fair market price of projects in the program, but: (1) its written pricing review policies and procedures are limited and (2) it does not have sufficient internal controls to ensure that prices are appropriately revised over time. The Commission sets procedures that encourage affiliates and federal customers to negotiate prices that reflect the market. Although Commission staff review these prices in accordance with written policies and procedures, they acknowledged that these instructions are not sufficiently explicit or transparent. Such limitations can make it difficult for the CNAs and affiliates to understand the Commission's pricing review procedures and, by extension, its reasons for rejecting prices. This lack of understanding may partially explain the 77 percent rejection rate for initial pricing packages. Commission policy also states that CNAs submit for Commission review any request for adjusting the price of a project beyond a single contract period that does not conform with the prior Commission-approved mechanism. Occasionally customers and affiliates implement non-conforming price revisions without requesting Commission approval. This negates the Commission's internal controls for ensuring fair market prices and results in the Commission not knowing the actual price being charged. Neither the AbilityOne Commission nor the CNAs have procedures in place to systematically identify such instances.
section_title: What GAO Recommends
paragraphs: We are presenting a matter for Congressional consideration to establish an inspector general and several recommendations to the Commission to enhance program oversight. The Commission and CNAs agreed with our recommendations, but disagreed with several findings or provided additional information, which we incorporated as appropriate.

section_title: Letter
paragraphs: Census data show that working-aged adults with severe disabilities have been employed at about one-third the rate as adults without disabilities.Helping to mitigate this disparity, the AbilityOne Program creates  employment opportunities for people who are blind or have severe  disabilities through a unique public-private structure that connects such  individuals to jobs that provide products and services to the federal  government. Congress created this program in 1938 and it is now the  single largest source of employment for people who are blind or have  severe disabilities. In fiscal year 2012, this program provided jobs for  approximately 48,000 such individuals and accounted for about $2.8  billion of federal procurements.
The AbilityOne Program relies on nonprofit agencies to employ people  who are blind or have severe disabilities. These nearly 600 independent  nonprofit affiliates are assisted by one of two private Central Nonprofit  Agencies (CNAs): the National Industries for the Blind (NIB), which  supports the creation of employment opportunities for people who are  blind, and NISH, which supports the creation of employment opportunities  for people with severe disabilities other than blindness. The U.S.  AbilityOne Commission oversees the CNAs and is ultimately responsible  for the performance of the program. The CNAs, in turn, manage much of  the day-to-day operations of the program, including working with affiliates  to identify and recommend products and services that the Commission  may want to add to the program and providing training and other support  to their affiliates.
Federal agencies are required to obtain the products and services they  need through the use of full and open competitive procedures, unless  otherwise authorized by law. Full and open competition promotes  transparency and integrity within the federal procurement system  because it allows for all responsible businesses that meet a customer’s  stated requirements to submit proposals in response to that customer’s  request for the product or service. In contrast, products and services  procured through the AbilityOne Program are exempt from full and open  competition requirements, but ensuring that the program is managed  transparently and with integrity remains critically important. Such  accountability must be ensured through appropriate levels of oversight  and reporting of program operations. This includes overseeing the overall  management and operations of the CNAs as well as ensuring that key  program functions—such as determining which affiliate is assigned to provide a project and the pricing of those projects—are transparent. Without this accountability, it is impossible to know the extent to which  this uniquely structured public-private program is truly benefiting the blind  and other persons with severe disabilities and whether federal customers  are charged fair prices for the products and services they receive.
In light of the program’s importance in creating employment opportunities  for the disabled and its unique public-private structure, you asked us to  examine some key aspects of the program’s oversight. We focused on  the following questions:  1.  How does the AbilityOne Commission direct and oversee the CNAs  and what limitations may exist with this oversight?  2.  How are products and services added to the AbilityOne Program and  how are providers of such projects assigned?  3.  What processes does the AbilityOne Program follow when pricing  projects?
To answer these questions, we reviewed the policies and procedures of  the AbilityOne Commission and the CNAs, as well as their relevant  reports, including annual business plans, annual financial statements and  budget justifications, strategic plans, compensation studies, IRS Form  990s, as well as relevant federal laws and regulations. We also  interviewed officials from the AbilityOne Commission (members of the  presidentially appointed Commission and senior staff) as well as officials  from both CNAs (members of their boards of directors, senior executives,  and senior staff). These interviews focused on: (1) how projects are  added to the program, assigned to affiliates, and priced; (2) how the  Commission oversees the CNAs; (3) concerns about project assignment,  pricing, and oversight; and (4) how these concerns could be addressed.  In addition, we spoke with 10 directors or managers of NISH affiliates  about their perspectives on the AbilityOne Program and used this input in  part to develop and conduct five focus groups. We conducted the focus  groups with both NISH and NIB affiliates. To ensure that we obtained a  range of viewpoints from the focus groups, four groups that we convened  included affiliates that varied by size as well as their affiliated-CNA. The  fifth focus group included affiliate directors who had appealed project  assignment decisions. We spoke with 35 affiliates in all, in groups of 5 to  10. These group discussions focused on obtaining perspectives regarding  the program in general and processes and practices associated with  assigning and pricing projects in particular. To review the distribution of  projects, we analyzed AbilityOne data on what projects were produced  within the program and which affiliates produced them as of the end of  fiscal year 2012. We assessed the reliability of these data and determined  that they were sufficiently reliable for our purposes. Finally, we analyzed  information from the Commission on the number and types of pricing  reviews conducted between January 1, 2012 and December 10, 2012  (the latest period for which the Commission has data) and the outcome of  these reviews.
