From the GSA Trenches: The “Trickle Down” Audit

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When clients are notified they are being audited by the GSA Office of Inspector General (OIG), their first question is often what they did wrong. In reality, being selected for an audit is frequently an indication that a company is doing something right – at least as far as sales volume is concerned.

GSA’s OIG only does 40-50 pre-award audits annually and generally selects contracts that fall in the top 5% of sales for the Schedule. When only a small sample can be audited, the OIG will choose contracts that offer the most “bang for the buck” in terms of potential recoveries. In FY13, the OIG conducted 51 pre-award audits, but those contracts accounted for over 20% of total schedule revenues.

Companies with more modest sales shouldn’t take the unlikelihood of an audit as an invitation to stick their heads in the sand regarding compliance. All schedule holders should pay attention to the major findings from OIG audits, as recurring problems frequently become the basis for “trickle down” compliance efforts across the schedules program.

Fortunately, you don’t have to be psychic to learn what the OIG has been up to. Since 2011, the OIG has published an annual memorandum entitled ‘Major Issues from Multiple Award Schedule Preaward Audits.’ This report summarizes recurring problems from the prior year’s audits and provides historical data on the prevalence of these findings across fiscal years.

The most current memorandum identified three primary issues, the (1) use of unqualified labor, (2) submission of Commercial Sales Practices (CSP) that are not current, accurate or complete, and (3) failure of sales tracking systems to capture and report all GSA sales. These problems are the focus of increasing scrutiny during the negotiation of contract awards and modifications, as well as during the Contractor Assessment.

Since we discussed unqualified labor in a previous post and we’ll tackle sales tracking later, let’s focus on the CSP, which serves as the basis for pricing negotiations. It is imperative to ensure your CSP is current, accurate, and complete throughout the life of your contract. Contractors must submit a CSP with new offers and upon the addition of products and services, but also within 15 days of a change to the discounting and/or terms and conditions extended to the Basis of Award customer.

The eMod System asks contractors whether they need to revise their CSP upon the submission of any pricing modification. This makes it easy to state that there have been no changes, even when that isn’t case. Frequently, contractors believe they don’t need to update the CSP as long as their practices for the Basis of Award have not changed because of how they interpret the Price Reductions Clause.

In my opinion, this is a dangerous gamble because the OIG generally does NOT share their interpretation. Additionally, every GSA Schedule contains GSAR 552.215-72 Price Adjustment – Failure to Provide Accurate Information. This clause gives GSA the right to unilaterally reduce contract prices if, at the time of award or modification, it finds the contractor failed to provide pricing information that was current, accurate, and complete. This clause is not specific to the basis of award.

In other words, GSA is entitled to price decreases not only when the Basis of Award receives them, but potentially also if the contractor fails to disclose information about any customer that would have been material to pricing negotiations. GSA’s Industrial Operations Analyst (IOA) reviews commercial invoices during the Contractor Assessment. If he finds anomalies in this pricing, it can be grounds for a directed OIG audit.

Although most GSA contractors will never be subject to an OIG audit, their compliance burden is influenced by recurring issues in such audits. GSA uses audit findings to inform and direct program-wide compliance efforts. Recurring deficiencies result in new Contractor Assessment directives. Failure to meet these requirements can result in corrective actions, such as repayments or even a directed audit.

As goes the OIG, so goes GSA’s primary compliance focus. Smart contractors will pay close attention to which way the winds are blowing.

About Jennifer Aubel

Jennifer Aubel is a Principal Consultant in Aronson LLC’s Government Contract Services Group. She is responsible for leading clients successfully through the GSA lifecycle, from obtaining a new GSA Schedule contract through administering ongoing contracts. She works closely with clients to custom-tailor GSA Schedule solutions that meet current and future organizational needs by developing scope and pricing strategies, maintaining contract compliance, providing audit support, and improving the profitability and versatility of the GSA Schedule contract. Additionally, Jennifer frequently speaks on GSA Schedule topics at both Aronson and industry-sponsored events and is an active member of the National Contract Management Association. Ms. Aubel has over fifteen years’ experience in the Federal Contracting market, working for both contractors and as a consultant to GSA Schedule contract holders. Prior to working with Aronson, she managed a multi-million dollar GSA program comprised of six GSA Schedule contracts with more than 10,000 contract line items. She also managed a team that developed and delivered specialized training on the GSA Schedules Program to small businesses across the country. Jennifer graduated summa cum laude from the University of Maryland, University College with a Bachelor of Science Degree in Legal Studies.

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