Feb. 22, 2018 —
We determined whether Defense Commissary Agency (DeCA) officials provided effective oversight of the fresh fruits and vegetables contracts for Japan and South Korea in accordance with Federal and DoD contracting policies.
DeCA officials awarded a $55.1 million contract with an effective date of November 2015, to provide produce to 25 commissaries in Japan and South Korea. The prime contractor awarded two subcontracts to provide support for the produce contract—one for Japan in June 2016 and one for South Korea in July 2016.
In April 2017, the prime contractor transferred the South Korea part of the prime contract to the South Korea subcontractor, and DeCA officials awarded a new contract to support South Korea produce operations. Additionally, in September 2017, the prime contractor transferred the Japan part of the contract to the Japan subcontractor, and DeCA officials awarded a new contract to support Japan produce operations. As a result, there were separate produce contracts for Japan and for South Korea.
The contractors were required to conduct monthly market basket surveys (surveys) in Japan and South Korea to compare the average prices paid by the commissary customer to the average prices paid by customers at private retail stores for the same or comparable items. The survey for
Japan included one for mainland Japan and one for Okinawa. Additionally, DeCA personnel were required to report non-conforming produce on a produce inspection worksheet; and request a price adjustment or credit for the non-conforming produce that is carried forward to the total voucher payment. Non-conforming produce are defective in appearance and do not meet contract quality requirements. Further, the produce contract required a 98-percent fill rate, which DeCA personnel calculated for each delivery by comparing the number of produce cases ordered to the number of produce cases the contractors delivered.
DeCA officials did not provide effective oversight of the produce contracts for Japan and South Korea. Specifically, DeCA personnel did not verify produce prices for 35 high-volume core items on the surveys submitted by the contractors. High-volume core items, established by the contracts, are mainstream produce items in the typical American diet, such as apples, bananas, carrots, and tomatoes. This occurred because DeCA did not have policies and procedures defining how the personnel should oversee the surveys. Additionally, DeCA personnel did not receive training on the contractual survey requirements. As a result, commissary customers may not have received the required contractual savings amount for produce because DeCA officials did not know whether the contractors met the price savings requirements. The contracts required that 35 high-volume core items cost customers 30 percent less than local Japanese market prices and 34 percent less than local South Korean market prices. In May 2017, we reviewed the contractor’s Japan survey and identified price savings were only 13.9 percent.
DeCA personnel also did not accurately calculate credits for non-conforming produce on 29 of 84 produce inspection worksheets we reviewed. This occurred because DeCA officials did not verify that information supporting the credits—including the case price, pack size, cases received, units received, percent case credited, and amount to be credited—was correct before processing voucher payments on the contracts. As a result, 27 vouchers submitted for payment, valued at $2.5 million, were not fully supported.
Further, DeCA personnel did not accurately calculate fill rate percentages. This occurred because DeCA did not have policies and procedures defining how personnel should calculate contract fill rates or policies and procedures requiring personnel to verify fill rate calculations. As a result, commissary customers may not have had the opportunity to purchase the quantity and variety of produce required under the contract. Additionally, officials used inaccurate fill rates to document contract performance, which resulted in incorrect daily fill rate reports.
In addition to these findings, we observed security concerns with produce storage and transportation during a site visit to the Japan food storage warehouse in May 2017. Specifically, we identified that the main gate was unlocked and open, no one checked identification, and storage coolers did not have controlled access and were not locked. Trucks delivering produce did not have any security seals to deter unwanted entry and monitor driver access. The doors had only a lock on the door and the driver controlled the key. Air Force regulations state that, to mitigate introduction of contaminants into the food supply chain, agencies should incorporate seals on locked containers. As a result, produce could become contaminated and DeCA officials have no assurance that the contractor maintained chain of custody during transportation.
We recommend that the Director, Defense Commissary Agency:
- Develop policies and procedures on how Defense Commissary Agency personnel should oversee and verify the surveys, and calculate and verify contract fill rates before the information is used for contract performance evaluation on the Japan and South Korea produce contracts.
Develop training for Defense Commissary Agency personnel on contract quality assurance and surveillance, including overseeing the surveys and how to calculate contract fill rates.
- Require Defense Commissary Agency personnel to review and verify credit information for all produce inspection worksheets previously submitted to support all previously paid vouchers on the Japan and South Korea produce contracts, since the original award in July 2015. The Director, Defense Commissary Agency, should provide the results of the review to the DoD Office of Inspector General.
- Develop policies and procedure requiring Defense Commissary Agency personnel to review and verify the accuracy of all future produce inspection worksheets—including the case price, pack size, cases received, units received, percent case credited, amount to be credited and total credit—before processing all future vouchers for payment.
Management Comments and Our Response:
The Director, DeCA, agreed with the report and all of our recommendations.
The Director agreed with the recommendations to develop policies and training on overseeing and conducting the market basket surveys and calculating and verifying contract fill rates. Comments from the Director addressed the specifics of these two recommendations and no further comments are required. Therefore, the recommendations are resolved, but will remain open. We will close the recommendations once we verify DeCA has completed revisions to its policies and has developed training for store-level personnel that fully address the recommendations.
The Director stated that DeCA conducted a sample review of produce inspection worksheets and supporting vouchers from November 2015 through February 2016. The review included 856 produce inspection worksheets from 17 commissaries. According to the Director, the review revealed 199 of the produce inspection worksheets contained errors. The Director stated that the net impact of all errors was $1,545, or 0.015 percent of $9.9 million of payments reviewed.
Comments from the Director partially addressed the specifics of the recommendation to require DeCA personnel to review and verify credit information for produce inspection worksheets previously submitted to support vouchers on the Japan and South Korea contracts. Therefore, the recommendation is unresolved and remains open. DeCA personnel did not review all the produce inspection worksheets submitted since the original contract was awarded in July 2015. According to the Director, DeCA personnel reviewed a 4-month sample, incurring approximately $42,000 in internal costs, and the review identified a net of impact of only $1,545. In addition, the Director’s comments did not address reconciling the under or overstated amounts paid with the contractors. We request that the Director provide additional comments on the final report regarding whether DeCA personnel will review the remaining produce inspection worksheets and vouchers, DeCA’s supporting documentation from its analysis of the produce inspection worksheets and invoices from November 2015 through February 2016, and documentation to show whether the over or understated amounts were collected or paid.
The Director agreed to modify the produce inspection worksheet in order to provide DeCA officials accurate information. Although the Director agreed with the recommendation, comments from the Director only partially addressed the recommendation; therefore, the recommendation is unresolved and remains open. The comments did not address whether the Director will develop policies that require DeCA personnel to review and verify the accuracy of all future produce inspection worksheets before processing vouchers for payment. We request that the Director provide additional comments on the final report regarding the review and verification of produce inspection worksheets.
This report is a result of Project No. D2017-D000AJ-0114.000.