We conducted our work between February 2012 and May 2013, 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.
subsections: section_title: Background
paragraphs: In 1938, Congress established a program under the Wagner-O’Day Act  that created employment opportunities for the blind. People employed  under the program manufactured and sold certain products, such as  brooms and mops, to the federal government. In 1971, Congress  expanded the program under the Javits-Wagner-O’Day Act to employ  people with other severe disabilities and provide services (in addition to  products) to federal customers. Today, the AbilityOne program provides  more services than products. As of September 30, 2012, the program’s  list of projects (known as the Procurement List) included 4,639 projects— 65 percent of which were services and 35 percent of which were  products. Services include janitorial, landscaping, and document  destruction services as well as staffing call centers and base  commissaries. Products include office and cleaning supplies, military  apparel, and bedspreads. Federal agencies that need the specific  products and services on the Procurement List are generally required to  purchase them through the program. Unlike contracts that are reserved  exclusively for small businesses—which generally must be competed  among qualified small businesses—contracts for projects on the  Procurement List are not competed within the program. Once projects are  included on this list, they can remain there indefinitely and continue to be  provided by the initially-assigned affiliate.
subsections: section_title: The Organizational and Funding Structure of the AbilityOne Program
paragraphs: Three types of entities comprise the AbilityOne Program: (1) the  AbilityOne Commission, (2) the CNAs, and (3) the affiliates. Figure 1  shows the program’s organizational structure and how each of these  entities is funded.
The AbilityOne Commission consisted of a 15-member presidentially  appointed Commission and 27 full-time staff as of the end of fiscal year  2012. Its responsibilities include (1) establishing rules, regulations, and  policies to assure the effective implementation of the program; (2) adding  new projects to the Procurement List, after determining whether they can  be suitably provided by people who are blind or have severe disabilities;  and (3) setting prices for these projects that reflect the market (fair market  prices) and appropriately revising them over time. In regard to the CNAs,  the Commission has the authority to (1) authorize and de-authorize one  or more CNAs to help administer the program, (2) set the maximum fee  ceiling the CNAs can charge their affiliates, and (3) provide guidance and  technical assistance to the CNAs to ensure the successful  implementation of the program. The Commission is funded through  congressional appropriations which, in fiscal years 2011 and 2012 were  almost $5.4 million each year.
The AbilityOne Commission designated two CNAs—NIB and NISH—to  help administer the program. The Commission designated NIB in 1938  and in calendar year 2011, NIB had 161 employees and, as of the end of  fiscal year 2012, NIB worked with 70 agencies affiliated with the program  that employ people who are blind. The Commission designated NISH in  1974 and at the end of calendar year 2011, NISH had 352 employees  and, as of the end of fiscal year 2012, NISH worked with 528 agencies  affiliated with the program that employ people with severe disabilities. The  CNAs are funded almost entirely through fees they charge their affiliates  as a percentage of the revenues the affiliates earn from federal  customers on AbilityOne contracts.
The affiliated agencies that provide AbilityOne projects to federal  customers can be private nonprofit agencies or state-run nonprofit  agencies. Some affiliates are part of well known nonprofit agencies, such  as Goodwill Industries or Easter Seal agencies, and others are lesser  known affiliates. Moreover, some affiliates rely exclusively or mostly on  AbilityOne sales, whereas others have a substantial amount of sales  outside of the AbilityOne Program. Regardless of how much business an  affiliate conducts through the AbilityOne Program, the program requires  that at least 75 percent of the total direct labor hours it uses to provide all  products and services, including those outside of the AbilityOne Program,  be carried out by people who are blind (in the case of NIB) or have severe  disabilities or blindness (in the case of NISH).
section_title: The Commission Has Limited Control Over Some Aspects of CNA Operations
paragraphs: The Commission has limited authority to oversee and control the CNAs,  which manage much of the program’s day-to-day operations because  they are independent nonprofit agencies. Even though the Commission  has ultimate responsibility for program management and oversight  because of the unique public-private structure of the program it cannot  control how CNAs (1) spend their funds, (2) set and manage their  performance goals, or (3) set and implement governance policies and  other internal controls.
subsections: section_title: The Commission Has Limited Control Over CNA Spending
paragraphs: The Commission has limited influence over how CNAs spend their funds  because the CNAs, as independent nonprofit entities, have their own  boards of directors that determine how much the CNAs will spend on  each item in their budgets. However, the Commission can influence the  CNAs overall budgets by (1) reviewing CNA annual business plans and  (2) limiting the maximum amount of revenue the CNAs can collect from  their affiliates to fund their operations. Commission reviews of CNA  business plans consist of examining the plans to ensure that they are  aligned with the Commission’s core goals and asking clarifying questions  or requesting changes. The Commission limits CNA revenues by setting  the maximum fee amount the CNAs can charge their affiliates based on  revenues from their AbilityOne contracts.
In fiscal year 2012, NISH spent $78 million and NIB spent $32 million on  operations. The major expenses of each are depicted in figure 2 and all  expenses are provided in appendix I.
Because the CNAs are independent nonprofit agencies, the  Commission’s influence over their budgets does not and cannot extend to  (1) controlling CNA cost areas, such as employee salaries and benefits or  lobbying costs; (2) establishing a policy on the appropriate level of CNA  reserves; and (3) ensuring that the CNAs provide sufficient funding to  support key program initiatives designed to promote employment  opportunities for people with severe disabilities.
Compensation and benefits.  According to the Commission, it has no  direct control over the amount that CNAs pay their executives and other  employees, an important driver of CNA expenditures. In November 2004,  the Commission proposed to exert more control through proposed  regulations that included, among other things, standards regarding the  reasonableness of executive and other employee compensation at the  CNAs. The Commission eventually withdrew the entire regulatory  proposal citing the number and nature of issues raised by commenters.
