A report released by the D.C. Office of Inspector General says the District could have exposed itself to potential fraud in its handling of nearly half a billion dollars worth of COVID-19 emergency contracts.
The report, conducted by accounting firm KPMG on behalf of the inspector general’s office, doesn’t list any instances of outright fraud, waste or abuse, but points to “high-risk” contracting practices and flags some instances of what it calls “questionable” contracts awarded under the District’s emergency COVID procedures.
The report focuses on the District’s Office of Contracting and Procurement, which was tasked by Mayor Muriel Bowser during the early days of the pandemic with taking the lead in acquiring essential supplies, such as PPE, masks, COVID-19 test kits and vaccination supplies deemed critical to respond to the pandemic.
The report concluded:
- D.C. lacked sufficient controls to properly manage emergency COVID contract spending increasing the risk the District may have paid for goods and services that were not received, and paid unfair or unreasonable prices;
- That relaxing limits on advance purchases made with District-issued purchase cards increased the risk that some of those payments weren’t related to the pandemic; and
- The city did not establish sound practices to effectively track and safeguard supplies across a maze of six different warehouses throughout the District.
In another example of potentially lax practices cited in the report, a health care company providing health consulting services billed the District for $40 million, but the contracting office did not have a process for collecting timesheets to validate whether all the time billed on the invoices was accurate.
In addition to reviewing documents, known as a “walk-through” in accounting parlance, the KPMG report included survey responses sent to District agencies about their COVID-19 spending practices.
According to that survey: 77% of respondents said they did not establish formal or informal procedures for handling COVID-19 emergency procurements; 80% said they did not perform any formal procedures to determine whether COVID-19-related goods or services were purchased at a fair and reasonable price; and 71% of respondents said they did not perform any formal procedures to ensure that purchased goods were actually delivered.
The report said its observations indicate a “significant risk of fraud” and said the District’s practices make it “virtually impossible to provide a complete accounting of the District’s emergency COVID-19 purchases.”
In a statement to WTOP last week, Mendelson said the report’s findings are concerning.
“It’s not a surprise that the District moved quickly and relaxed some of its controls in order to procure quickly, related to the COVID pandemic,” he said. “Still, the Inspector General found that too little was done to try to ensure minimal fraud or waste or abuse. And that is concerning. I would like to know how the Executive plans to follow up and ensure that these tax dollars were spent properly, or that there are efforts in place to recoup where necessary.”
In an interview with WTOP last week responding on behalf of the Bowser administration, D.C. Assistant City Administrator Lindsey Parker and George Schutter, the District’s chief procurement officer, downplayed the report’s observations and said the city had successfully acquired supplies during an unprecedented time.
Parker emphasized the report is not a full audit but rather a “risk assessment” that, she said, indicates potential high-risk areas based, in part, on the survey responses.
“This isn’t an audit,” Parker said. “It’s simply a report on the focus areas that the IG should look into that might be risky, based on some survey information they collected.”
She said contrary to the report’s observations, the District did develop strong internal controls to manage COVID procurements and pointed to the fact that the Federal Emergency Management Agency has reimbursed the District for more than 84% of its COVID-19-related purchases.
“FEMA has actually reimbursed the District … because we put in place those controls, because we put in place those safeguards to really make sure that we were getting the resources and the services and the goods that we needed in a timely manner during a very difficult time to buy things across the world,” she said.
All told, D.C. spent roughly nearly half a billion dollars — $493 million — between March 2020 and Sept. 2021 under the District’s COVID-19 emergency contracting procedures, according to the report.
Nearly half the total COVID spending — about $243 million — was spent using purchase cards, or P-cards, which allow agencies to advance payments to vendors, and typically come with less scrutiny. In addition, hard limits on P-card transactions were relaxed during the pandemic, according to the report.
Included in the list of possible “questionable” payments made under the COVID-19 emergency contracts are:
- $390,000 to a company whose services were classified as consulting, management and public relations;
- More than $198,000 to a company providing office supplies and furniture; and
- More than $426,000 to a company providing catering services.
Parker said the catering contract was to provide meals “for the many individuals that were working day in and day out to respond to the pandemic. It’s not a misuse of funds … There’s nothing untoward.”
