Audit of the Application Support Company

Audit of the Application Support Company

(Audit Report No. 98-084, October 30, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of The Application Support Company (TASC), a firm the Federal Deposit Insurance Corporation (FDIC) hired to upgrade FDIC's Walker Financial System, an all encompassing financial information management software package. TASC was also hired to create a new financial information management system. The audit objectives were to determine whether (1) contractor billings are reasonable, adequately supported, and allowable under the contract terms and conditions and (2) the contractor adequately performed its duties within the contract scope. The audit covered TASC's billings of $7.4 million for the period of January 1, 1996 through May 31, 1997. During this period TASC monthly billings for professional fees and expenses represented approximately 64 percent of the total contract amount of $11.6 million.

We concluded that TASC's billings for services were not always reasonable, adequately supported, and allowable under the contract terms and conditions. As a result, the OIG questioned $296,585 or approximately 4 percent, of the $7.4 million invoiced and paid during the audit period. Specifically, TASC billed FDIC (1) incorrect hourly rates, (2) excessive hours billed per day, (3) unauthorized payment to a consultant, (4) unallowable travel expenses, and (5) inaccurate time-sheet charges. In addition, TASC billed FDIC for work performed by 33 subcontractors that did not have prior written approval to begin work as required by the contract. TASC is also due a credit of $637 for an underpayment of an invoice.

We interviewed the Division of Information Resources Management (DIRM) technical monitors and reviewed project plans identifying itemized tasks completed by the contractor. We also reviewed an OIG audit report conducted by the Systems Development Branch entitled Financial Information Management System, dated October 30, 1997. Further, we discussed the results and work performed during this audit with the auditors and reviewed their work papers. Based on the results of our audit and the work performed by the auditors, TASC adequately performed its duties under the contracts for the FIMS project.

Recommendations

We recommended that the Director, Division of Information Resources Management take the following actions:

(1) Document TASC's contract file as required by FDIC's contract with TASC to
provide written approval of the 33 subcontractors that were originally given oral
authorization by DIRM to begin work.
(2) Reiterate to DIRM personnel to use the checklist in the FDIC Acquisition
Policy Manual when approving contractor invoices.
(3) Review remaining invoices submitted by TASC under contract number
9700439-N-S2 to ensure that TASC billed FDIC for professional fees at the
approved rates for each labor category. In addition, invoices submitted by TASC
under contract 97-00780-C-AF should be reviewed for similar issues.
(4) Disallow $285,180 that TASC billed for professional fees that exceeded the
approved labor category rate.
(5) Disallow $7,920 that TASC billed for excessive hours billed by a
subcontractor.
(6)Disallow $2,000 that TASC billed for an unauthorized payment to a training
consultant.
(7) Disallow $1,782 that TASC billed for unallowable travel expenses, of which
$68 is unsupported.
(8) Disallow $340 that TASC billed for excess hours on two invoices that were not
worked by the subcontractor.
(9) Credit TASC for an underpayment of $637 for invoices submitted.

Management Response

On September 28, 1998, the Directors of DOA and DIRM provided a joint written response to the draft report. Both DOA and DIRM management generally agreed with our recommendations. The Further, the OIG recommended that the Director, Division of Administration (DOA) take the following actions:

Directors of DIRM and DOA agreed to prepare a memorandum signed by both the DIRM oversight manager and the DOA contracting officer that documents the prior authorization for the use of the 33 subcontractors identified in the report. They also agreed to correct the reference in the Acquisition Policy Manual, reiterate to Acquisition Services Branch personnel the importance of the checklist when approving contractor invoices, and meet to discuss the need to develop an APM checklist for oversight managers. Further, The Director, DIRM agreed to select a sample of invoices from contracts 8700439-N-S2 and 97-00780-C-AF to test for billing errors similar to those identified in the report.

Finally, the Directors of DIRM and DOA agreed to disallow $293,621 of the $296,585 in questioned costs. The Director, DOA stated that he would not pursue collection of $2,000 for a payment to a training consultant because the contractor would have a strong basis for a claim against FDIC for damages. Also, the Director did not agree with $964 questioned for an airfare expense because government airfare rates are not available to FDIC contractors. The OIG agrees with FDIC management that the airfare expense should not be questioned; however, OIG continues to believe that the $2,000 should be disallowed. The OIG does not consider the disagreement to be significant. The Corporation's response provided us with the requisite elements of a management decision for all recommendations.

As a result of our audit, we will report questioned costs of $295,621 in our Semiannual Report to the Congress.

Last Updated 03/27/01