Publicly Released: April 7, 2021
Objective
The objective of the audit was to determine whether the U.S. Army Communications Electronics Command (CECOM) billed its customers in accordance with established customer support agreements, and to determine the impact of any identified erroneous billings to the U.S. Army CECOM and its customers. We initiated this audit in response to a DoD Hotline complaint.
Background
CECOM provides reimbursable support to U.S. Government organizations, state and local governments, private companies, and foreign militaries. The DoD Hotline received a complaint that alleged inconsistencies between an FY 2018 customer support agreement and CECOM’s billings. Specifically, upon review of CECOM’s final reconciliation for expenses for each sample, a CECOM supporting activity identified a variance between charges actually incurred and charges billed that could not be substantiated. According to the Hotline complainant, CECOM’s adjustment at yearend to total charges, which was referred to as an assessment, exceeded the actual costs internally tracked by the supporting activity. CECOM G8 (Resource Management), which was responsible for the assessment, was unable to sufficiently explain the assessment to the satisfaction of the CECOM activity supporting the agreement. To address this allegation, we reviewed 174 Work Breakdown Structures (WBSs) used for tracking funds and costs during FYs 2018 and 2019 for similar concerns and for CECOM’s general billing practices.
Finding
We determined that CECOM lacked appropriate documentation and did not bill customers in accordance with the statutory requirements reflected in its support agreements. Specifically, of the 174 samples we reviewed, CECOM:
- used assessments to record $9.9 million in unsupported transactions
- charged $65.2 million in unsupported labor charges out of $109.7 million in labor charges;
- had $6.6 million in unsupported funding transfers out of $125.1 million in funding;
- applied digital signatures improperly to 101 of 366 Acceptance Military Interdepartmental Purchase Requests (DD Forms 448-2) related to 40 out of 174 samples; and
- incurred labor charges for 62 samples before having an existing order and signed agreement in place.
These conditions occurred because CECOM did not have effective internal controls to ensure that CECOM properly maintained supporting documentation to describe and substantiate the reasonableness of transactions, and because Army Materiel Command policy did not require adequate documentation for all transactions related to support agreements. The ineffective internal controls and lack of appropriate policies allowed CECOM personnel to:
- use assessments to commingle and reallocate funds between WBSs without supporting details to indicate the nature or reasonableness of the transactions;
- bill labor charges without sufficient and appropriate documentation to support the calculations as accurate and the charges as actual labor costs;
- transfer funds into and out of WBSs without supporting documentation indicating the sources and destinations of the transfers;
- rely on improper digital approvals of electronically signed documents to process transactions; and
- prioritize CECOM’s mission over statutory requirements by incurring labor charges before signed agreements and orders existed.
As a result, CECOM could return approximately $7.8 million in funding to customers, who could potentially put the funds to a better use or return the funds to the U.S. Treasury. In addition, due to the weaknesses in CECOM’s internal controls, CECOM’s subcommands and customers cannot be sure that the billing information provided to them reflects the actual costs of the services, and CECOM is at a higher risk for fraudulent activity. Lastly, CECOM potentially violated the Economy Act, Purpose Statute, and Antideficiency Act.
Recommendations
Among other recommendations, we recommend that the Assistant Secretary of the Army (Financial Management and Comptroller) initiate a preliminary review of the potential Antideficiency Act violations. The review should be completed within 4 months of the Assistant Secretary’s direction to initiate the review, and the results of the preliminary review should be provided to the DoD Office of Inspector General.
We also recommend that the Commander of Army Materiel Command update the command’s policies to require subordinate commands to establish a support agreement and certify the availability of customer funding before commencing work. We additionally recommend that the CECOM Commander:
- implement a training program for the proper use and review of digital signatures; and
- establish processes to require employees to update their timecards throughout the year to properly reflect the WBSs on which they are working, and require supervisors to review their employees’ timecards for the proper WBSs.
Lastly, we recommend that the CECOM G8 Director:
- create and maintain supporting documentation for all transactions and calculations related to costs incurred on a WBS;
- return excess funds retained to customers; and
- establish a process to identify and correct charges that were made to a WBS before the receipt of an established support agreement and order.
Management Comments and Our Response
The Acting Principal Deputy Assistant Secretary of the Army (Financial Management and Comptroller), serving as the Senior Official Performing the Duties of the Assistant Secretary of the Army (Financial Management and Comptroller); the Executive Deputy to the Commanding General, responding for the Commander of Army Materiel Command; and the CECOM Commander either agreed with the recommendations or agreed to take actions that addressed the intent of 11 of the 17 recommendations. Therefore, these recommendations are resolved but will remain open. The CECOM Commander agreed to take action on 6 of the 17 recommendations, but the actions mentioned in the comments do not fully address the intent of the recommendations; therefore these recommendations are unresolved. We are requesting additional comments and documentation from the CECOM Commander to address the actions CECOM has taken or will take to fully implement the intent of these six recommendations.
This report is the product of Proj. No. D2020-D000FI-0076.000.