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Who’s Ripping Off the Government Now? The Government!

The General Services Administration (GSA) is making a profit off other federal agencies, and it has used that profit to build a billion-dollar slush fund. The GSA charges fees to other federal agencies that use GSA programs and contracts. For example, goods and services are offered on GSA Federal Supply Schedules and GSA offers telecommunications services so that federal, state, and local agencies don’t have thousands of individual contracts for the same items. The consolidation of contracts allows the government to buy in bulk and save time and money.

What isn’t talked about in many government circles is the fact that agencies pay a markup to GSA on orders. GSA charges a .75 percent Industrial Funding Fee (IFF) to other agencies to cover GSA’s cost of operating the Schedules program. According to the GSA Inspector General, “[t]he IFF is set at a level that consistently generates net operating revenue in excess of amounts required to recover [Multiple Award Schedule (MAS)] Program costs, make MAS Program investments, and maintain a risk mitigating buffer.” GSA takes the excess revenue generated and stashes most of it away for a rainy day.

While the IFF is set and well-known, I wanted to learn more about other fees or markups that GSA charges for other programs, since GSA has not published a summary of rates and fees since FY 2011. Like the IFF, certain fees appear to be set. The up-charge on using the Networx telecommunications contract is 7 percent. That contract does over a billion dollars in business and was estimated to save taxpayers $670 million in FY 2014. The result is certainly due to buying in bulk and guaranteeing AT&T, CenturyLink, Level 3, Sprint, and Verizon a lot of business, but a 7 percent profit margin seems like the government is cheating itself and taxpayers.

Currently, GSA is charging a markup averaging 16.1 percent on its regional telecommunications programs, according to GSA’s reply to a Project On Government Oversight Freedom of Information Act (FOIA) request. The GSA explained that “it can be presumed that all net operating results for the years in question went into the funding of FAS [Federal Acquisition Service] Investment Reserves.” That slush fund was created by law in the Treasury based on profits generated from GSA business lines rather than on congressional appropriations. “The Fund is available for use by or under the direction and control of the Administrator” of the GSA for agency programs and missions.

In 2012, the GSA IG stated that in 2009 the agency’s profit-based enterprise created a slush fund that had “reserves totaling $687.5 million.” According to GSA’s most recent financial statements, that slush fund now exceeds $1.1 billion (p. 36). The GSA pointed out in its FOIA reply to POGO that it had returned “small sums … to Treasury.” GSA’s financials support that statement, showing that the agency had returned $6 million and $11 million that were in excess of GSA’s operating needs to the U.S. Treasury in 2013 and 2014 respectively. Simply stated, GSA is pitching in a mere 2 percent of its rainy day fund to taxpayers while it is sitting on a billion dollars.

At least the GSA is now telling other agencies that it is ripping them off to fund other GSA programs, which, according to the GSA IG, wasn’t always the case.

The IFF reimburses FAS for the costs of operating the Federal Supply Schedules Program. FAS recoups its operating costs from ordering activities as set forth in 40 U.S.C. 321: Acquisition Services Fund. Net operating revenues generated by the IFF are also applied to fund initiatives benefitting other authorized FAS programs, in accordance with 40 U.S.C. 321.

My interest in telecommunication contracts dates back to when the suspension of MCI/Worldcom was lifted only days before the next contract was up for bid. At that time, I was informed by GSA sources that the government needed MCI to compete for that contract to help obtain a good deal for taxpayers.

Certainly, we support GSA recouping the costs of operating government-wide buying systems and buying in bulk, which are both in the interest of taxpayers. Our main concern is that GSA is collecting millions of dollars each year from other agencies that pay for GSA to stay in business and there is little if any oversight of GSA’s overall spending. Other concerns have been raised about pricing and competition and whether agencies are getting good deals when using the Schedules.

Additionally, I have concerns about the plethora of wireless contracts that exist, whether they are being used effectively, and the rangy markup that GSA is charging.

My concerns led me to question GSA in February 2014 about its wireless contract, which was estimated to save taxpayers $300 million over five years. GSA gave me the run-around, so I submitted the FOIA request in April 2014 for information about the wireless contract as well as other contracts and fees that GSA is collecting from other federal agencies. After a lot of foot dragging and an initial effort to close my request, I’m now getting piecemeal responses, as inadequate as they may be. Stay tuned for more information and analysis as GSA sends me additional information.

GSA, which isn’t alone in charging fees to other agencies when they assist in buying goods and services, needs to reconsider the fees and markups that it charges or return the excess funds to the general treasury. Sitting on a billion-dollar taxpayer-funded slush fund isn’t the way the government should operate. As POGO urged over 5 years ago, there is a perverse incentive for GSA to run programs that funnel funds into its budget, and Congress should step in. Congress is in the unenviable position of appropriating money that it doesn’t have while the GSA is running a profitable business with a billion-dollar slush fund that was created at the expense of other agencies and taxpayers.

By: Scott H. Amey, J.D.
General Counsel, POGO

Scott Amey Scott Amey is General Counsel for the Project On Government Oversight. Some of Scott's investigations center on contract oversight, human trafficking, the revolving door, and ethics issues.

Topics: Government Accountability

Related Content: Risky Contract Vehicles, Federal Acquisition, Transparency in Contracting

Authors: Scott H. Amey, J.D.

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