DO AUDIT FINDINGS REALLY ANSWER OR AVOID THE ALLEGATIONS?
YOU BE THE JUDGE


Allegation 1. The use of the TQM schedule was improper because activity-based costing is not within the scope of the TQM schedule.

IG RESPONSE
We could not substantiate the allegation. Counsel determined that the statements of work were arguably within the broad scope of the TQM schedule. NAVSUP[Naval Supply Systems Command Assistant Deputy Commander for Contracts] stated that the delivery orders issued by Naval Supply Center Charleston (Charleston and Pearl Harbor Naval Shipyards - 3 orders reviewed totalling $1.3 million, plus one more order for $75,000 which was not reviewed), Norfolk and Portsmouth Naval Shipyards were outside the scope and that the Charleston orders lacked adequate source selection documentation. NAVSUP also stated that complete and adequate cost and price negotiations were not conducted for any of the delivery orders placed.

This overlooks the following:

  • The initial statement of work for Puget Sound and Mare Island was identical to that found defective by NAVSUP. The rewrite was found "arguably within". I agree, except the actual work performed was the same as that at the other Shipyards where the statement of work was found to be fatally defective. Further, the proposed price (labor mix and number of hours) was also identical despite this rewrite of the statement of work.

  • The question is not could you by using the broadest possible interpretation use this contract, but rather if you were challenged on its propriety, would you continue to insist upon the use of this Federal Supply Schedule.

    Allegation 2. The delivery orders issued under the TQM schedule were not consolidated and therefore violated the maximum order limitation of the TQM schedule.

    This mis-states the allegation. The allegation was that a known requirement in excess of $3 million was deliberately split up into smaller segments to avoid the $600,000 maximum order limitation of the TQM schedule. Three orders totalling $838,000 were issued for Charleston Naval Shipyard alone and this appears to be a violation of the maximum order limitation since these appear to be part of the same whole rather than three distinct requirements.

    IG RESPONSE
    We could not substantiate the allegation. Consolidating the activity-based costing delivery orders would not violate the maximum order limitation of the TQM schedule. The TQM schedule permits and encourages the consolidation of orders using a blanket purchase agreement (the correct term is "blanket delivery order" which is used to consolidate requirements when there are either multiple ordering points or frequent ordering occurs and the vendor is willing to grant the volume discount - this is common for office supplies for example) with the TQM schedule contractors.

    Allegation 3. The activity-based costing delivery orders were issued non-competitively to Coopers and Lybrand. Further, the Government was overcharged.

    IG RESPONSE
    We substantiated part of the allegation. The Navy issued noncompetitive delivery orders to Coopers and Lybrand.

    No overcharging was observed.

    (Note, however, that NAVSUP determined that complete and adequate cost and price negotiations were not conducted for any of the delivery orders placed - if a fair and reasonable price was not satisfactorily established, then how do you know if you have been overcharged or not. Since the cost estimate appears to have been provided by Coopers and Lybrand, the Government does not know how much the work should cost.)

    Secondly, the allegation was that the work itself was not necessary and that Coopers and Lybrand wrote vague statements of work to assure payment for any services provided. That allegation was not investigated.

    however, the Navy payments to Coopers and Lybrand were not in accordance with contract authorization.... The Government recouped $1,809 of overpayments and issued contract modifications on all five delivery orders to authorize the (questioned) payments.

    Over $100,000 in reimbursable travel and other miscellaneous costs were paid at Mare Island without any substantiation. This payment was challenged, and still made without hesitation. Similar lack of required substantiation is believed to have occurred at other Navy activities. I have not been able to locate or obtain the support for most of the payments. One of the DOD-IG auditors called me from Long Beach questioning this $100,000 payment, yet it is not discussed in the report. Why was it made? Was the Finance Officer afraid to ruffle someone's feathers at Naval Sea Systems Command?

    Allegation 4. The Navy awarded orders for activity-based costing services based on favoritism because specific individuals were involved.

    IG RESPONSE
    We could not substantiate the allegation. The Naval Investigative Service investigated three individuals and determined that the allegations were unfounded. We made inquiries about a fourth named individual, who was not included in the Naval Investigative Service report. We determined that the fourth individual was not involved in the contract award.

    This overlooks the fact (which was also overlooked by the Navy's reply to Senator Pryor's first letter, but later confirmed by the second 30 August 1995 Principle Deputy Assistant Secretary of the Navy letter) that the following retired Navy officers were employed in the Mare Island Activity-Based Costing Study:

    Since this comparison was prepared in December 1995 for Admiral Boorda's briefing, the Navy submitted two additional replies to inquiries by Senator Pryor. The 19 July 1996 Naval Sea Systems Command Inspector General letter to Mr. Goodman of the Senator's subcommittee staff identified the following additional former Department of Defense personnel: