USPS OIG Audit Report: Professional Services Contract Rates

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Monday, November 10, 2014
(sections redacted by OIG)


The Commercial Products and Services Portfolio is one of five purchasing areas within the U.S. Postal Service’s Supply Management organization. It manages contracts for professional services, including financial, accounting, and consulting services.

The U.S. General Services Administration (GSA) is the federal government’s purchasing agent. It administers the GSA Schedules Program that provides contracts for procuring supplies and services directly from commercial suppliers, and was designed to provide discount resources to all federal agencies worldwide. GSA rates for services include labor descriptions and the contracted labor rates. The Postal Service is eligible, but not required, to use the GSA Schedules Program for contracting.

Our objective was to compare the Postal Service’s labor rates for financial, accounting, and professional consulting services with federal government rates for comparable services. We reviewed nine contract purchases, valued at about $133 million, and compared labor rates to comparable GSA rates.

What The OIG Found

The Postal Service’s contract labor rates for eight of the nine financial, accounting, and professional consulting services contract purchases we reviewed were generally equal to or below comparable GSA rates. However, the Postal Service awarded one supplier an independent accounting services contract at individual labor rates that exceeded the supplier’s GSA rates by a marginal increase of percent for a senior manager _ to _ percent for a partner. The individual supplier’s rates also exceeded the average of three comparable suppliers’ GSA rates by _ to _ percent.

Contracting officials were aware of the GSA rates but considered them incomparable because the supplier is required to provide an opinion on the Postal Service’s internal controls over financial reporting, which is not required for other federal agencies. Officials stated because of this requirement, the supplier’s resources for this contract required more training and higher pay than resources working on other federal contracts. We compared training requirements for public accounting firms for private and government auditing and determined they both require an average of 40 hours of continuing professional education annually.

Officials also cited a 2006 study that stated auditing fees for government agencies would increase if they obtained an audit opinion of their internal controls. Our analysis of that study showed the cost increases were mainly attributed to an increase in hours needed to conduct additional testing, not an increase in hourly rates. Also, based on a Corporate Executive Board study on 2014 audit fee trends, the average audit rates for public companies were about $50 less per hour than the rates the Postal Service paid.

Further, contracting officials received indications that other suppliers could have potentially performed the same services at a cheaper rate. However, management preferred not to compete the contract to avoid interrupting service. Specifically, it had concerns with changing auditors while implementing network operations changes, such as revising the business mail acceptance process and plant consolidations.

Management also stated remaining with the same supplier would result in price reductions of up to percent for the first of the contract, and that switching suppliers could cost as much as _ percent more during the first year of transition.

A new supplier is likely to need additional time to become familiar with the Postal Service’s operations and using the Postal Service’s estimate, we calculated the additional cost of switching to another supplier for the first year would be about [REDACTED].  However, the Postal Service would recoup those costs during the second year of the contract. By not competing the contract, the Postal Service may have entered into a contract without obtaining fair and reasonable pricing. We determined if the Postal Service had awarded the contract using the current supplier’s GSA rates, it could have saved about $2.8 million annually.

What The OIG Recommended

We recommended management compete the independent accounting services contract before exercising the option to renew the contract to ensure the Postal Service obtains fair and reasonable pricing.

via Professional Services Contract Rates | Office of Inspector General.

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