INSPECTOR GENERAL DEPARTMENT OF DEFENSE 4800 MARK CENTER DRIVE

ALEXANDRIA, VIRGINIA 22350-1500 Ar2 0 .3 2020

MEMORANDUM FOR SECRETARY OF DEFENSE DEPUTY SECRETARY OF DEFENSE CHIEF MANAGEMENT OFFICER OF THE DEPARTMENT OF

DEFENSE SECRETARIES OF THE MILITARY DEPARTMENTS CHAIRMAN OF THE JOINT CHIEFS OF STAFF UNDER SECRETARIES OF DEFENSE CHIEF OF THE NATIONAL GUARD BUREAU COMMANDERS OF THE COMBATANT COMMANDS GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE DIRECTOR OF COST ASSESSMENT AND PROGRAM EVALUATION DIRECTOR OF OPERATIONAL TEST AND EVALUATION CHIEF INFORMATION OFFICER OF THE DEPARTMENT OF

DEFENSE DIRECTOR OF NET ASSESSMENT DIRECTORS OF DEFENSE AGENCIES DIRECTORS OF DOD FIELD ACTIVITIES

SUBJECT: COVID-19 Expenditures — Lessons Learned Regarding Awareness of Potential Fraud, Waste, and Abuse Risk

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will result in a significant expenditure of funds across the Government, including the Department of Defense (DoD). The CARES Act provides over $10 billion to support the military response to the coronavirus. Among other things, the CARES Act provides funding for emergency deployments of National Guard personnel, medical care and countermeasures, the expansion of military treatment facilities, procurement of diagnostic tests, and steps to increase access to materials necessary for national security and pandemic recovery.

The CARES Act also provides the DoD flexibility in its use of undefinitized contract actions. The Department of Defense Office of Inspector General (DoD OIG) anticipates an increase in DoD contracting

• actions associated with the implementation of the CARES Act.

Moving quickly to use these funds effectively while avoiding fraud, waste, and abuse is a critical but challenging task. Fraudsters have already begun targeting these funds, and DoD personnel need to be on the lookout for fraud and waste and be proactive in their efforts to thwart these activities before they occur.

The DoD OIG recognizes these challenges, and is therefore providing this document to share best practices and lessons learned that we have identified during our previous oversight work. We believe that this document can help the DoD use CARES Act funds effectively while at the same time seeking to prevent fraud, waste, and abuse.

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As described in more detail in the documents linked below, based on our previous work, we believe the DoD should seek to focus on the following areas as it implements the CARES Act.

1. Requirements. Requirements can change quickly and DoD officials should reevaluate requirements as conditions evolve. When conditions do not allow for clearly defined requirements, contracting officials should use contract structures that allow them to develop more well-defined requirements for segments of work, such as delivery and task orders or basic ordering agreements.

2. Contractor Vetting. Contracting officials should seek to ensure robust vetting of contractors and vendors before awarding contracts. Such steps may help limit financial liability and also disclose previous or unknown patterns of collusive bidding, price manipulation, and, in some instances, hidden or opaque relationships between contractors.

3. Oversight and Surveillance. Program and contracting officials should seek to establish, and follow, a well-documented surveillance approach. In addition, program and contracting officials should ensure sufficient contract oversight occurs and that oversight personnel are adequately trained.

4. Financial Management. Contracting officials should maintain complete, consistent, and accurate contract files and accounting records to reduce the potential for improper use of CARES Act funding and violations of the Antideficiency Act and to minimize the number of problem disbursements. Additionally, contracting officials should maintain a copy of all invoices and vouchers and a payment register indicating the balance of funds remaining.

To provide further guidance and lessons learned, we are providing the links below that may be helpful in understanding contracting and fraud risks and how to avoid them. These lessons, while mostly related to contingency environments and disaster relief efforts, are equally applicable to the pandemic response. Many of the same elements that create risk in those environments will be present as funding is used under the CARES Act.

