The government acquisition landscape was reformed by several legislative changes in the 1990s, such as the Clinger-Cohen Act of 1996 and the Government Management Reform Act of 1994. The Clinger-Cohen Act authorized creation of GWACs, which are typically multiple-award contracts for information technology that allow an indefinite quantity of goods or services (within specified limits) to be furnished during a fixed period, with deliveries scheduled through orders with the contractor. The providing agency awards the contract, and other agencies order from it. OMB was authorized by the Clinger-Cohen Act to designate agency heads as executive agents for GWACs. Some agencies had already established information technology contracts prior to the OMB designation. However, according to agency officials, the OMB designation is beneficial to them because it enables them to provide a streamlined contracting process, it creates opportunities to leverage the buying power of customer agencies, and it helps them market their contracting services. Table 1 shows the year in which agencies received OMB’s designation. The Government Management Reform Act of 1994 authorized the Director of OMB, in consultation with congressional committees, to designate six franchise fund pilots that would operate as fully self-supporting business- like entities within the federal government to compete for the delivery of common administrative support services to federal customers. Franchise fund programs provide administrative services such as contracting, systems operation, and payroll processing, in addition to information technology. Interior’s program, GovWorks, provides contracting services for a wide range of goods and services. The Schedules program, part of GSA’s Federal Supply Service, provides federal agencies with a streamlined process to obtain commonly used products and services at prices associated with volume buying. Information technology is the biggest business line in the Schedules program. Interagency purchases of information technology from the Schedules program exceed those made from all GWAC programs combined. GWACs, franchise fund pilot programs, and the Schedules program charge fees for services with the intent to recover costs. Fees are based on known costs, estimates of future costs and revenues, and consideration of the prices charged by the competition for similar services. Figure 1 is an illustrative depiction of the factors that agencies consider when setting fees. A detailed description of each agency’s program, financial results, fee structure, and services appears in appendixes VII through XIII. All of the programs we reviewed except the Commerce and Transportation GWACs reported revenue in excess of costs for one or more fiscal years between 1999 and 2001. Table 2 shows reported earnings based on financial statements for the contract programs. Starting in 1999, OMB required that agencies with GWACs should identify, account for, and recover fully allocated actual costs in accordance with federal financial accounting standards. Actual costs include direct costs, such as labor and materials, and indirect costs, such as rent and support services. However, agencies do not consistently report revenues and costs in accordance with OMB’s guidance. They have developed their own approaches to accounting and to reporting program costs, and these approaches are evolving as the agencies make periodic changes. OMB requires each GWAC agency to submit a semi-annual report of its activities. However, OMB has not required annual financial summaries of program results that would include a description of the agencies’ indirect cost allocation methodologies and provide an entire year’s worth of information on program results. Accordingly, OMB was unaware that not all agencies are reporting revenues and costs in accordance with its guidance. Further, while GSA identifies, allocates, and reports actual costs for both its GWAC program and the Schedules program, other agencies’ records are not as complete. We found instances of incomplete identification and allocation of indirect costs, partial reporting of program results, and overstated indirect costs, as shown in the examples below. Without more complete information on the costs of interagency contract services, there is no assurance that fees accurately reflect costs. NASA does not include any costs for rent, utilities, contract support, or program management in the account that summarizes GWAC costs. Further, NASA components do not pay a fee for using the GWAC because of an agencywide practice of not charging fees to internal users of NASA’s own contracts. Consequently, both the costs recorded in the GWAC account and GWAC revenues are understated. NASA officials noted that NASA is making an in-kind contribution to the program by not charging administrative costs, and that this contribution is sufficient to ensure that external customer fees are not subsidizing NASA’s own use of the GWAC program. However, NASA provided us only a rough analysis, prepared in 1999, of the costs and potential revenues involved. NASA stated that it intends to periodically reassess its financial contribution to the GWAC program. NIH’s GWAC financial results do not include some indirect costs