Our objective was to assess the effectiveness of Supply Management’s controls over the contract closeout process. Our fieldwork was completed before the President of the United States issued the national emergency declaration concerning the novel coronavirus disease outbreak (COVID-19) on March 13, 2020. The results of this audit do not reflect any process changes that may have occurred as a result of the pandemic.
In fiscal year (FY) 2019, the U.S. Postal Service had a managed spend of about $13 billion for goods and services obtained through about 43,000 Supply Management contracts in the Contract Authoring Management System (CAMS), the electronic Facilities Management System (eFMS), and the Transportation Contract Support System (TCSS).
CAMS contains vehicle, customer product, information technology, facility, and transportation contracts; whereas eFMS only contains facility construction, repairs, and alteration contracts; and TCSS only contains surface transportation contracts.
At the end of a contract life cycle, Supply Management is required to close out the contract by concluding or resolving all contractual requirements. Contracting officers (CO) are responsible for ensuring that all contract closeout activities are performed. Supply Management is comprised of five purchasing portfolios and 13 Category Management Centers (CMC) that focus on specific market and commodity sectors.
In FYs 2018 and 2019, Supply Management closed out 6,393 contracts, totaling about $5 billion in spend. We reviewed a statistical sample of 201 closed contracts in CAMS and a judgmental sample of 10 closed contracts each from eFMS and TCSS. We also reviewed all 69 expired (beyond the period of performance) contracts that were not closed out as of September 30, 2019.
Although Supply Management established controls over the contract closeout process to include implementing a closeout checklist, applying reports and monitoring tools, and developing performance goals, there are opportunities to ensure these controls operate as designed to reduce contract risk.
Supply Management did not consistently adhere to policies and procedures to ensure that COs uniformly closed contracts in accordance with Postal Service policy. Specifically, our review of 201 closed contracts in CAMS identified that:
- Eighty-nine contracts (44 percent) did not have evidence of receipt or confirmation of goods or services;
- Thirty contracts (15 percent) did not have evidence of final payment or payment of all invoices; and
- COs did not consistently use the CAMS closeout checklist.
We did not note any exceptions on the eFMS and TCSS contracts reviewed.
These issues occurred because:
- The Supplying Principles & Practices allow for varied interpretation about the closeout process and what documents must be uploaded into the contract file;
- Supply Management personnel stated that other methods are used in lieu of the checklist to properly close contracts;
- Closeout procedures were unknown or not common practice among the CMCs or COs;
- Automated controls in CAMS do not require that closeout procedures are completed for each contract; and
- There are no compliance reviews for closed contracts to ensure that proper closeout procedures were followed.
Further, we observed that CAMS administrators have the ability to close out contracts in CAMS without ensuring that proper closeout procedures have been followed. As long as the period of performance has passed, administrators can close any contract selected.
This could potentially lead to contracts being closed prematurely without ensuring that appropriate closeout activities have occurred, final payment has been made, or sufficient supporting documentation has been added to the contract files.
Additionally, Supply Management did not always close contracts in a timely manner to ensure contractual obligations were satisfied. Supply Management’s FY 2019 performance goal is to close contracts within 365 days past the period of performance. However, in our sample of 201 contracts from CAMS, we identified 13 closed contracts, totaling about $13 million, that were open over 365 days past the period of performance without a justification. These contracts ranged from 405 days to 1,616 days past the period of performance.
We also reviewed 69 expired contracts not closed out within 365 days of the period of performance end date out of a universe of about 9,000 active CAMS contracts in FY 2019. Twenty-six of the 69 contracts, totaling about $201 million, exceeded the period of performance without a justification.
These contracts were not closed timely due to competing priorities, insufficient staffing, and lack of CO oversight. There are also no automatic system reminders for expiring or expired contracts in CAMS to ensure that COs perform timely closeouts.
When contracts are not closed out properly, the Postal Service could be at risk of not completing all contractual requirements to ensure the supplier and the Postal Service have fulfilled their obligations. This could leave the Postal Service liable for future risk, including adverse actions years later by the supplier under the contract. Closing contracts properly also ensures that excess funds are identified and de-committed for use in other programs.
During the audit, to comply with proper contract closeout policies and procedures, management implemented corrective actions by re-opening eight closed contracts and adding related documentation to the contract files.
We recommended the Vice President, Supply Management:
- Reinforce contract closeout policy to the CMCs, COs, and system administrators through formal communications and refresher training on the closeout process.
- Include closed contracts in Supply Management’s compliance review process that would consist of ensuring completion of all required closeout steps.
- Reinforce the use of CAMS alerts through formal communication and refresher training to support the closeout process.