Image: SBA
“SMALL BUSINESS ADMINISTRATION OFFICE OF INSPECTOR GENERAL”
“SBA used three vendors without a contract to handle foreclosures and sales of properties. These vendors were primarily responsible for identifying subcontractors for appraisals, repairs, maintenance, listings, sale of properties, and legal services.
None of the three vendors were registered in the SAM, as required, and SBA did not purchase their services following federal procurement policy. Since 2012, SBA has made 34,030 payments for unauthorized commitments totaling over $10.8 million to these vendors.”
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“During our audit work, we learned SBA used three vendors without a contract to handle foreclosures and sales of properties. These vendors were primarily responsible for identifying subcontractors for appraisals, repairs, maintenance, listings, sale of properties, and legal services.
The three vendors billed the resolution center for the foreclosure and sale services and administrative fees for commissioning the sales. Since 2012, SBA has made 34,030 payments for unauthorized commitments totaling over $10.8 million to these vendors as follows:
Vendor 1—22,384 payments totaling more than $8.1million
Vendor 2—9,325 payments totaling more than $2.4 million
Vendor 3—2,321 payments totaling more than $336,800
Agencies are required to use the U.S. government’s System for Award Management (SAM) as the primary source of vendor information. None of the three vendors were registered in the SAM, as required, and SBA did not purchase their services following federal procurement policy. We questioned these unauthorized payments, totaling more than $10.8 million, because SBA did not comply with regulations (see Appendix I). Federal Acquisition Regulation (FAR) Part 1.102 requires “promotion of competition, maximizing the use of commercial products and services, and conducting business withintegrity, fairness, and openness.” FAR Part 13 Subpart 104 Promoting Competition states a contracting officer must “promote competition to the maximum extent practicable to obtain supplies and services from the source whose offer is the most advantageous to the Government.”
The regulatory provision defined in the FAR states that any agreement made by a government employee who lacked the authority to enter into such agreement with a vendor is considered an unauthorized commitment. Title 5 of the Code of Federal Regulations (CFR) Part 2635.101 Standards of Ethical Conduct for Employees of the Executive Branch states employees shall not knowingly make unauthorized commitments or promises of any kind that bind the government.
Additionally, Title 48 of the Code of Federal Regulations Part 1.602-3 Ratification of Unauthorized Commitments states ratification of an unauthorized commitment mayonly be performed by a contracting officer or an official with the authority to do so as designated by the head of the contracting office.
The CFR defines an unauthorized payment as any action or agreement which is not binding solely because the representative who made it lacked the proper authority to enter into this action or agreement on behalf of the government. Agencies should takepositive action to preclude, to the maximum extent possible, the need for ratification actions.
SBA had not entered into a government contract and was using vendors that were not recorded in SAM. The agency paid more than $10.8 million in unauthorized commitments that should be ratified under 48 C.F.R. § 1.602-3. Additionally, the agency did not conduct these contracting actions with integrity and openness in a fair and equitable manner, as required by the FAR.
An SBA official told us the vendors were first engaged for small services for what was perceived to be of minimal value. Use of the vendors continued over time and became part of the resolution center’s normal process. The practice of using these vendors without a contract was not intentional but rather an oversight.
The official further explained that the FAR applies to the acquisition of supplies and services with appropriated funds. The nature of the services does not require the use of federally appropriated funds. The fees associated with each service are the borrower’sfinancial obligation and are charged back to the borrower by way of a care and preservation of collateral fee.
It is important to note that the disaster loans are in default, and the sale of the real estate collateral is being used as a last resort to recover a portion of the delinquent debt. Any fees charged by the vendors are added to the delinquent loan balance. Any portion of the delinquent debt not recovered through foreclosure is charged off, so the 3 federal government ultimately pays for these services.”
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