Federal laws limit the amount of federal funds that can be used to pay the  salaries of certain federal agency contractors and nonprofit agency  executives receiving federal grants to the level II federal senior executive  service (SES) salary, which in fiscal year 2012 was the maximum SES   CNA executive salaries, however, are not limited in  pay of $179,700. this way because although the fees the affiliates pay the CNAs originate  with federal customers, once they are remitted to the affiliates they are no  longer federal funds. SES pay ranged from $119,554 to $179,700 in fiscal  year 2012. Our review of the financial information submitted by NISH and  NIB of their 25 highest-paid executives for this year shows that 11  executives had a salary above this range, 12 were within this range, and  2 were below this range. NISH and NIB employees, including the highest- paid executives, also received bonuses and benefits, such as pensions,  and health, dental, disability, and life insurance. The highest-paid NISH  executives as well as staff were entitled to first-class or business air travel  in certain circumstances and reimbursement for eligible wellness program  expenses up to a maximum of $250 annually. Also, the NISH Chief  Executive Officer received a stipend for a car.
Within the last 5 years, each CNA has had different consultants conduct  compensation assessments to determine whether their compensation  was comparable to other organizations. The organizations used for  comparison had similar missions and levels of revenue for the  assessments conducted for NISH, and similar locations for the  assessments conducted for NIB. These assessments took into  consideration some factors similar to those in the Commission’s proposed  regulations, such as comparing the salary of job positions at the CNAs  with positions at other organizations deemed similar. However, none of  the assessments compared CNA compensation to federal sector  compensation. One consultant who conducted one of the studies  explained that this was because CNA job titles and functions were more  comparable to the for-profit and nonprofit sectors than the federal sector.  These assessments also varied in scope and methodology. For example,  while some NISH assessments included a review of the value of all  salary, cash incentives and benefits, the NIB assessments did not include  a review of benefits. The 2011 study for NISH found that with the  exception of salaries for three executives, the salaries of all NISH  executives were comparable to the market median. The 2009 study for  NIB found, in part, that the salaries for NIB’s leadership team needed to  be increased to be competitive with the market, and NIB subsequently  raised their salaries.
18 U.S.C. § 1913. and NISH reported spending $700,000 on lobbying. In the same period,  NIB reported lobby activities related to the AbilityOne Program, the  Rehabilitation Act, Social Security and federal procurement, and NISH  reported lobbying related to 10 different bills or laws.years, from 2008 to 2012, NIB reporting spending about $976,729 and  NISH reported spending $3.5 million on lobbying.
According to the Commission, to decrease reserves the Commission reduced CNA fee  limits in fiscal year 2007. each CNA is inappropriate.reserves for NISH and NIB separately over time. Specifically, the annual  reserves for NISH for fiscal years 2008 to 2012 as well as its reserve  projection for fiscal year 2013 continued to grow, while NIB’s reserves  declined slightly in 2011and 2013 (see fig. 3).
section_title: The Commission Relies on CNAs to Recommend Projects for the Program, but Has Not Resolved Concerns about How CNAs Assign Projects to Affiliates
paragraphs: The Commission relies on CNA recommendations when determining  which projects are added to the AbilityOne Procurement List and when  assigning affiliates to provide them. However, some affiliates have  expressed concerns that CNA assignment decisions may not be  sufficiently transparent or equitable. In response to these concerns, the  AbilityOne Commission issued a policy on how CNAs should assign  projects. While a step in the right direction, this policy may be ineffective  in several ways.
subsections: section_title: CNAs Assign Affiliates to Develop Potential Projects and Recommend Projects for Review to the Commission
paragraphs: Federal law gives the AbilityOne Commission the authority to add projects  to the AbilityOne Program Procurement List and federal regulations give  the Commission the authority to approve which agencies affiliated with  the program can provide the projects. In so doing, the Commission relies  heavily on recommendations from the CNAs. Specifically, it takes five  steps to add a project to the Procurement List (see fig. 4).
Under the first step of the Procurement List addition process, the CNAs  assign one of their affiliated agencies to develop a business opportunity  that potentially may become an AbilityOne project, in accordance with  their own procedures. The Commission does not provide input into which  affiliate is assigned at this stage. In step 2, the CNAs recommend that the  Commission add the potential project to the Procurement List using a  standard project addition package. The affiliate that the CNA assigns to  develop the potential project is typically the affiliate that the CNA  recommends to the Commission to provide the project in this package. In  step 3, Commission staff review CNA addition packages to determine  whether the project is suitable for the AbilityOne Program, using the  criteria in the sidebar. According to Commission staff, they do not  determine: a) whether another affiliate would be better positioned to  provide the project or b) if the CNAs followed appropriate processes in  selecting the affiliate. In step 4, Commission members vote on whether to  add staff-recommended projects to the Procurement List, using the same  four criteria that staff used to evaluate the project. They also vote on  whether the CNA-recommended affiliate should be designated to provide  the project. According to Commission staff, members vote to add the vast  majority of projects staff put forward for addition to the Procurement List.
section_title: The Processes CNAs Use to Assign Projects Are Not Fully Transparent and Some Affiliates View Them as Inequitable
paragraphs: GAO has identified key elements that public procurement systems should  have to ensure that they are efficient and accountable. Two of these,  which the Commission has also acknowledged in policy as being  important in the AbilityOne Program, are:   transparency, which includes having written procedures that are easily  understandable by all; and equity, which includes maintaining impartiality, avoiding conflict of  interest and preferential treatment, and dealing fairly and in good faith  with all parties.
