Federal agencies that need the specific  products and services on the Procurement List are generally required to  purchase them through the program. The AbilityOne Commission consisted of a 15-member presidentially  appointed Commission and 27 full-time staff as of the end of fiscal year  2012. Its responsibilities include (1) establishing rules, regulations, and  policies to assure the effective implementation of the program; (2) adding  new projects to the Procurement List, after determining whether they can  be suitably provided by people who are blind or have severe disabilities;  and (3) setting prices for these projects that reflect the market (fair market  prices) and appropriately revising them over time. The  CNAs are funded almost entirely through fees they charge their affiliates  as a percentage of the revenues the affiliates earn from federal  customers on AbilityOne contracts. Even though the Commission  has ultimate responsibility for program management and oversight  because of the unique public-private structure of the program it cannot  control how CNAs (1) spend their funds, (2) set and manage their  performance goals, or (3) set and implement governance policies and  other internal controls. Because the CNAs are independent nonprofit agencies, the  Commission’s influence over their budgets does not and cannot extend to  (1) controlling CNA cost areas, such as employee salaries and benefits or  lobbying costs; (2) establishing a policy on the appropriate level of CNA  reserves; and (3) ensuring that the CNAs provide sufficient funding to  support key program initiatives designed to promote employment  opportunities for people with severe disabilities. CNAs Assign Affiliates to Develop Potential Projects and Recommend Projects for Review to the Commission

Federal law gives the AbilityOne Commission the authority to add projects  to the AbilityOne Program Procurement List and federal regulations give  the Commission the authority to approve which agencies affiliated with  the program can provide the projects. AbilityOne officials also told us that their involvement in determining which  affiliate should provide a project is limited. Our review of the Commission’s policy shows that although it describes  some desired outcomes regarding CNA assignment decisions, it does  little to indicate how these outcomes can be achieved. The Commission Does Not Track How the Program’s Distribution of Projects Affects Job Creation for Its Target Population

The AbilityOne Commission has not determined how the assignment of  projects among affiliates has affected the creation of employment  opportunities for people who are blind or have severe disabilities and,  according to Commission officials, has not done so at least in part  because of limited resources. The AbilityOne Commission Has Final Approval of Project Prices, but Procedures Could Be Strengthened

		The Commission’s Review and Approval of Price Recommendations for New Projects Lacks Transparency

While the AbilityOne Commission is ultimately responsible for determining  the fair market price of projects in the program, it permits the CNAs,  affiliates, and federal customers to negotiate pricing and recommend a  fair market price for each project. Commission staff also told us that they  conduct these reviews in accordance with written policies and  procedures, but acknowledged that these instructions are not sufficiently  explicit and transparent. Such limitations can make it difficult for the CNAs  and affiliates to understand how and why decisions are made. CNA  managers and some affiliates told us, for example, that they sometimes  do not understand the Commission’s price reviewing procedures and by  extension, its reasons for rejecting prices. This lack of understanding  about Commission reviews of recommended prices may partially explain  the relatively high rejection rate of initial packages (see fig. Commission staff and CNA officials reported that they do not have  procedures in place to ensure that affiliates comply with the policy that  affiliates report to the Commission, through their CNA, any price revisions  that do not conform with approved contract pricing mechanisms. Without  an independent IG, this major procurement program lacks an office to  independently audit and investigate waste, fraud, and abuse and to make  recommendations for enhancing program integrity and operations. Matter for Congressional Consideration

To enhance program effectiveness, efficiency, and integrity in the  AbilityOne Program, Congress may wish to consider establishing an  independent inspector general for the program with the authority to audit  and investigate the Commission and the CNAs. To further improve oversight and transparency in the AbilityOne Program,  the Chairperson of the U.S. AbilityOne Commission should:
Routinely obtain from the CNAs any audits and reports of alleged  misconduct or other internal controls violations, and information on  corrective actions taken by the CNAs. They also provided additional information and disagreed  with several findings. Nonetheless, the Commission agreed with our assessment that its pricing  review procedures are not sufficiently explicit or transparent and that this  can make it difficult for the CNAs and affiliates to prepare acceptable  pricing packages.
Why GAO Did This Study

