Audit Report 09-12: Review of SBA's National Guaranty Purchase Center Furniture Contract

On March 31, 2009, the OIG issued Audit Report 9-12, Review of SBA’s National Guaranty Purchase Center Furniture Contract.  This review was conducted in response to an anonymous complaint and subsequent investigation by SBA’s Office of General Counsel.  The complaint alleged that the prime contractor on an SBA contract for moving services had received an advance payment for the purchase and installation of furniture that was never delivered to the SBA.  The complaint also alleged that instead of reimbursing its subcontractor, the prime contractor inappropriately spent the advance funds to meet its payroll.  As a result, the subcontractor repossessed the furniture causing the prime contractor to violate its contract with the SBA.

The Office of General Counsel investigation confirmed that the SBA purchased furniture from the prime contractor, which was never received.  Further, the SBA had expanded the contract after award and subsequently repurchased the furniture from the subcontractor.  The investigation also determined that contract documents were signed by individuals without full knowledge as to what they were approving or authorizing.

Based on this investigation, the OIG reviewed the procurement to determine (1) the appropriateness of the award and subsequent modification, (2) whether payments made to the contractor violated Federal regulations, and (3) the adequacy of SBA’s efforts to recover funds paid to the contractor when it failed to perform.

The OIG review determined that the initial award to the prime contractor was inappropriately sole-sourced.  Further, the OIG found that the SBA also violated Federal regulations by advancing a $226,678 payment to the prime contractor prior to the delivery of the furniture, and by making two additional payments totaling $78,856 that were unrelated to the contract.  As a result, the SBA executed over $300,000 in improper payments against the contract.  The SBA issued a Demand for Reimbursement letter for $226,678.  However, when the contractor could not repay the debt, the SBA inappropriately reduced the amount owed to $66,503, an amount based on unpaid invoices for work that the contractor claimed had been performed on other contracts, without evidence the work was performed.  The OIG also identified several FAR violations committed by the contractor.  Specifically, the contractor misrepresented to the SBA how it would use the advance payment and failed to perform in accordance with the terms of its contractor.  Further, because the vice president of the prime contractor was also the owner of the subcontractor, the subcontractor may not have acted independently in repossessing the furniture.  The OIG issued five findings and seven recommendations.