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GSA OIG Issues New Report on GSA’s Management of 18F

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FOR IMMEDIATE RELEASE
October 24, 2016

GSA OIG Issues New Report on GSA’s Management of 18F

The U.S. General Services Administration (GSA) Office of Inspector General (OIG) issued a report today concluding that GSA’s 18F organization has experienced a cumulative net loss totaling over $31 million between fiscal year 2014 and the third quarter of fiscal year 2016.  This is due to 18F’s inaccurate financial projections, increased staffing levels, and the amount of staff time spent on non-billable activities, all of which have affected cost recovery.  The OIG started the evaluation in December 2015 after several senior GSA officials expressed concerns about the management of 18F to the OIG. 

Background

In March 2014, GSA’s administrator announced the launch of 18F, which was described as “a team of experts and innovators that will work to simplify the government’s digital services, making them more efficient and effective.” In 2016, 18F became part of the new Technology Transformation Service, which was established to “transform the way government builds, buys, and shares technology.”

Under a Memorandum of Agreement (MOA), GSA funds 18F’s operational costs using the Acquisition Services Fund (ASF), a revolving fund comprised of revenue generated from Federal Acquisition Service (FAS) business lines.  Under the MOA, 18F must recover all costs from work performed in order to reimburse the ASF for its operating funds, including both direct and indirect costs.  In order to obtain cost reimbursement, 18F enters into formal agreements with its federal clients and charges a set rate per hour for work performed.

The OIG’s Findings

The OIG found that 18F has struggled financially since 2014 with a cumulative net loss of $31.66 million through the third quarter of fiscal year 2016.  The OIG also found that 18F has not developed a viable plan to achieve full cost recovery, as required by its MOA with FAS to use the ASF to fund 18F operations.  Factors that have contributed to 18F’s inability to achieve full cost recovery include 18F management’s pattern of overestimating revenue projections, increased staffing levels, and staff time spent on non-billable activities.

The OIG found that 18F senior managers have established a pattern of overestimating revenue projections. In fiscal year 2014, 18F senior managers projected annual revenue of $4.76 million, but ended the year with zero revenue billed or collected. In fiscal year 2015, 18F projected $32.58 million in annual revenue, but ended the year with only $22.26 million, $10.32 million less than projected. 18F had projected annual revenue of $84.18 million for fiscal year 2016; however, through the third quarter 18F only generated $27.82 million in revenue, leaving 18F one quarter to generate $56.37 million in revenue to meet its projections. 

Over the past three years, increased staffing costs have been a significant driver of 18F’s overall financial position. 18F has continued to hire staff despite underperforming revenues. In April 2014, shortly after its launch, 18F consisted of 33 staff. By March 2016, 18F staffing levels reached a total of 201 full time employees – a more than 500% increase in staffing since 18F’s launch.  In May 2016, 18F management stated their objective was to grow to 215 staff by the end of fiscal year 2016.  According to the former Executive Director of 18F, 18F continued to hire to meet demand for projects because they did not have the staff in place to accept all project requests. 

However, the OIG found that less than half of staff time was spent working on projects billed to federal agencies. According to 18F’s internal timekeeping system, from October 2014 through July 2016, 18F staff spent a little over half of their time on non-billable activities such as outreach promoting 18F projects and accomplishments, developing an 18F brand, and developing an internal timekeeping system.

Additionally, the OIG found deficiencies in 18F’s management of its agreements for reimbursement. The OIG reviewed the 202 agreements 18F entered into between June 2014 and April 2016 and found many instances where 18F staff performed work before agreements were executed, outside specified periods of performance, and without required CIO approval. Additionally, some agreements lacked signatures from required signatories, risking the validity of the agreements.

 Finally, 18F’s manual billing process and untimely timekeeping and expense recording resulted in a series of inaccurate charges to their clients. If billing discrepancies are left unresolved, GSA could be held accountable for augmenting appropriations for other federal agencies.

The OIG made seven recommendations in its report.  GSA management agreed with the recommendations and stated their intentions to take corrective action. 

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Last updated: 10/24/2016