Among our findings were: (1) Because of inefficiencies in inventory procedures and reporting of inventory price changes, GSA did not have good control over the self-service stores stock. The lack of control can prevent prompt detection of thefts. Store employees knew in advance when inventories were to be taken and they participated, in taking the inventories. (2) The audit coverage of GSA stores was inadequate to provide management with necessary information to judge the effectiveness of store operations. Although the number and During the sales volume of self-service stores was increasing, the number of audits performed each year was decreasing. fiscal year 1972, 15 audits were made while only 5 audits were made during fiscal year 1974. No audits were performed during fiscal year 1975. Fifty-four self-service stores were not audited in three or more years. When audits were made, the findings were quite significant. (3) Items carried by self-service stores were arbitrarily determined by store managers. There was no systematic method for determining what individual stores should carry. (4) Customer agencies lacked good controls over purchases made by their employees from the stores. They also failed to control the issuance and usage of shopping plates. This lead s to impulsive buying of items nonessential to Government needs or procurement of items for personal use. Based on our recommendations, GSA took action to improve self-service store operations, such as the following: -- increased internal audit coverage to include the review of each store at least once a year. --advised customer agencies of the need to control --eliminated stockage of personal use items, such as aspirin, styrofoam cups, facial tissue, and roon deodorizers. --directed store managers to ordering techniques. use more economical While these actions strengthened store operations, other things remain to be done. For instance, despite planned action to have knowledgeable personnel take inventories, GSA claimed it was unable to do so because of funding constraints. ADMINISTRATION OF REPAIR In December 1976 we published a report ("Administration of Repair Contracts Needs Improvement," PSAD-76-179) showing that on all eight time and material contracts in our audit sample, contractors billed the Government for unauthorized and unsupported labor and material charges. The improper charges went unchecked because GSA did not take corrective action, although such charges had been made known to GSA in its internal audit reports since 1973. We informed GSA of our findings and recommended detailed reviews by GSA to determine and recover the total over charges to the Government. GSA started collection actions to Examples of the over recover $464,000 in overcharges. charges included: --Labor costs for employees who did not work on the GSA contracts. --Contractors billed for materials which were not used on the repair orders billed. As a result of the situation disclosed by our audit work, three people were convicted in Federal court for false claims payments on the repair contracts. A fourth person was awaiting trial. Testimony during the trial in January 1978 disclosed that invoices of as many as 15 fictitious companies were used to bill the Government for non-existent parts used in repair of Government equipment. One witness, who had already pleaded guilty, stated that he had made his living since 1965 by submitting phony claims to the Government on repair contracts. He said he had worked for about 6 or 8 companies. during those years. GSA actions that have been taken to correct the deficiencies include: --requirements for contractors to have a written procurement system to ensure that parts are purchased competitively; --reconcile labor hours with payroll records at least quarterly; Also each GSA region has been instructed to review all heavy equipment contracts and to implement followup procedures for reviewing contractor performance to include referral to the GSA Office of Audits when their preliminary review so warrants. Even though GSA took these actions, the kinds of fraud we reported on have not been stopped as evidenced by your hearings yesterday and by many media stories in the past several months. Also, you asked that we be prepared to discuss specific leasing and construction programs, and GSA's construction management program. With me is Mr. Joseph Normile of our Logistics and Communications Division, who will present a statement in these areas. After his statement, we will be happy to answer any questions you might have on our testimony. PREPARED STATEMENT OF JOSEPH P. NORMILE, ASSOCIATE DIRECTOR, LOGISTICS AND COMMUNICATIONS DIVISION, U.S. GENERAL ACCOUNTING OFFICE ON LEASING AND CONSTRUCTION MANAGEMENT PROGRAMS OF GSA MR. CHAIRMAN, MEMBERS OF THE SUBCOMMITTEE ON FEDERAL SPENDING PRACTICES AND OPEN GOVERNMENT, I WELCOME THIS OPPORTUNITY TO DISCUSS REPORTS WE ISSUED ON THE GENERAL SERVICES ADMINISTRATION'S REAL PROPERTY ACTIVITIES. THESE REPORTS CONTAIN COMMENTS ON A NUMBER OF ISSUES RELATING TO THE ACQUISITION BY THE GENERAL SERVICES ADMINISTRATION OF REAL PROPERTY BY LEASING AND BY FEDERAL CONSTRUCTION. GENERAL SERVICES ADMINISTRATION'S THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED (40 U.S.C. 490), AUTHORIZES THE ADMINISTRATOR OF GENERAL SERVICES TO ENTER INTO LEASES TO MEET THE SPACE REQUIREMENTS OF FEDERAL AGENCIES IN EXISTING BUILDINGS OR IN BUILDINGS TO BE ERECTED BY LESSORS. THE ACT RESTRICTS THE TERM OF THE LEASE TO 20 YEARS. PRIOR TO 1972, IN ORDER TO GIVE THE CONGRESS SOME CONTROL OVER LEASING AND TO ENCOURAGE CONSTRUCTION RATHER THAN LEASING OF BUILDINGS, THE GENERAL SERVICES ADMINISTRATION (GSA) WAS REQUIRED BY LAW TO OBTAIN PROSPECTUS APPROVAL OF THE PUBLIC WORKS COMMITTEES / FOR LEASING OF BUILDINGS FOR FEDERAL AGENCIES WHEN ESTIMATED CONSTRUCTION COSTS EXCEED $200,000. 1972 THE LAW REQUIRES PROSPECTUS APPROVAL OF ALL LEASES HAVING AN ANNUAL RENT IN EXCESS OF $500,000. A PROSPECTUS CONTAINS INFORMATION ABOUT THE NEED FOR A PROJECT, ESTIMATED RENTAL COST AND OTHER DATA. SINCE 1/ THE NAMES OF THE COMMITTEES HAVE BEEN CHANGED TO THE HOUSE COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION AND THE SENATE COMMITTEE ON |