The processes the CNAs use to make assignment decisions allow them  to exercise discretion when determining which affiliate to assign to a  project and such discretion can limit transparency and equity. A  Commission official told us that such discretion is essential to balancing  the core mission of this program—providing employment opportunities for  people who are blind or have severe disabilities—with providing quality  projects to federal agencies in a timely and economical manner.  AbilityOne officials also told us that their involvement in determining which  affiliate should provide a project is limited. The reasons they gave for  relying so heavily on CNA recommendations include (1) historically,  project assignment has always been a CNA responsibility, and (2) it is the  CNAs that have the necessary expertise to assess which affiliates are  best suited to providing specific projects.
Although both NISH and NIB have written procedures for assigning  affiliates to projects, some affiliates told us that they do not always find  the CNAs’ assignment processes transparent. Both CNAs have basic  eligibility criteria that all affiliates must meet or they will be disqualified  from pursuing a potential project. NISH has 16 additional criteria that it  uses when making assignment decisions among qualifying affiliates and  NIB has 7 (see sidebar). Both NISH and NIB also provide feedback to  affiliates that were not awarded a project, upon request.
NISH officials explained that not all of its criteria are relevant when  determining which affiliate should be assigned a project and that each  project notification lists those criteria that will be used. NIB officials  explained that due to the general nature of their criteria, most are  applicable to assignment decisions. Nevertheless, some NISH and NIB  affiliates told us that they do not always understand how the CNAs apply  the assignment criteria on a project-by-project basis and, as a result, do  not understand how their proposals are being judged. One affiliate  explained, for example, that sometimes his CNA views geographic  proximity to a project’s worksite as more important than prior experience  in a relevant line of business when evaluating affiliate proposals and  sometimes they do the opposite. However, because the CNA does not tell  the affiliates up front which criteria will be weighted as more important,  affiliates do not know what elements to emphasize in their proposals and  can be confused as to why one affiliate was assigned a project over  another affiliate.
Moreover, some affiliates have questioned the overall integrity of the  CNAs’ assignment processes. Several affiliates we spoke with stated that  they feel the system is biased in that assignment decisions tend to favor  larger affiliates, affiliates that are or were on one of the CNAs’ boards of  directors, or are a member of a particular affiliate sub-group. In addition,  NISH assignment decisions are made by a regional executive director in  each of its six regions and some affiliates questioned whether these  individuals apply NISH assignment criteria consistently.
Affiliates have also said that when NIB identifies a potential project for  development, NIB does not routinely notify all affiliates. Instead, NIB  usually notifies only those that they think may be interested in, and  capable of, developing it. During our focus groups with affiliates, several  mentioned that this practice can make it difficult for them to be considered  for a different or new line of business. NISH, on the other hand, routinely  notifies all affiliates of potential projects through its website and such  notification is a requirement in NISH assignment procedures.
section_title: Limited Transparency and Perceived Inequities in Project Distribution May Not Be Resolved by the Commission’s Most Recent Efforts
paragraphs: The Commission’s May 2012 policy, according to Commission officials,  sought to articulate a minimum set of broad principles that CNA  assignment policies and procedures should incorporate—some of which  relate to the elements of transparency and equity discussed above. This  was the first time that the Commission had issued a written policy to  guide CNA project assignment decisions, although the CNAs have had  their own written procedures for years. Commission officials told us that  they issued this written policy for two reasons. First, in the event that an  affiliate filed suit in court over an assignment decision, as occurred in  2010, the Commission wanted to be able to point to a written policy that  described how they expect CNAs to make assignment decisions.  Second, they felt that having a written policy was important, given  complaints levied by some affiliates that CNA assignment decisions  sometimes lacked transparency and appeared biased. A Commission  official acknowledged that the principles articulated in its assignment  policy generally aligned with the CNAs’ written procedures. As a result,  the Commission did not expect that the CNAs would need to make  substantial changes in their assignment processes.
Our review of the Commission’s policy shows that although it describes  some desired outcomes regarding CNA assignment decisions, it does  little to indicate how these outcomes can be achieved. For example:
The policy states that CNAs should develop processes to assure that  projects are distributed among affiliates that result in fair, equitable,  and transparent distribution, taking into account the unique mission  and objectives of the program. It does not explore how such  distribution should be achieved, or define what is meant by fair,  equitable, and transparent.
To maintain CNA discretion in determining certain criteria to use when  making decisions, the policy allows decisions to be at least partially  based on special considerations in certain circumstances. The policy  gives examples of special considerations, such as providing jobs to  wounded warriors or using environmentally friendly supplies, but it  does not limit the CNAs to them. The policy also does not define or  provide any examples of the circumstances in which the special  considerations may be applied, which limits transparency. The policy  also lacks transparency because it does not require that the CNAs  routinely disclose to affiliates applying for projects how and why  special considerations were used in making assignment decisions.  Instead, it says that upon the Commission’s request, CNAs must  certify that an assignment complies with all applicable policies and  procedures and include documentation about any special  circumstances in the project addition package submitted to the  Commission.
The policy also contains three types of enforcement mechanisms, another  key internal control intended to ensure that program directives are  followed, but they are not well—formulated.  Specifically:
The policy requires that the Commission review CNA assignment  processes at least once every 3 years to determine whether these  processes are aligned with the principles outlined in its policy.  However, because some of the principles contained in this policy are  vague, the Commission may have difficulty determining the extent to  which CNA procedures are aligned with them. Although the policy  states that these reviews would begin in 2012, as of February 2013  the Commission had not developed review procedures or conducted  any reviews.
The policy requires that CNAs document any special considerations  that figure into an assignment decision and provide such  documentation to the Commission upon request. It does not, however,  specify what the documentation should entail. For example, it does  not require the CNA to document why or how a particular  consideration was used in an assignment decision. Such information  would be critical to assessing whether the assignment decision was  impartial and free from bias.
