IT Fund scrutinized

Over the past five years, agencies increasingly have left the General
Services Administration's Federal Technology Service holding the bag ? a
very large bag of money.

Since fiscal 2000, agencies have allowed more than $2 billion of unused
money to build up in FTS' IT Fund. FTS has let agencies extend their use of
funds beyond the fiscal year. Now FTS is trying to figure out how so much money
was left unaccounted for, and if agencies can continue using it.

Whether the situation resulted from lax interpretation of the rules or
downright illicit behavior by agency or FTS sales and contracting employees, GSA
now is more strictly enforcing how customer agencies use the revolving fund. The
new emphasis on how agencies use the IT Fund to procure services from FTS will
require departments to do a much better job of planning how ? and when ?
they will spend their money, agency and industry experts said.

"I've been telling people that Aug. 1 is the new Sept. 1," said
Deidre Lee, the Defense Department's director of procurement policy, referring
to the extra time it will take to get procurements into the pipeline. "It is
not as simple as it used to be, nor should it be. We will ask them what the
acquisition strategy is and all those questions that ensure good business

The Defense Department accounts for as much as 80 percent of FTS'
business and has more than $1.4 billion of unused money in the IT Fund.

Under GSA reorganization legislation passed by the House last month, the
fund could be merged with the General Supply Fund to create an Acquisition
Services Fund. But, lacking a Senate sponsor, it's unlikely the legislation
will become law before Sept. 30.

The Brooks Act of 1965 created the IT Fund, and the 1996 Clinger-Cohen
Act extended it. Under the rules set up by the two laws, agencies can put money
into the fund if they have a bona-fide need.

The fund consists of obligated but unspent money that agencies sign over
to GSA along with a plan on how they will spend the money. FTS manages the fund
and buys IT products and services at the agencies' behest.

The payoff for GSA, experts said, is the 2 percent to 4 percent fee FTS
charges for its services.

Most of the money does get used ? 21 agencies spent $8.7 billion in
fiscal 2003 ? but a large cache of unused funds has built up through the

Especially during the past decade, as buying IT became big business, GSA
officials promoted the ability of agencies to "park" money in the IT Fund to
extend its life beyond the end of the fiscal year, GSA and other agency
procurement officials said. Depending on the strings Congress attaches to the
dollars, agencies typically must spend their appropriated funds before Oct. 1,
which marks the beginning of the fiscal year.

GSA has since quashed the practice of "parking" or "banking" of
money by agencies in FTS' IT Fund ?severely limiting a well-liked and
often-used benefit of FTS.

One element of the fund's appeal ? and where it went awry ? was a
loophole it offered: Agencies could park money in the IT Fund when they did not
have, and GSA did not enforce the need for, a well-defined plan on how to use
the money.

"There may have been a misinterpretation of how the IT Fund worked,"
said Kathleen Turco, GSA's chief financial officer, who is leading the effort
to improve how the fund works. "Through the Get It Right program, we are
ensuring the financial policies and procedures are as clear as they need to be
for all contracting folks."

Over the years, this misinterpretation led to an accumulation of money,
and now GSA is telling agencies to determine what should happen to those funds.
Agencies could continue to use the funds for an ongoing contract, such as for
software development, which cannot be stopped. But other funds will have to be
returned to the Treasury Department because their authorizations have expired or
they are not for ongoing work, Turco said.

"We were not as vigilant with the closeout of contracts as we should
have been," Turco said, referring to GSA's obligation to return unspent
money to agencies. "We are making the adjustments and taking unfilled customer
orders off our books so the agencies can de-obligate funding."

While GSA is moving to clear the backlog of unused funds, officials also
are developing policy letters that describe how the IT Fund should be used this
year and when FTS will stop accepting new work. The clarifications will help
ensure that all the orders get obligated before Oct. 1, said an agency official
who requested anonymity.

"We will not take work from customer agencies that we cannot execute in
a reasonable time frame," the official said. "How long is reasonable? I'm
not sure. But five years is not reasonable, we all can agree on that."

These policy letters follow a series of other policy announcements GSA
issued last summer and fall, detailing how the fund would work this year.

Current and former GSA officials, both on and off the record, maintain
that employees who were promoting the ability to park money in the fund did not
understand the intent of the rules.

But some others called the employees' acts borderline illegal.

"Parking and dumping where an agency has a need for $1 million worth of
IT, but puts in the account $3 million or $5 million ? that is illegal,"
said Steven Tomanelli, a procurement lawyer who consults and trains GSA and
other agency civilian acquisition workers. "The IT Fund is a well conceived
idea, but there [have] been some violations."

The question of legality comes into play when agencies ask FTS
contracting employees to spend funds left over from the initial purchase on new

Tomanelli and others say spending extra money goes against appropriations
law and possibly the Anti-Deficiency Act, which says agencies are not to spend
money they don't have.

"Trying to hide dollars from the Hill is what the IT Fund lends itself
to," said William Shook, a partner with


law firm

, Gates and Ellis LLP. "Agencies should just ask Congress to reprogram funds.
Sunshine is the best disinfectant."

Tomanelli and other experts point to FTS' culture of courting business
from other agencies and to its bonus structure, under which GSA rewards
employees with cash bonuses for sales.

"There was a large amount of blind acceptance by GSA buyers,"
Tomanelli said. "GSA's general counsel and upper management did what they
could to dissuade people from [parking funds], but agency buyers were letting
this happen, and that is where they crossed the line."

One former GSA official who requested anonymity said the agency is not
trying to figure out who was right or wrong, but wants to go forward with a
clear definition of how to use the IT Fund.

As GSA continues to ask agencies to de-obligate money, some experts
believe vendors may feel the aftershock.

Alan Chvotkin, senior vice president and general counsel for the
Professional Services Council, an



, trade association, said his members are concerned about possible task orders
that will be cancelled for lack of funds.

Another possible impact on vendors is the need to update their contract

Mike Smigocki, managing director for American Express Tax and Business
Service's government contractor and technology group in



, said publicly traded contractors must submit a disclosure item on their
financial statements that includes how much contract money is in the pipeline.

Re-reporting backlogs could affect companies' ability to get a line of
credit at a bank, he said.

But Jeffrey Westerhoff, senior vice president of governmentwide
acquisition contracts for SRA International Inc. of



, and chairman of the GSA subcommittee for



, trade association Information Technology Association of America, said agencies
would find money to pay for projects that may be affected by FTS' actions.

"Agencies may have to rob Peter to pay Paul to pay for current work,
and future work may be affected," he said. "As for SRA, we have not had any
impact yet, and we went out to our customers and told them to obligate the
funds, if they had any, before too long."

Agencies also must be aware of the extra planning they will have to do.

Lee said the services will have to make sure they are spending money for
things they need, and that they are spending it properly.

"We need to do the follow-through and make sure this is not a recurring
issue," Lee said. "We are asking program managers to answer some simple
questions before sending money over to GSA."

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