The flagship team for the General Services Administration's new Technology Transformation Service — 18F, a digital consultancy that helps other agencies with innovative projects — is more than $31 million in the hole and has less than three months to make $56 million to meet its 2016 revenue projections.
18F was designed to be cost neutral, with the team recouping its costs by billing the agencies it works with. However, in an Oct. 24 report, GSA's inspector general revealed that the team was only invoicing about half of its hours and, without a plan in place, is moving toward insolvency.
"Since its launch in March 2014, 18F has struggled financially," the report reads. "18F’s current memorandum of agreement with [the Federal Acquisition Service] requires a plan to achieve full cost recovery of both direct and indirect costs … We found that 18F has not developed a viable plan to achieve full cost recovery."
The team planned to bill a total of $4.76 million in 2014 but invoiced zero dollars and projected $32.58 million in 2015 but fell short by $10.32 million (taking in $22.26 million). 18F expected to take in $84.18 million this year but has only collected $27.82 million, putting the team $56.37 million behind with only a few months left in the year.
"We identified three factors that have contributed to 18F’s inability to achieve full cost recovery. These include 18F management’s established pattern of overestimating revenue projections, increased staffing levels and staff time spent on non-billable activities," the IG wrote.
"We take these issues seriously and have taken significant steps to strengthen 18F’s operations," 18F acting Executive Director Dave Zvenyach wrote in an Oct. 24 blog post. "We brought in an independent third party to review our financial processes and controls. We have instituted additional controls around agency agreements, including review of agreements by the CFO and General Counsel and we are also amending our timekeeping system to detect any work being done outside of the performance period or without signed agreements."
18F has also mapped out three scenarios to get back to even, which have been revised since first being released in March. The "Best Case Scenario" would have the team back in the black — with an additional $7.43 million in the bank — by the end of fiscal 2018. The "Medium Case Scenario" would put the team $6.36 million ahead by 2020 and the "Worst Case" leaves it in the red until fiscal 2022.
The IG made seven recommendations, all of which 18F management agreed with:
- Establish a viable plan to ensure full cost recovery of Acquisition Services Fund money expended by 18F.
- Ensure that internal 18F projects have appropriate supervisory review.
- Implement controls over 18F’s reimbursable agreement process to ensure that work is not performed outside of a fully executed agreement.
- Ensure that GSA CIO reviews and approves, in writing, all 18F IT-related work performed for GSA internal organizations.
- Implement a comprehensive review of 18F’s past work to ensure accuracy of all billings.
- Establish reliable internal controls to ensure that 18F’s future billings are accurate.
- Ensure that 18F’s billing records are retained in accordance with GSA records management standards.
Aaron Boyd is an awarding-winning journalist currently serving as editor of Federal Times — a Washington, D.C. institution covering federal workforce and contracting for more than 50 years — and Fifth Domain — a news and information hub focused on cybersecurity and cyberwar from a civilian, military and international perspective.