The policy requires that CNAs have written appeal processes in place  and both CNAs had such written procedures before to the  Commission issued its policy. The policy also requires that the  AbilityOne Commission develop its own separate written appeals  policy and procedures, which would allow for a second level of  appeal. At the time of our review the Commission did not have a  timeline for developing this policy.
section_title: The Commission Does Not Track How the Program’s Distribution of Projects Affects Job Creation for Its Target Population
paragraphs: The AbilityOne Commission has not determined how the assignment of  projects among affiliates has affected the creation of employment  opportunities for people who are blind or have severe disabilities and,  according to Commission officials, has not done so at least in part  because of limited resources. Such an assessment is important to  conduct for two reasons. First, identifying risks that may affect the  capacity of an agency to meet its mission—in this case the creation of  jobs for people who are blind or have severe disabilities—is an important   Because the Commission has not determined if or how  internal control.the current assignment of projects affects its mission, it does not know  whether the way projects are currently distributed among affiliates poses  a risk to achieving the program’s mission and, if so, the extent of this risk.  Second, according to an AbilityOne official, the relationship between the  distribution of projects and job creation for people who are blind or have  severe disabilities has been an ongoing debate among affiliates, CNAs,  and the Commission for years.
AbilityOne and CNA officials told us that there is no clear research to  indicate whether the current distribution of projects among affiliates  affects the amount of employment opportunities created for people who  are blind or have severe disabilities. On the one hand, AbilityOne and  CNA officials said that the program could benefit from spreading projects  widely among its affiliates. Under this scenario, the program would not be  as reliant on the capabilities of a few affiliates to hire people who are blind  or have severe disabilities. Such a broad bench of affiliates may reduce  the possibility of the program losing a federal customer if a producing  affiliate becomes unable to provide a project because the project could be  transferred to another affiliate within the program that had similar or  potentially similar capabilities and capacity. On the other hand,  Commission and CNA officials also said there could be benefits from a  completely different distribution that assigned relatively more projects to  some of the largest affiliates. Larger affiliates typically have more  experience and their size creates economies of scale necessary to  provide large projects, such as computer destruction or contract closeout  services for an entire federal agency or program within an agency.
We analyzed fiscal year 2012 program data and found that while the  largest affiliates represent a minority of the AbilityOne affiliates, they hold  the majority of projects. Figure 5 shows that the largest 114 affiliates (20  percent) that provided projects as of the end of fiscal year 2012 had 56  percent of the projects and 79 percent of the sales dollars.
We also analyzed the distribution of projects among NIB and NISH  affiliates separately. The largest 13 NIB affiliates (20 percent) held 46  percent of AbilityOne projects and 53 percent of AbilityOne sales. The  largest 100 NISH affiliates (20 percent) held 50 percent of AbilityOne  projects and 80 percent of AbilityOne sales.
Program officials from all levels, as well as some of the affiliates  themselves, told us that small and mid-size affiliates may struggle to  compete for AbilityOne projects for a variety of reasons. For example,  they told us that small affiliates cannot devote as many resources to  business development or may only have the capacity to compete for  projects in their local area. Affiliates also said that CNAs may not select  them because of a perceived lack of work experience in a new line of  business. Indeed, one affiliate told us it provides janitorial services and,  despite efforts to expand into other businesses, it could not persuade its  CNA to consider it for anything other than janitorial contracts. AbilityOne  and CNA officials told us that while they try to give opportunities to  smaller, less experienced firms, opportunities for smaller affiliates may be  reduced when other factors are taken into account, such as a federal  customer’s preference for a larger, more experienced contractor.
section_title: The AbilityOne Commission Has Final Approval of Project Prices, but Procedures Could Be Strengthened
subsections: section_title: The Commission’s Review and Approval of Price Recommendations for New Projects Lacks Transparency
paragraphs: While the AbilityOne Commission is ultimately responsible for determining  the fair market price of projects in the program, it permits the CNAs,  affiliates, and federal customers to negotiate pricing and recommend a  fair market price for each project. Commission guidance defines a fair  market price as the price agreed upon by a buyer and seller, with neither  under any compulsion to buy or sell and both having reasonable  knowledge of relevant facts.that providing jobs to people who are blind or have severe disabilities may  necessitate employing a less than fully productive workforce, which could  raise an affiliate’s costs. As a result, according to Commission staff, a  project’s price under the AbilityOne Program is not necessarily the lowest  possible price, but it also isn’t the highest possible price. Commission  guidance holds that the fair market price should include the CNA fee.
In addition, the Commission recognizes  The process for determining the price of a project begins when an affiliate  and federal customer are developing a potential project for the program  and ends when that project is added to the Procurement List (see fig. 6).
Commission staff review the CNA pricing package in step 3 of the  process. This review is a key control intended to ensure a fair market  price. Between January 1, 2012 and December 10, 2012, the  Commission received 336 new packages for price review. As shown in  figure 7, staff recommended 78 to Commission members for final  approval (23 percent). Staff rejected the pricing proposed in the other 258  pricing packages (77 percent), primarily because of insufficient  documentation, but in some instances because they found the price too  high. The CNAs and affiliates have the option of revising and resubmitting  the rejected packages. After working with the CNAs, affiliates, and  customers, as necessary, to produce better documentation or a revised  price, staff recommended that Commission members approve the revised  packages of 116 proposals. For the last several years, the Commission  has approved all pricing packages the staff have recommended because  they agreed with their staffs’ recommendations.