We recommend that the DoD review these resources as it develops guidance for the execution of the CARES Act and distribute these resources broadly to appropriate personnel within the DoD to promote awareness of potential issues that can be addressed early in the contracting process to help avoid fraud, waste, and abuse of Government relief funds.

Report No. DODIG-2015401, "Contingency Contracting: A Framework for Reform — 2015 Update." This report summarizes a series of DoD OIG contingency contracting reports and discusses areas within the contracting process where contract oversight issues were identified. It also contains a short summary (pages 39-42) of contracting actions that should be taken in contingency contracting environments to avoid issues that have occurred in the past when contracting efforts were undertaken under atypical and expedited circumstances. Link: https ://media. defense. gov/2015/Mar/31/2001713485/-1/-1/1/D ODIG-2015-101.p df

Also, attached to this memorandum are two key excerpts from this report on contingency contracting. The first attachment, "Key Aspects of the Contracting Process," provides a visual tool for DoD managers and contracting officers that details common areas of concern in the contracting process identified in past DoD OIG work. The DoD could use this tool to assess the strengths and weaknesses of its contracting approaches as it implements the CARES Act.

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The second attachment, "Fraud Indicators and Poor Practices in Relation to the Contracting Problem Areas," provides information that encourages real-time awareness of contracting areas that are susceptible to fraud and contributors to waste and abuse. Fraud Detection Resources for Auditors. The DoD OIG's website also includes a resource page that provides a series of links to information related to fraud, including fraud alerts and indicators. These resources highlight key generally accepted government auditing standards (GAGAS) requirements, and overall DoD audit expectations and best practices for identifying and detecting potential fraud. In addition, the website contains summaries of various scenarios and fraud indicators and describes situations related to some common fraud schemes that DoD auditors have previously encountered. While geared towards auditors, the scenarios and fraud indicators discussed in this document can be useful to DoD management .as they implement the CARES Act. Link: https://www.dodig.mil/Resources/Fraud-Detection-Resources/

Finally, we encourage the DoD to remind personnel about the DoD Hotline and their responsibility to report suspected fraud, waste, abuse, or allegations of mismanagement involving the CARES Act. DoD personnel can contact the DoD Hotline through the online complaint form at: https://www.dodig.mil/Components/Administrative-Investigations/DoD-Hotline/ or by phone at 1-800-424-9098 (toll-free) or 703-604-8799 (commercial).

We hope this information is useful as the DoD moves forward under the CARES Act. If you have any questions about this memorandum, please contact Brett Mansfield, Senior Advisor to the Inspector General at (703) 604-8302 or Troy Meyer, Acting Deputy Inspector General for Audit, at (703) 604-8905.

Glenn A. Fine Principal Deputy Inspector General

Performing the Duties of the Inspector General

cc: AUDITOR GENERAL, DEPARTMENT OF THE NAVY AUDITOR GENERAL, DEPARTMENT OF THE ARMY AUDITOR GENERAL, DEPARTMENT OF THE AIR FORCE SERVICE INSPECTORS GENERAL

Results in Brief

Figure I. Key Aspects of the Contracting Process

Pre-Award

Award Contract Administration

Acceptance of Payments Supplies/Services

Contract Closeout

Requirements Acquisition Development Planning Source Selection Award Contract Monitoring Contract

Closeout

Contracting activities The acquisition plan Conduct an The objective of a source selection Contracting officers must Contracting officers perform Acceptance of Payments made by the When the contractor has satisfactorily and their customers is a comprehensive assessment is to choose the proposal that provide for full and open or delegate oversight and contractual supplies Government should completed contract performance, and should consider both technical needs and business strategies when defining

plan for fulfilling the agency need in a timely manner and at a reasonable

of technical, cost, schedule, performance risks, and the

represents the best value to the government,

Price or cost to the Government

competition through use of the competitive procedures that are best suited to the circumstances of

surveillance to ensure that suppliers or services conform to contract requirements.

or services may take place before delivery, at the time of delivery, or after

directly correlate to a contractual document, contractor invoice, and acceptance or

final payment has been made, the contract file should be closed as soon as possible.

