That’s what an executive order meant to curb the government’s rate of erroneous payments will say, Peter Orszag, Office of Management and Budget director, told reporters during a Nov. 17 briefing on the value of improper payments made by the government in 2009.

Currently, contractors face no penalties when the government discovers an improper payment was made. All contractors have to do is pay back the sum without interest or penalty. The executive order, which will be issued in the coming week, will change that by allowing agencies to suspend, debar and fine contractors that fail to report these payments. That will create strong incentive for contractors to be vigilant in monitoring their government payments, said Danny Werfel, the controller of OMB’s Office of Federal Financial Management.

Werfel said:

The way it works today is if we give a contractor money that they have not earned and they never report it to us, but we just so happen to find it through an audit, all they have to do is make us whole. There are no additional damages on top of that. And that’s what the executive order would pursue as a way of incentivizing contractors to immediately tell us where we made an error, so they’re part of the solution and not part of the problem.”

In sum, agencies misapplied $98 billion in federal funding in 2009, up from $72 billion in 2008. The payments were made on a variety of programs, such as Medicare, Social Security, veterans benefits, school nutrition programs, education grants, homeland security grants, unemployment insurance and other social programs.

The 36 percent, $26 billion jump is due to improved detection, stricter reporting rules and the increase in federal payments made in response to the economic downturn, Orszag said. All told, that’s an error rate of 5 percent on the nearly $2 trillion worth of programs measured in fiscal 2009. Not all of the improper payments resulted from fraud, however. In addition to government errors, other causes may be as innocent as a doctor’s illegible signature on a Medicare form, Orszag said.

In addition to penalizing contractors that fail to return improper payments, the pending executive order will curb improper payments by demanding agencies:

• Establish a Web site to disclose and track the total amount of improper payments on a program. The Web site will include error rates by agency and program, and an email address for the public to report suspected waste, fraud and abuse.
• Report on errors more than once a year (the current practice).
• Designate a Senate-confirmed official to be accountable for meeting improper payment reduction targets. If the agency misses targets two years in a row, the agency’s head, chief financial officer and inspector general must give OMB a plan describing why the agency failed to meet its goals and what it will do to meet targets going forward.
• Employ new management techniques, such as forensic auditing, to detect and prevent improper payments.
• Share data with other agencies about entities or individuals that received improper payments because they weren’t eligible for the benefits. This will prevent that entity or person from receiving improper payments from other programs.
• Establish plans to reduce program errors that do not interfere with payments to legitimate beneficiaries.
• Create incentives for states, agencies, and recipients to report payment errors.

The proposed rule, which was published in the Federal Register Friday, would only apply to contractor employees who support or advise the government in planning acquisitions, determining supplies and services to purchase, developing and approving contract documents, evaluating contract proposals, awarding contracts, administering contracts, terminating contracts and determining if costs are fair and reasonable.

Contractors must obtain assurances from employees in these roles that they don’t have financial interests that would bias their acquisition support duties. Some examples of personal conflicts of interest include:

• Having financial investments, such as stocks and bonds, in companies that do business with the office the contractor is supporting.

• Having family members employed by companies that do business with the office the contractor is supporting.

• Seeking employment opportunities with or holding a second job with a company that does business with the office the contractor is supporting.

The new rule would affect 250,000 contractor employees at 10,000 firms. It would also apply to subcontracts worth more than $100,000. Comments on the proposal will be accepted until Jan. 12.

The company, Public Warehousing Company (PWC), faces criminal charges of conspiracy to defraud the government, committing major fraud against the government, making false statements to the government, submitting false claims to the government and wire fraud. The allegations stem from a series of false invoices the company submitted to the Defense Department between 2003 and 2005.

According to Justice, the company conspired with unnamed suppliers to inflate prices by hiding overhead costs in the prices the suppliers charged PWC. The contract did not allow the company to bill for overhead. In addition, PWC failed to pass along discounts from suppliers to the government, as required by the contract.

The company faces a sentence of probation and a fine of twice the losses to the government on the criminal charges. In addition to the criminal case, the Justice Department also announced today that it joined a civil whistleblower suit against PWC; its subcontractor, The Sultan Center Food Products Company; and PWC’s chief executive officer Tarek Abbul Aziz Sultan Al-Essa. The government could collect triple the damages under the civil suit filed under the False Claims Act.

Both the civil and criminal allegations are still under investigation and case files remain under seal.

Here is how government performed, according to the INPUT report card:

Speed of Spending: B+ (Previous Grade: B+)
Reviewer’s Comments: “The federal government has continued to show unusual adeptness in dispensing a tremendous amount of money very quickly…At its current spending pace, the federal government will achieve 87 percent of the goal set by the president of having $350 billion spent by Sept. 30, 2010”

Contracting Effectiveness: B (Previous Grade: C-)
Reviewer’s Comments: “Federal agencies significantly improved in the use of fixed-price contracts and the percentage of contract awards made to small businesses…The federal government has awarded 48 percent of reported contract obligations using fixed-price contracts, a 30 percent increase over INPUT’s initial report card.”