Commission staff told us that they consider various factors when  reviewing recommended prices, such as whether negotiations between  the federal customer and affiliate are sufficiently documented. Staff also  told us that they conduct research to determine whether the  recommended price in a project addition package conforms with the  pricing for similar goods and services available from public sources, and if  not, whether the project addition package contains a sufficient  explanation for these differences. Commission staff also told us that they  conduct these reviews in accordance with written policies and  procedures, but acknowledged that these instructions are not sufficiently  explicit and transparent. Such limitations can make it difficult for the CNAs  and affiliates to understand how and why decisions are made. CNA  managers and some affiliates told us, for example, that they sometimes  do not understand the Commission’s price reviewing procedures and by  extension, its reasons for rejecting prices. This lack of understanding  about Commission reviews of recommended prices may partially explain  the relatively high rejection rate of initial packages (see fig. 7). More  explicit and transparent written policies and procedures on pricing reviews  might include, for example, a checklist of what Commission staff should  look for when assessing prices and a list of red flags that could indicate  when recommended prices might be too high. Clearly-communicated  price review procedures, including a discussion about the protocols the  Commission uses to review pricing packages, could result in better- prepared pricing packages and therefore fewer rejections and less  rework.
section_title: The Commission’s Pricing Revision Process Has Not Ensured Approval of All Price Revisions
paragraphs: According to AbilityOne policy, all projects that extend beyond a single  contract period must include a mechanism for adjusting the price. All  parties involved—the affiliate, the federal customer, the CNAs, and the  Commission—must agree on the mechanism. According to CNA officials,  periodic negotiations between the affiliate and the customer are the most  common price revision mechanism. If a price revision conforms to the  originally approved mechanism, the affiliate and customer implement the  revision without seeking Commission approval or submitting  documentation of the revision to the Commission. However, if the change  in price does not conform to the originally approved mechanism,  Commission policy directs affiliates to prepare a price revision request  package, which the CNA submits to the Commission for staff approval.
Between January 1, 2012, and December 10, 2012, Commission staff  reviewed 569 packages for non-conforming price revisions (see fig. 8).  Commission staff initially approved 216 of these packages (38 percent)  and, after a subsequent review, approved an additional 157. Commission  staff rejected 196 of the price revision packages, none of which had been  resubmitted at the time of our review. Commission staff told us that they  might reject a price revision for a variety of reasons. Staff might see an  anomaly in the request, such as a price that is increasing much faster  than either (1) the original terms of the contract specified for future year  price changes or (2) research indicates that it should be changing.  Affiliates and their federal customers have the option to resubmit their  requests with additional information or clarifications.
Commission staff and CNA officials reported that they do not have  procedures in place to ensure that affiliates comply with the policy that  affiliates report to the Commission, through their CNA, any price revisions  that do not conform with approved contract pricing mechanisms. If the  Commission becomes aware of unreported price revisions, staff told us  that they contact the affiliate and federal customer to attempt to resolve  the situation, typically by asking for an immediate price revision package.  Commission staff told us that unreported price revisions are a recurring  problem, and provided us with three examples of price increases that  should have been reported between 2 months and 19 years ago.  Although they were not able to estimate the number of times such  unreported increases occurred, they said that its recurring nature causes  them concern. CNAs collect information on current prices, but the  Commission does not require them to submit this information to the  Commission. If the Commission had this information, it could  electronically compare the current prices to the data it maintains on the  approved prices and thus have assurances that controls were met.  Failure to submit price revision requests to the Commission before raising  prices (1) negates the Commission’s internal controls that ensure that  affiliates are charging fair market prices and (2) means that the  Commission does not have accurate data regarding the prices that are  actually being used within the program.
section_title: Conclusions
paragraphs: The AbilityOne Program is one of many federal programs designed to  help people with disabilities find employment. It is the single largest  source of employment for the blind and others with severe disabilities.  This program’s unique public-private structure was set up more than  seven decades ago when federal purchasing was simpler and much  smaller in scale. Today, billions of federal procurement dollars flow  through the program every year and tens of thousands of people who are  blind or have severe disabilities are employed through it.
The Commission’s oversight of the CNAs is hampered by limitations in its  monitoring procedures and in its authority over their operations.  Developing a written agreement between the Commission and each CNA  that specifies key expectations for the CNAs and oversight mechanisms  could improve program accountability. It would be important to work to  achieve an agreement within a reasonable period of time, such as 18  months. In the event that an agreement cannot be reached, it is important  to identify in advance appropriate next steps for program changes by the  Commission to establish adequate oversight and accountability for the  AbilityOne program.
In addition, there are specific areas where the Commission needs to  establish adequate oversight procedures to better help ensure program  integrity, transparency, and effectiveness. These include: obtaining reports from CNAs on alleged misconduct and internal  control violations to ensure that any appropriate corrective actions are  taken, overseeing CNA procedures for assigning projects to affiliates to help  ensure transparency and equity, developing more explicit and transparent written protocols for pricing  reviews, and  reviewing pricing packages to ensure fair market value.
Finally, the AbilityOne program does not have an independent IG. Without  an independent IG, this major procurement program lacks an office to  independently audit and investigate waste, fraud, and abuse and to make  recommendations for enhancing program integrity and operations.
section_title: Matter for Congressional Consideration
paragraphs: To enhance program effectiveness, efficiency, and integrity in the  AbilityOne Program, Congress may wish to consider establishing an  independent inspector general for the program with the authority to audit  and investigate the Commission and the CNAs.
section_title: Recommendations for Executive Action
paragraphs: To promote greater accountability for program effectiveness, efficiency,  and integrity, the Chairperson of the U.S. AbilityOne Commission should  direct the AbilityOne Commission to enter into a written agreement with  each CNA within reasonable established time frames, such as within 18  months. The agreements should establish key expectations for each CNA  and mechanisms for the Commission to oversee their implementation and  could cover, among other things: expenditures of funds, performance goals and targets, governance standards and other internal controls to prevent fraud,  waste, and abuse, access to data and records, consequences for not meeting expectations, and provisions for updating the agreement.