for support services provided by the NIH Office of the Director, such as acquisition policy, budget services, and equal opportunity programs. In addition, the fiscal year 2001 financial results, prepared by NIH’s financial office, reported GWAC earnings of $57,837, an understatement due to two factors. First, reported revenues from NIH’s internal customers were not combined with revenues from external customers. If internal and external revenues had been combined as one line item, reported earnings would have increased to $268,219. Second, the program was overcharged by $729,870 for indirect costs, including rent and utilities, because of an accounting error. NIH officials informed us that corrective actions have been taken on both problems for fiscal year 2002. However, NIH officials do not plan to identify or allocate additional Office of the Director’s costs, because they do not believe it would be cost-effective to do so. Transportation’s GWAC operates within the Transportation Administrative Service Center and is allocated a portion of the center’s indirect costs. Indirect costs allocated to the program have fluctuated substantially from year to year. Such fluctuations significantly impact reported program operating results. For example, the GWAC’s indirect costs jumped by more than 90 percent in fiscal year 2001, because the indirect cost allocation was based on an estimated GWAC sales volume that was not realized. This allocation was not adjusted at the end of the year to reflect actual sales. If actual sales had been used, the indirect costs allocated to the GWAC would have been about $600,000 lower and would have substantially reduced the program’s reported loss of about $1 million that year. Program officials restructured their fees for fiscal year 2002, in part due to prior year losses. Full costing is also a key principle of the franchise fund pilot programs. OMB’s guidance states that the operation should be self-sustaining and that fees should fully recover costs. Interior’s progress in identifying and recovering full costs has evolved over time. However, program officials have not fully allocated indirect costs at the department level. The legislation authorizing GWACs was silent with respect to how agencies should account for financial transactions under the contracts; for example, how to obligate funds for the contract and how to account for revenue. Thus, agencies administering GWACs were left to their own devices when determining whether these financial transactions would be accounted for through existing revolving funds or in stand-alone accounts. The GWACs at NIH, Transportation, and the Federal Technology Service operate under revolving funds, while NASA and Commerce operate their GWACs in stand-alone reimbursable accounts. OMB guidance on earnings stipulates that (1) GWAC fees should be adjusted so that total revenues do not exceed actual costs and (2) revenues generated in excess of the agency’s actual costs are to be transferred to the miscellaneous receipts account of the U.S. Treasury’s General Fund. However, the way agencies operate their GWACs under revolving funds conflicts with OMB’s guidance. Agency officials told us that they have accounted for GWAC revenue in the same manner that the law authorizes them to account for revenue from other programs in their revolving funds. Thus, they have used earnings generated by some products and services—including GWACs—to offset losses incurred by other products and services. Further, they are permitted to retain earnings in their revolving funds and use those earnings for authorized purposes of the fund, unless the law governing operation of the fund requires them to transfer amounts to the Treasury. Agency officials maintain that their fund legislation prevails over the OMB guidance where there is a conflict between the two. OMB officials told us that they plan to review this issue. The different approaches GWAC programs have taken when revenues exceeded costs are discussed below: From fiscal years 1999 to 2001, NIH reported revenues in excess of costs from its GWAC operations. For the 3 years combined, the GWACs’ $4 million of earnings offset $3.6 million in losses in other revolving fund acquisition programs. For fiscal year 2001, the most recent year for which actual costs are available, reported GWAC earnings of $268,219 offset other programs’ losses of $116,590. NIH lowered its fee for orders placed with its small business contractors for the two GWACs awarded in fiscal year 2001. The fee for orders with larger businesses did not change. Within its revolving fund, the Federal Technology Service’s IT Solutions program manages GWACs and provides other information technology services to federal agencies. The program’s earnings are used to provide resources for future investment based on revolving fund plans approved by OMB. Losses within segments of the program are offset against earnings in other programs or covered by using retained earnings from this fund. For example, $3.6 million in earnings generated by GWACs in fiscal year 2001 offset losses in some other business lines, in particular the information security program. NASA does not have a revolving fund and, therefore, its GWAC operates in a stand-alone account.