Auditors: DHS lacks cost justification for $780 million spent on border network

For half a decade, the Homeland Security Department did not collect cost-justification information for invoices from contractor Boeing Co., before paying the company for services rendered on a $1 billion failed, virtual border fence, federal auditors concluded.

DHS envisioned the Secure Border Initiative Network as a surveillance system comprised of interconnected towers, intelligence databases and communications equipment that would scan the southwest border for illegal activity. But much of the technology, including cameras, proved unreliable in the harsh desert climate. In January, after a yearlong review, Homeland Security Secretary Janet Napolitano canceled construction of the system beyond a 53-mile segment already deployed.

Now Government Accountability Office auditors are reporting that Homeland Security's Customs and Border Protection did not require Boeing to submit invoices with enough data to substantiate costs. The billing statements did not contain supporting details beyond a list of itemized costs, including direct labor, direct materials, major subcontracts, other direct costs, overtime premium, overhead, travel, and general and administrative expenses.

On one invoice, for instance, the company did not provide the travel dates and destinations, so contracting officials had no way of knowing if the lump sum of $108,148.57 Boeing charged for travel between Sept. 12, 2008, and Sept. 25, 2008, was reasonable. The contractor billed $1,518,873.38 during that same period for direct labor without descriptions such as hours worked.

"Not requiring such detail not only precluded us from testing whether invoiced costs complied with the SBInet contract and were properly supported, but, more important, resulted in numerous instances in which CBP's [contracting officers] did not have the detailed support they needed to effectively review the SBInet contractors' invoices," GAO officials wrote in a report released Thursday afternoon.

When CBP contracting officials repeatedly asked Boeing for corroborating information, the company refused on the grounds that the agency's policies did not stipulate supporting detail. "CBP paid the invoiced amounts in all cases," the assessment stated.

Due to inadequate oversight, the agency cannot be certain the $780 million it paid the prime contractor were for legitimate expenses, according to GAO's study, which was conducted between June 2009 and May 2011. Going forward, deficient cost controls could cause DHS to misappropriate about $80 million remaining from the SBInet program.

The replacement for SBInet will be an array of proven devices and services custom-tailored to the needs of each border region, DHS officials have said. GAO auditors stated that their findings "have implications as possible lessons learned for DHS to consider and address as appropriate in designing and implementing contract payment controls for its new technology portfolio approach."

Under federal contracting rules, CBP had the power to demand additional documentation for lump-sum costs, but chose not to exercise the authority and instead relied on closeout audits and other oversight methods to spot billing issues, according to the report. The auditors disagreed with this strategy, saying closeout audits sometimes are not completed until years after a contract ends, at which point the contractor may not have enough money to pay back improper compensation; the executive responsible for the lapse may be long gone; and memories may have faded.

Even if contracting officials had ample information to review invoices, errors may not have been caught because the review process was ill-defined, the report added.

Procedures for evaluating bills did not dictate how to "carry out and document effective, risk-based reviews that could reasonably ensure that the SBInet contractor's invoices were in the correct amount and accurately reflected all and only allowable goods and services as provided for under the original SBInet program," GAO officials wrote.

After reading a draft report, Jim Crumpacker, director of Homeland Security's GAO liaison office, wrote in a May 18 letter that CBP used other measurements, not necessarily reflected in invoices, to ensure the government was not overpaying during the performance period.

For example, CBP appraised the vendor's expected costs in Boeing's original contract proposal, which broke out planned labor hours, labor rates, numbers of trips and locations, as well as indirect and other allocated costs, he said. Monthly, if not weekly, the government then compared those estimated figures with reports from the contractor on actual labor expended, actual labor costs incurred and other specific actual costs.

"Armed with the cost performance information and insights from management discussions regarding the actual contractor's performance, CBP officials are well postured each month to conduct a review of the contractor's interim payment requests and to determine whether the request conforms to the contractor's actual performance," Crumpacker wrote.

Still, officials agreed the government needs to perform adequate reviews of contractor requests for payments, and the government should establish standard procedures for examining invoices, he said.

"CBP acknowledges the potential value and opportunity for continued process improvement and is establishing and aligning invoice approval procedures based on lessons learned, a recent reorganization and the need to manage prescribed time lines to avoid late payment interest penalties," Crumpacker wrote. "CBP and the department as a whole share the GAO concern for assuring there are effective controls."

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, a contractor industry group, said Homeland Security's separate cost assessments show "they are all over the information, so they know what to expect from an invoice on a monthly basis."

He noted it is not uncommon for government invoices to leave out supporting details. "GAO seems to be focusing on the piece of paper, and I think that's leading to the wrong impression," Chvotkin said.

On Friday, Boeing officials said the company's invoices for SBInet comply with all contractual requirements and federal contracting rules.

"Boeing goes to great lengths to ensure all charges are appropriately billed," Boeing spokesman Dan Beck said. "We have proper cost controls in place and cost reports are reviewed regularly with the Customs and Border Protection agency. Additionally, CBP has the right to audit any Boeing interim or final invoice. Boeing has deployed 53 miles of an operational border system that is being used by Border Patrol Agents around the clock. The system provides unprecedented situational awareness and adds to agent safety and effectiveness."

CBP officials on Friday maintained that the agency used a robust invoice review process with the Boeing contract. Evaluations "relied on performance and cost information routinely furnished by the contractor, and on-going reviews by the Defense Contracting Audit Agency of the contractor's accounting and billing systems, as well as payment requests, assuring invoice accuracy and reliability," CBP spokeswoman Jenny Burke said.