If the Commission is unable to enter into such a written agreement with  either CNA, the Commission should take steps to designate a CNA that is  willing to enter into such an agreement or seek legislation that would  require such an agreement as a prerequisite to designation as a CNA.
To further improve oversight and transparency in the AbilityOne Program,  the Chairperson of the U.S. AbilityOne Commission should:
Routinely obtain from the CNAs any audits and reports of alleged  misconduct or other internal controls violations, and information on  corrective actions taken by the CNAs.
Take additional action to better ensure that the CNAs’ processes of  assigning projects to affiliated agencies result in a transparent and  equitable distribution. Such action could include one or more of the  following:  further developing its policy to specify procedures CNAs should  follow to ensure equity and transparency in project assignment  decisions, developing protocols for how the Commission will review CNA  project assignment procedures to ensure their alignment with the  Commission’s policy, or performing a study to determine if and how the distribution of  projects among affiliates affects the number of jobs for people who  are blind or have severe disabilities.
Develop more explicit and transparent written procedures for how  Commission staff review pricing packages and clearly communicate  these procedures to affiliates and the CNAs. Such communication  might also highlight the most common reasons that pricing packages  are rejected by Commission staff.
Require the CNAs to provide current pricing information to enable the  Commission to better identify instances when current prices differ  from approved prices.
section_title: Agency and CNA Comments and Our Evaluation
paragraphs: We provided a draft of this report to the AbilityOne Commission, NIB, and  NISH for review and comment. The Commission’s comments are  reproduced in appendix II, NIB’s comments are reproduced in appendix  III, and NISH’s comments are reproduced in appendix IV. Technical  comments from all three agencies were incorporated as appropriate.
In their written comments, the Commission and the two CNAs agreed with  our matter for Congressional consideration and recommendations for  executive action. They also provided additional information and disagreed  with several findings. We subsequently modified the report in a few  places to provide further clarification.
With regard to our matter for Congressional consideration about  establishing an independent Inspector General (IG) for the program, the  Commission concurred that there are benefits to having an independent  entity conduct audits where needed. The Commission added that in its  view, the creation of an IG would have to be budget neutral given the  already scarce program funding for the Commission.
The Commission concurred with our recommendation to enter into a  written agreement with each CNA and added that it will pursue these  agreements once it has updated and enhanced its regulations to describe  its authority and oversight with respect to the CNAs. The Commission  added that it anticipates completing the written agreements in 18 to 24  months.
The Commission concurred with our recommendation to routinely obtain  from the CNAs any audits and reports of alleged misconduct or other  internal control violations, and information on corrective actions taken by  the CNAs. The Commission added that it will establish or enhance and  disseminate policies and procedures regarding CNA oversight and  internal controls and anticipates that this will be completed in fiscal year  2014.
While NIB agreed with our recommendations to the Commission, NIB  disagreed with our finding that the Commission has limited control over  CNA spending. NIB highlighted several tools which it believes show that  the Commission’s controls are sufficient, such as the Commission’s ability  to set fee limits for the CNAs and provide guidance for, and review of,  CNA budgets and performance. The report discusses these tools and  presents evidence as to why we believe they are not sufficient for the  Commission to oversee CNA spending. Both CNAs cited other controls  that contribute to the oversight of their budgets. We cited examples of  these other controls in the report, including IRS reporting requirements for  nonprofit agencies and such CNA internal controls as undergoing annual  independent financial audits. However, IRS and CNA internal controls  cannot replace Commission oversight because the Commission is the  entity that is most knowledgeable about the program’s regulations and is  ultimately responsible for ensuring compliance with these regulations and  for the stewardship of the program.
The Commission and the two CNAs commented on CNA reserve levels.  The Commission provided some additional clarification on its written  guidance for reserves and actions taken, which we incorporated into the  report. NISH disagreed with the statement that the CNAs have been  accumulating reserve funds. However, our analysis of certified financial  statements for NISH and NIB shows that (1) the annual reserves for NISH  for fiscal years 2008 to 2012, as well as its reserve projection for fiscal  year 2013, continued to grow and (2) NIB’s reserves declined slightly in  2011and 2013 (see fig. 3). NISH also disagreed with the statement that  the CNAs have not provided the Commission with financial analyses that  support their levels of reserves and reserve policies. However, the  statement in the report to which NISH refers actually focuses on actions  of the Commission and we have clarified this in the report. This statement  indicates that the Commission has not developed guidance about what  the CNAs should consider when setting reserve policies nor determined  what financial information the CNAs should provide to it to fully support  their reserve levels. NISH and NIB cited the criteria they took to establish  their reserve policies and levels in their comments.
NISH disagreed with the Commission’s position that the Commission  lacks the authority to require and enforce program improvements. During  the course of our work, Commission officials noted that the Commission  has very little explicit authority to regulate the CNAs and, as a result of  this lack of authority, said they have not taken additional action to expand  the Commission’s oversight in ways that may be beneficial to the  program.  They said that, without additional oversight tools, they have few  ways to enforce regulations. For example, although they could remove a  CNA as an administrator of the program for noncompliance or  significantly reduce its fees, such approaches could be highly disruptive  to the program and the people it serves. Thus, depending on the  infraction in question, they could be reluctant to use them. Because an  agency’s interpretation of its regulatory authority under the laws it is  charged with administering is generally to be afforded deference, we  did not make any changes to our report.  However, we note that it may  be beneficial for the Commission to engage with NISH on this issue as  it takes steps to implement our recommendations, particularly the one  focusing on entering into written agreements.