Transparency and Reporting: C- (Previous Grade: D)
Reviewer’s Comments: “Each new report has been late…and the data quality of each new report has been poor upon release. However, overtime the quality and completeness of reports have improved. INPUT expects this will continue to be the case with the new recipient reports…A major area of disappointment continues to be the lack of transparency surrounding grant applications for many of the grant programs funded by the Recovery Act.”

Jobs Created: Incomplete (Previous Grade: Incomplete)
Reviewer’s Comments: “While the efforts to count jobs created or saved is a laudable goal, INPUT believes that accurate reporting of job creation is ultimately unknowable because of the number of recipients reporting, the complexity of the reports and the vagueness in the definition of a saved job.”

The report will look at whether GSA’s reorganization improved management of the Multiple Award Schedules program and the effectiveness of the management tools GSA has in place, he said. Mismanagement of the schedules program led to a series of contracting scandals five years ago. The scandals prompted GAO to add interagency contracts to its High Risk List.

In addition, the report will address concerns raised by the congressionally charted Acquisition Advisory Panel in a 2007 report, Needham said. The panel found that agencies weren’t competing orders placed through established interagency, multiple awards contracts. In addition, the panel raised concerns that there were too many interagency contracts competing with each other and hampering the government’s abilities to get a good price.

Needham spoke at the Coalition for Government Procurement’s fall conference today.

The Senate Homeland Security and Governmental Affairs Committee will quiz Gordon on his vision for the Office of Federal Procurement Policy at 10 a.m. on Nov. 10.  Gordon is slated to have his confirmation quiz alongside the president’s choice to lead the Transportation Security Administration, Erroll Southers.

Check in with FedLine and FederalTimes.com that day for complete coverage.

Between 2003 and 2008, the value of cost-reimbursement contracts, which pay vendors for their actual costs to perform the work, grew from $120 billion to $136 billion. But as a percentage of overall dollars spent through the procurement process, use declined. In 2003, the $120 billion represented 34 percent of the $298 billion spent. In 2008, the $136 billion was just 26 percent of the $528 billion spent, GAO found.

The report comes in the same week as the Office of Management and Budget told how agencies they should reduce the use of these contracts by another 10 percent by Oct. 1, 2010.

“However, this overall downward trend is misleading,” GAO said in the report. “A significant increase has been reported for obligations using the ‘combination’ contract type, a category that based on GAO’s analysis of 2008 data, includes many contracts with cost-reimbursement obligations that are not recorded as such.”

In fiscal 2004, agencies spent less than 1 percent — or $1.3 billion — of government obligations on “combination” contracts. In 2008, use swelled to 8 percent or $39 billion of total contract spending. Defense was the largest user of the contracts in 2008, spending $34 billion of the $39 billion in “combination” contracts, GAO found. In addition, billions in contracts had no contract type designated for fiscal 2008, the report said.

Regardless of how much agencies spent through cost-reimbursement methods, as opposed to less risky fixed-price contracts, agencies were not monitoring the contracts carefully, GAO said.

Of 92 cost-based contacts GAO reviewed for the report, only half of the contractors had accounting systems government auditors found were accurate in tracking costs, GAO found. Twenty had no evidence that systems were adequate and 20 more had outdated determinations of accuracy, GAO said. Outdated accuracy determinations and inadequate systems put government at risk for making improper payments, the report said.

So far no word on a A third piece of expected guidance meant to clarify the definition of inherently governmental functions was not released today as expected [see update above]. That memo will help agencies carry out earlier guidance to insource certain contractor-performed work.

A full story on the new guidance will be posted on FederalTimes.com later today.

Embattled Defense Contract Audit Agency director April Stephenson was removed from her post earlier today, the Defense Department has announced.

Stephenson, who was spent her entire career at DCAA, was reassigned to the staff of DoD Comptroller Robert Hale. Hale, who oversees DCAA, replaced her with Army Auditor General Patrick Fitzgerald, said Navy Cmdr. Darryn James, a Pentagon spokesman. Fitzgerald takes over Nov. 9.

The move was announced during an internal teleconference at 2 p.m. today. Following the teleconference DCAA staff was notified via email, James said.

Fitzgerald was chosen to take over the reformation of DCAA because he has “a fresh perspective and new ideas,” James said.

Stephenson’s leadership of DCAA has been dominated by the fallout from two Government Accountability Office reports that found auditors there cut corners, changed audit findings to be favorable to contractors without good cause, and rushed audits to completion to meet cost and management pressures.

At a hearing earlier this year, lawmakers on the Senate Homeland Security and Governmental Affairs committee expressed concern over whether someone with a long history inside DCAA could effectively reform it.

More to come soon on FederalTimes.com.

1. A final rule limiting the term of a  non-competitive contracts awarded during an emergency response to one year.
2. A final rule granting Government Accountability Office auditors and investigators the right to interview contractor employees.
3. An interim rule requiring that contract award fees be tied to positive outcomes.
4. An interim rule limiting what charges contractors can pass along to the government from their subcontractors.
5. An interim rule governing when services bought only by the government can be considered commercial.
6. An interim rule establishing a registry of disaster response contractors to provide rapid response following an emergency.
7. A final rule amending the National Response Framework by eliminating the term “incidents of national significance.”