Labor IG: Separate procurement office to prevent abuse

Labor IG: Separate procurement office to prevent abuse

The Labor Department has wasted nearly $4 million on unused encryption products from an improperly awarded contract, the department's inspector general said in a new report.

Labor should set up an independent acquisition office to ensure that contracts are awarded, revised and managed properly, according to the report.

The investigation stemmed from a 2002 sole-source contract to Meganet Corp. of Los Angeles for encryption software and services. After spending $3.8 million under the contract, Labor's Office of the Assistant Secretary for Administration and Management, also the department's CIO office, did not install the software, ostensibly because the Meganet products did not function properly with Labor's public-key infrastructure.

The IG's report, however, said there was no documentation to show the Meganet software had been evaluated. In its own testing, the IG office determined the software could perform in an environment similar to that of the department.

Labor then spent an additional $1.6 million on software from Entrust Inc. of Dallas to satisfy some of the same technical requirements as the unused Meganet software.

Patrick Pizzella, Labor's CIO and assistant secretary for administration and management, raised concerns with the IG over the contract. The IG blamed a lack of organizational separation of duties and inadequate oversight and internal controls. "Individuals knowingly made decisions and took actions that violated government regulations and [department] policies and may not have been in the best operating or financial interests" of Labor, assistant inspector general Elliot Lewis said.

"Until procurement and programmatic responsibilities are properly separated and effective controls put in place, Labor continues to be at risk for the wasteful and abusive practices evident in its handling of the Meganet contract," Lewis said. He said Labor should put in place a departmentwide acquisition office whose director would report directly to the deputy secretary. Also, he said, it should establish an independent process to vet decisions to terminate active contracts and not use already purchased products and services.

In a response, deputy secretary Steven Law said Labor has instituted some internal controls on sole-source contracts, replaced the deputy CIO involved in the Meganet award and urged employees to report wrongdoing to the IG during ethics training. Law said he would consider, but made no promises about, removing procurement responsibilities from the Office of the Assistant Secretary for Administration and Management and forming a new acquisition office.

"I will carefully weigh the reasons provided for this recommendation, while taking into account the substantial management and procedural protections'as well as high-level personnel changes'that have been instituted since the events that gave rise to the audit," he said. Other IG recommendations were not mentioned.

The Office of Management and Budget has since directed that agencies use one of three chosen providers for PKI authentication and authorization software and services.

In 2004, the Labor IG had previously recommended an independent procurement organization because of contract irregularities at Labor's Mine Safety and Health Administration.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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