In addition, the report identified multiple instances when multiple payments of $99,999 were sent to the same company on the same day. Payments of $100,000 or more would have triggered additional scrutiny, and the report concluded the smaller payments were “indicative of attempts to bypass those controls.”
Schutter, who’s also the director of the Office of Contracting and Procurement, said those payments could be explained by the fact that some purchase cards have a limit of $100,000 and would need to be swiped a number of times if the actual contract amount was higher.
The report also faulted the contracting office’s inventory management practices.
In the first few months of the pandemic, the contracting office used its own inventory system and warehouse to track and store supplies. But within a few months, the contracting office found itself inundated, and was forced to convert six other warehouses across the District — with different inventory systems — into storage areas for COVID supplies.
An attempt to integrate the inventory systems in the summer of 2020 using a tool called BarCloud ultimately proved successful, leaving contracting officials without a single unique identifier to track purchased items from invoice to warehouse, the report stated.
“As we surpassed the 2-year mark from the start of the pandemic, it is unclear as to whether OCP will ever be able to provide a complete accounting of the items that were purchased using the COVID-19 emergency purchases authority,” the report concluded.
Schutter contradicted that observation, saying, “I do have a full accounting of the contracts that were awarded in support of COVID under emergency procedures.”
In addition, he said, COVID-related contracts are posted online, and those for amounts over $100,000 are sent to the D.C. Council for review.
The risk assessment “does reflect the risks of using emergency powers, but … the procedures that we have in place, the controls that we have in place, whether it’s on purchasing or the quality of receiving, were in place, they are in place — to the effect that we were are able to receive reimbursement from the federal government on all of those transactions,” Schutter said.
Overall, FEMA reimbursed $415 million of the $493 million spent on COVID purchases, Schutter said. He said the $78 million difference could be explained, in part, by the fact that FEMA does not offer 100% reimbursement on all spending.
“It’s a very rigorous process to be reimbursed,” he said. “That is very document-heavy. And we have been national leaders in FEMA reimbursement.”
He said D.C. has been so successful in FEMA reimbursement that the District has been invited to help train other jurisdictions.
IG unable to complete audit last year
In a letter to Bowser and Mendelson accompanying the new risk assessment, D.C. Inspector General Daniel W. Lucas said his office would drill down into the report’s findings in future audits.
“The OIG will conduct further engagements based on the risk areas KPMG identified,” Lucas wrote in the letter.
There is a long-running disconnect between the inspector general and the contracting office over the District’s COVID-19 procurements.
Last year, the inspector general closed out a planned full-scale audit of the COVID-19 contracts, citing an inability to access records and databases maintained by the contracting office.
In a D.C. Council hearing last July, Lucas, the inspector general, told council members the Office of Contracting and Procurement had declined to provide full access to its data systems to auditors.
The KPMG risk assessment is the second critical look at the Office of Contracting and Procurement’s COVID-19 emergency contracts.
The accounting firm McConnell Jones, which prepares the District’s annual comprehensive financial report, concluded in 2020 that controls over D.C.’s emergency contracts “were not operating effectively” — a finding the firm repeated in a Jan. 2022 report.
The accounting firm said a review of the contracting office’s activities the year before identified more than a dozen transactions for which the District paid for goods in advance but for which the office did not maintain proof of receipts. Later, the contracting office provided additional documents for one of the transactions. But for the remaining 17 transactions — totaling more than $28 million — the contracting office was unable to provide proof of receipts.
In a statement, D.C. Council member Robert White, who chairs the Government Operations and Facilities committee, said the new risk assessment’s findings “are, sadly, not surprising or new.”
He said his office identified concerns early in the pandemic about the use of emergency procurement authority, held field hearings and worked to provide funding for the risk assessment.
“Unfortunately, we have faced obstinance from the Mayor at every turn,” White said in the statement. “Because of the administration’s repeated refusal to comply with reporting requirements or respond to previous audit requests, the Council had to pass legislation I drafted to curtail the Mayor’s emergency procurement power. My committee has been using every lever we have for oversight, but we’re seeing an administration that doesn’t take transparency and accountability seriously. I will continue to work with the Office of the Inspector General on this issue because District residents deserve to know how their tax dollars are being spent, even during unprecedented events like the pandemic.”
White is challenging Bowser for the Democratic nomination for District mayor in this month’s primary election.