NIB disagreed with our finding that the Commission has limited oversight  and control over areas such as CNA performance, governance, and  internal controls. NIB’s comments on this topic generally provided  additional information about NIB’s governance structure and controls and  did not directly address the Commission’s level of authority and control.  However, in response to NIB’s comments, along with additional  clarification from a NIB official, we revised the report to make clear that  NIB does not allow board members who are executives or employees of a  NIB affiliate to serve as a Board officer, but those individuals can serve on  the Board.
The Commission agreed with our recommendation that it take additional  action to ensure that CNAs’ processes of assigning projects to affiliated  agencies result in a transparent and equitable distribution. The  Commission noted that it has already initiated a review of CNA  assignment policies as part of a larger review of procedures across the  entire AbilityOne Program and that it will build our recommendations into  the deliberative process. The Commission added that the target  completion date for this review and development of procedures is no later  than June 2014.
Both CNAs disagreed that their processes for assigning projects to  affiliates were not transparent. NIB stated that the primary factor it uses  when making assignment decisions is the potential to positively impact  employment for people who are blind and NISH stated that it ensures  transparency through several actions, including posting all notices of  project opportunities on its website. However, we continue to believe that  greater transparency is needed for the reasons stated in the report,  including to address the concerns of some affiliates that: (1) they do not  understand how the CNAs prioritize the criteria used to evaluate their  proposals; (2) NISH applies its criteria inconsistently across its regions,  and (3) NIB does not notify all of its affiliates about potential project  opportunities it is considering for the program. NISH also stated that it  disagreed with what it believed to be our assessment that CNA  assignment processes are biased. We did not, however, state that these  processes are biased; rather, we stated that some affiliates view them as  biased. Greater transparency can help organizations address concerns of  bias. NISH also provided additional information about its assignment  processes that we incorporated in the report as appropriate.
The Commission and NISH provided comments about the distribution of  projects among affiliates. The Commission noted that it will increase its  emphasis and attention to mentoring the smaller affiliates so that they can  more fully participate in the program. The Commission also suggested  that we note that factors other than an affiliate’s size can influence the  number of projects affiliates are assigned in the program. We agree, but  did not make any revisions to the report in this regard because we had  already discussed such factors in the draft. NISH noted that it assigned  more projects to its smaller affiliates in fiscal year 2012 than in prior  years. However, because it is not clear how the distribution of projects  among affiliates affects the creation of employment opportunities for  people who are blind or have severe disabilities, it is not currently known  whether assigning more projects to smaller affiliates is the most effective  path for the program to pursue.
The Commission suggested that we modify the wording of our finding on  the extent of the Commission’s knowledge about how project assignment  affects employment opportunities for its target population. The  Commission noted that, while it is presented with information on the  number of employment opportunities a proposed project will generate, it  does not track the number of overall employment opportunities realized.  In response, we revised the wording to clarify that the Commission does  not track how the program’s distribution of projects affects job creation for  its target population. NIB reiterated several aspects about the process of  adding projects to the Procurement List. In response to these comments  we now more explicitly note that the Commission relies on CNA  recommendations when adding projects to the Procurement List and  votes on whether to approve CNA-recommended affiliates as project  providers at the Procurement List addition stage.
The Commission agreed with our two recommendations for Commission  actions to improve pricing reviews.  However, the Commission took  exception with our statement that Commission staff do not have written  policies and procedures for reviewing pricing packages. The Commission  stated that staff do have such written instructions and we confirmed this  statement and revised the report to incorporate this information.   Nonetheless, the Commission agreed with our assessment that its pricing  review procedures are not sufficiently explicit or transparent and that this  can make it difficult for the CNAs and affiliates to prepare acceptable  pricing packages. The Commission noted, however, that the extent to  which Commission reviews of pricing packages can be transparent is  limited by the fact that such reviews are often based upon sensitive  information that is not releasable to the CNAs or affiliates. We agree, but  continue to believe that the Commission can increase the transparency of  its pricing review processes.
As agreed with your offices, we will send copies to the appropriate  congressional committees, the Chairperson of the U.S. AbilityOne  Commission, the President and CEO of NISH, the President and CEO of  NIB, and other interested parties. In addition, this report will be available  at no charge on the GAO web-site at http://www.gao.gov.
If you or your staff members have any questions regarding this report,  please contact me at (202) 512-7215 or sherrilla@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix V.
section_title: Appendix I: CNA Operating Expenses for Fiscal Year 2012 (in millions)
paragraphs: Appendix I: CNA Operating Expenses for  Fiscal Year 2012 (in millions)
The CNA fiscal year begins on October 1and ends on September 30.
Employee benefits include health, dental, life, and disability insurance.
In response to NISH’s clarification of its operational costs, we removed $31.57 million for  subcontracting costs  that are associated with federal contracts in which NISH was the prime  contractor. According to NISH officials, these costs are not required to be reported on the IRS Form  990 as operational costs and NIB did not do so.
subsections: section_title: Type of Expense Grants
section_title: Subtotal for Personnel Fees for non-employee services Management
section_title: Other expenses (listed by NIB) Training
paragraphs: The CNA fiscal year begins on October 1 and ends on September 30.
Employee benefits include health, dental, life, and disability insurance.
NIB’s service bureau costs are for its outsourced data entry and call center.
section_title: Appendix II: Comments from the U.S. AbilityOne Commission
section_title: Appendix III: Comments from the National Industries for the Blind
section_title: Appendix IV: Comments from NISH
section_title: Appendix V: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Assistant Director Bill Keller,  Nancy Cosentino, Julie DeVault, Sara Pelton, and Paul Wright made  significant contributions to this report. Assistance, expertise, and  guidance were provided by Kurt Burgeson, David Chrisinger, Michele  Grgich, Alex Galuten, Kristine Hassinger, Steve Lord, Mimi Nguyen, Jerry  Sandau, William Shear, Walter Vance, Monique Williams, and William  Woods.