and specifying cost. It includes plan for mitigating must be evaluated in every the contract action and The contracting officer is delivery, depending receiving report The contract file must contain requirements, developing the overall

strategy for managing those risks, source selection and the quality

of the product or service most be consistent with the need to fulfill the Government's

responsible for ensuring that there is an effective process

on the provisions of the terms and Invoices are reviewed

all documents to facilitate full reconciliation of the contract actions

The Government must the acquisition. Develop quality addressed through consideration requirements efficiently. for measuring the contractor's conditions of the by the contracting through the life of the contract. define and describe agency requirements When cost or pricing

assurance surveillance

of one or more non-cost evaluation factors such as past performance, Sole-source contracts may

performance that includes clearly defined levels of

contract, officer's representative and the Defense Closeout actions include:

that explain the required results in clear, specific, and

data are required, contracting officers shoulduse cost

plans and responsibilities for monitoring contract

compliance with solicitation requirements, technical excellence, management capability, personnel

be awarded if there is only one responsible source and no other supplies or

contractor surveillance.

A fully developed and

The Government should not accept supplies or services

Contract Audit Agency.

Financial management

• Physical actions, such as issuing a unilateral modification to deobligate excess funds after

objective terms with measurable outcomes in a statement of

analysis to evaluate the reasonableness of individual cost

performance,

Assign an

qualifications, and prior experience. The relative strengths, deficiencies, significant weaknesses, and risks

services will satisfy agency requirements. In addition, a written justification and

appropriately structured contract surveillance system is critical to ensure that the contractor

before completion of the Government contract quality

of funds for contract to include:

• Ensuring

receipt of the final invoice and a receiving report

• Administrative actions, such as work, statement of objectives, or performance work statement

elements and should use price analysis to verify that the overall price is fair and reasonable,

administrative contracting officer and determine the number of contracting officer's

supporting proposal evaluation shall be documented in the contract file; conflicts of interest, or the appearance thereof, must be

approval is required prior to commencing negotiations for a sole-source contract

The award decision is

is performing on schedule, current in its understanding of the requirements, and applying adequate skills and resources to the contractual task,

assurance actions, and the contracting officer should reject supplies or services

appropriated funds are used to fund the contract

. Ensuring fund

disposing of Government-furnished property and classified information, as well as obtaining releases from contractor's claims.

Establish files containing the records of all contractual actions (contract

When planning for acquisitions, before any Requests For

representatives needed to be appointed.

avoided when conducting source selection,

Conduct proposal evaluation by assessing the offeror's proposal

based on evaluation factors and significant sub factors that are tailored to the acquisition and an agency

Continued update of contract files.

Contractor system reviews should

not conforming to contract requirements.

Acceptance

obligations are

not in excess of appropriated funding.

• Financial actions, such as ensuring that all interim or disallowed costs are settled. Financial actions should be completed when the

files, documentation Proposal (RFP) are

and ability to perform the must evaluate competitive be performed by Defense Contract constitutes

total obligations and the contract of market research, documentation of

sent out, the program funding must be

prospective contract successfully. proposals and then assess their relative qualities

Management Agency and Defense Contract Audit Agency. acknowledgement

that the supplies or

amount are in agreement and all disbursements have been paid and

pre-negotiation and executable.

No purchase or award shall be solely on the factors and must track services conform

recorded properly. negotiation decisions, surveillance plans, and surveillance documentation),

Determine contract type and duration of contract

Determine whether any waivers or deviations are required,

Plan for requesting Defense Contract Audit Agency and Defense Contract

made unless the contracting officer makes an affirmative determination of responsibility for the prospective contractor,

sub factors specified in the solicitation.

DoD Components Government-furnished property. The contracting officer is responsible for Government property administration, but normally delegates the responsibility to a contract administration office. The effectiveness of contractor records and other aspects of contractor property control systems are reviewed through Government conducted property management system audits.

with contract quality and quantity requirements and must be evidenced by an acceptance certificate.

Management Agency assistance.

Red Text = Top 5 recurring contracting problem areas.

000IG-201S-loi I vii