Regional Contract Operations

July 16, 2004
Audit Report No. 04-025

Federal Deposit Insurance Corporation
Division of Administration
Washington, D.C. 20429

DATE: July 12, 2004

MEMORANDUM TO: Stephen M. Beard, Deputy Assistant Inspector General

FROM: Arleas Upton Kea [Electronically produced version; original signed by Arleas Upton Kea], Director, Division of Administration

SUBJECT: Management Response to OIG Draft Report entitled: Regional Contract Operations (Assignment Number 2003-051)

The Division of Administration (DOA) has completed its review of the subject Office of Inspector General (OIG) report. We are pleased to see that the OIG did not identify any significant concerns of noncompliance with the Acquisition Policy Manual (APM) and concluded that regional contracting controls are in place to ensure regional contracts are awarded and administered in accordance with the FDIC's APM.

Although the OIG found DOA's regional contracting operations to be sound, the OIG did report that DOA regional ASB staffs are not fully independent of the regional program office. As a result, the OIG noted that the DOA regional program office could potentially assert influence in the regional contract award and administration process. We generally agreed with the concerns raised by the OIG, and have outlined our planned corrective actions with respect to the two audit recommendations made by the OIG.


OIG Condition - Independence of the Regional Contracting Function: The OIG stated that the contract award and administration function for the regional contracts is organizationally responsible to the regional program office that provides oversight of DOA contractors. Specifically, the OIG noted that contracting officers for DOA contracts report to the DOA regional managers as second-level supervisors which the OIG believes conflicts with FDIC policy regarding preservation of the integrity and independence of the contracting function. Consequently, the OIG asserts that the potential exists for program office managers to influence the contract award and administration process for DOA contracts.

OIG Recommendation(s):

1)   Establish measures to mitigate the lack of separation of duties between the regional contracting functions and program office; and
2)   Determine, as part of ongoing corporate and DOA initiatives, whether long-term organizational changes are necessary to ensure the independence and integrity of DOA regional contracting function.

Management Response: Although we agree with the OIG that regional contracting personnel could potentially be influenced by DOA regional managers or DOA program management officials, DOA believes that there are sufficient internal operating controls in place that mitigate the potential risk cited by the OIG. DOA has always been mindful that potential independence issues could arise since the DOA regional structure was first established in 1996. As a result, DOA implemented sound business operating processes from the beginning to minimize the likelihood of this occurrence and has been proactive in implementing operating improvement changes as deemed necessary. Specifically, the DOA Acquisition Services Branch (ASB) incorporates numerous internal controls into the contracting process that can be found throughout the AMP; DOA Management Services Branch (MSB) conducts annual comprehensive internal compliance and risk based reviews [1] of DOA's operations; and DOA MSB conducts monthly variance analysis of the budget to actual expenditures incurred. Moreover, the DOA regional managers do not have the delegated authority to approve contract expenditures greater than $500,000. The review and approval for these contracts are made in Washington. With the above mentioned controls, DOA believes the potential independence issue presented in the OIG report is minimized.

As for DOA's position on the two OIG recommendations, DOA generally agrees with the recommendations:

  • Recommendation #1: DOA agrees with the OIG's recommendation to establish measures to mitigate the lack of separation of duties between the regional contracting functions and program office. To address this recommendation, a memorandum dated July 6, 2004, was issued from DOA's Director to all Regional Office contracting personnel to articulate DOA's stand with respect to independence in decision making by the regional contracting staffs. Specifically, the memorandum stressed the importance of perserving the integrity and independence of the contracting function and emphasized the fact that all Regional Office contracting personnel must feel free to operate from potential conflicts of interest when performing their roles and responsibilities as contracting advisors. The memorandum also provides guidance to regional contracting personnel to seek resolution of any conflicts through the Associate Director, ASB, in Washington DC. This revised process should help to eliminate the perceived conflict of interest noted in OIG's report.
  • Recommendation #2: DOA agrees with the recommendation. As the landscape of the FDIC changes, DOA will continue to evaluate our own organizational structure to ensure that we are organizationally aligned to best serve and support the administrative needs of the Corporation. As part of this evaluation, DOA will review whether changes are needed to the regional contracting structure. DOA expects to complete this evaluation within 12 to 18 months.

If you have any questions regarding the response, our point of contact for this matter is Andrew Nickle, Audit Liaison for the Division of Administration. Mr. Nickle can be reached at (202) 942-3190.

cc:    Glen Bjorklund, DOA
Ann Bridges Steely, DOA ASB
Paul K. Sherman, DOA MSB
James H. Angel Jr., OERM
Regional Managers

1 Administrative Compliance Reviews (ACR) and Chief Financial Officer Act Reviews (CFOA) performed through the various DOA business operations – Acquisition Services Branch, Corporate Services Branch, Human Resources Branch, and DOA Regional Operations.

Last updated 09/30/2004