In 1938, Congress created a program providing employment opportunities for people who are blind and expanded it in 1971 to include people with severe disabilities. Now known as AbilityOne, the programs public-private structure consists of the federal, independent U.S. AbilityOne Commission (15 part-time presidentially-appointed members supported by 27 staff) to oversee the program; two central nonprofit agencies (CNAs) to administer much of the program; and hundreds of affiliated nonprofit companies employing people who are blind or severely disabled to provide products and services to federal agencies. Federal agencies are generally required to purchase such products and services through the program.
GAO examined how the AbilityOne Commission: (1) directs and oversees the CNAs; (2) adds products and services (hereafter called projects) to the program and assigns affiliates to provide them; and (3) prices program projects. GAO reviewed policies, procedures, relevant federal laws and regulations, and other documents; interviewed CNA and AbilityOne officials; held five focus groups with affiliates; and analyzed data on program products, services, and pricing reviews.

What GAO Found

Federal agencies need to exercise strong oversight to promote effectiveness and efficiency and prevent waste, fraud, and abuse--especially in a federal procurement program such as this, which is exempt from full and open competition requirements. However, although the AbilityOne Commission is ultimately responsible for overseeing the program, the Commission cannot control how CNAs (1) spend their funds, (2) set and manage their performance goals, or (3) set and implement governance policies and other internal controls. The Commission's authority to direct CNA budget priorities--including how much they compensate their executives and the level and growth of their reserves--is limited. As independent entities, the CNAs are responsible for determining their spending. Most of their money comes from fees they charge their affiliates as a percent of revenue earned from AbilityOne contracts. Moreover, the Commission does not have sufficient authority to set CNA performance and governance standards, so it depends on the CNAs to set and enforce such standards. Although the CNAs have instituted their own internal controls, the Commission does not have procedures to monitor alleged CNA control violations, nor is there an inspector general to provide independent audit and investigative capabilities for the program, including at the CNAs.
The AbilityOne Commission is responsible for determining which products and services can be suitably provided by the program. It delegates to the CNAs most of the responsibility for deciding which affiliates should develop and provide these projects. According to CNA and affiliate officials, the CNAs often do not fully disclose how they make these decisions. This limited transparency could increase the risk of biased decisions because CNA officials have wide latitude in determining which affiliate should be awarded a project. Although AbilityOne Commission officials have acknowledged the importance of transparency and equity in assigning projects, they have done little to indicate how these outcomes can be achieved.
The Commission has statutory responsibility for determining the fair market price of projects in the program, but: (1) its written pricing review policies and procedures are limited and (2) it does not have sufficient internal controls to ensure that prices are appropriately revised over time. The Commission sets procedures that encourage affiliates and federal customers to negotiate prices that reflect the market. Although Commission staff review these prices in accordance with written policies and procedures, they acknowledged that these instructions are not sufficiently explicit or transparent. Such limitations can make it difficult for the CNAs and affiliates to understand the Commission's pricing review procedures and, by extension, its reasons for rejecting prices. This lack of understanding may partially explain the 77 percent rejection rate for initial pricing packages. Commission policy also states that CNAs submit for Commission review any request for adjusting the price of a project beyond a single contract period that does not conform with the prior Commission-approved mechanism. Occasionally customers and affiliates implement non-conforming price revisions without requesting Commission approval. This negates the Commission's internal controls for ensuring fair market prices and results in the Commission not knowing the actual price being charged. Neither the AbilityOne Commission nor the CNAs have procedures in place to systematically identify such instances.

What GAO Recommends

We are presenting a matter for Congressional consideration to establish an inspector general and several recommendations to the Commission to enhance program oversight. The Commission and CNAs agreed with our recommendations, but disagreed with several findings or provided additional information, which we incorporated as appropriate.