IG: 'Serious problems' with OPM's $2B revolving fund must be addressed

Thursday - 6/6/2013, 5:24am EDT

Jason Miller, executive editor, Federal News Radio

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The Office of Personnel Management's inspector general is willing and ready to take a deep examination dive into the agency's $2 billion revolving fund.

The problem is the IG can't afford to do the work.

Patrick McFarland, OPM's IG, made his case to House lawmakers Wednesday to take a small percentage of that revolving fund to pay for increased oversight.

McFarland said his office needs about $6.6 million to do real oversight of the fund. OPM uses the revolving fund to provide HR services on a fee-for-service basis such as background investigations and to run USAJobs.gov.

The White House supports the resource transfer and included this legislative change as part of the fiscal 2014 budget request sent to Congress in April.

McFarland said the IG's budget is about $3 million, which isn't nearly enough to root out waste, fraud and abuse across the revolving fund and the other areas of OPM.

"Please be assured our Office of Inspector General is at the ready to jump deep into all the programs financed by the OPM's revolving fund," McFarland told the House Oversight and Government Reform Subcommittee on the Federal Workforce, the Postal Service and the Census. "Based on evidence and intuition, we know there are extremely serious problems. We already have several projects in high risk areas that we are eager to begin such as the initiative to closely examine the federal investigative service program office and determine whether there are deficiencies that may be affecting national security, as well as an audit of the pricing methodology used by Human Resources Solutions."

More than just OPM will benefit

McFarland said the money to find fraud, waste and abuse wouldn't just benefit OPM, but the entire government. He said because every major agency buys services from OPM, increasing oversight would have a trickle-down effect across the government.

Patrick McFarland, inspector general, OPM

The extra money wouldn't come from appropriations, but from OPM's customers, McFarland said. Agencies would pay an extra $3.35 per $1,000 spent with OPM to fund the IG's work.

"Our anticipation is for the first year, probably, but not for sure at all, we'd spend possibly about $1.5 million to get things moving," he said. "There has to be a plan in place, which we've already started working on. We have to move aggressively to get people trained."

House subcommittee members were receptive to the idea of giving the IG more funding especially since it wouldn't come from appropriations. But Congress does need to approve the use of the funds for something else not included in the original law establishing the revolving fund in 1995.

While lawmakers support increased funding for the IG, they are wary about the concept of the revolving fund more broadly.

"Last year, IG McFarland told the committee his office had been flooded with requests from OPM to audit or investigate various aspects of the revolving fund," said Rep. Blake Farenthold (R-Texas), subcommittee chairman. "In April, the IG found senior OPM officials used their position to give preferential treatment to revolving fund vendors. In May, IG McFarland informed the committee of an ongoing investigation in which a revolving fund contractor used deceptive practices to avoid fulfilling certain requirements under its contract with OPM in order to maximize profits. At a time when agencies are furloughing workers to meet payroll, questionable business practices affect the entire federal government. Each month brings another confirmation of the waste inside the revolving fund."

Profits and surpluses

It's not only waste that concerns the lawmakers, but the fact the fund is running a $379 million surplus.

Rep. Lacy Clay (D-Mo.) questioned why OPM was running such a high surplus.

Charles Grimes, OPM's chief operating officer, said the surplus is allowed under law for capital expenditures or in case they need money to end a program.

Grimes also defended the agency's decision to offer the HR services in the first place.

Linda Brooks Rix, the co-CEO of Avue Technologies, aggressively sought to discredit OPM's right to provide what some believe are commercial services.

Rix has been an outspoken critic of OPM for some time, partly because Avue offers similar HR services as the personnel agency.

She said OPM is unfairly competing with private sector services, which seemed to resonate with lawmakers. Rix said there are several reasons why OPM's decision to offer HR services and products is a conflict of interest.

Linda Brooks Rix, co-CEO, Avue Technologies

"OPM violates the Competition in Contracting Act, illegally asserting OPM products may be purchased through the Economy Act and therefore non-competitively," she said. "OPM duplicates GSA's 738x schedule and adds layers of waste in the form of excessive fees. Where GSA is capped as a service of not to exceed 0.75 percent, OPM openly states its fees range from 8 percent to 12 percent. OPM also abuses its role of portfolio manager for HR line of business. It exerts its role as advisor to agencies to steer contracts exclusively to federal shared service centers. This illustrates the dual identities of OPM, one as regulator and the other as a for-profit business. As a for-profit company, OPM is the systemic reason the federal government's HR costs are skyrocketing."

Rix said private sector companies have reduced their HR staff by 21 percent and then lowered the cost per employee to hire by 28 percent over the last few years. But the federal sector has increased its HR staff by 41 percent and the cost per hire for an employee is more than 12 times that of industry.

Checks and balances in place

Grimes disagreed with the assessment Rix made. He said OPM relies on private sector companies to provide many of these services, and has the checks and balances in place to ensure there is no conflict of interest.

Grimes said OPM is taking steps across all of its HR services to offer better services and become more in tune with private sector offerings, including most recently the ongoing changes to the Federal Investigative Services (FIS).

"We are undergoing a transformation in our FIS operation to bring more automation into the process. We are looking to increase our timeliness through changing from batch processing to real-time processing," he said. "We're looking at increasing our quality by providing enhanced data validations and real time information for the field agents as they conduct their work. We're improving our data security. We are taking steps to improve and streamline that process."

Grimes also said OPM is trying to address some of the IG's most recent concerns. FIS recently released its annual report and detailed in greater transparency than ever before its price structure, which in the past the IG said was a major shortcoming of FIS.

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