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Obama’s Tech ‘Startup’ Has Some Major Financial Problems

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Thomas Phippen Associate Editor
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The new government agency set up to demonstrate how government can be more competitive in the digital space is no longer viable, according to a new government watchdog report.

The tech-savvy agency 18F is unable to live up to its financial goals due to inaccurate financial planning, and potentially unfunded projects according to a new audit report from the Government Services Administration Office Inspector General (OIG) released Monday.

18F ended fiscal year 2015 with  $22.26 million in revenue, which is $10.32 million less than the projected $32.58 million the agency projected, according to the report.

“Since its launch in March 2014, 18F has struggled financially,” the report says. Auditors looking at the agency since its inception through July, 2016, “found 18F is operating at an increasing deficit level.”

President Barack Obama set up 18F in 2014 to operate like a startup, meaning that the agency would bill other federal bodies to make exemplary digital products on a contract basis, in an effort to modernize federal bureaucracy.

18F works through interagency contracts to consult on IT and digital development in federal agencies. Because it is supposed to be funded on a fee-for-service model, it has been described as a “technology consulting firm within the government.”

The Government Accountability Office reported in June that the agency was losing around $1 million per month, and expected that it would be $33 million in the hole by end of fiscal year 2016. (RELATED: Obama’s Tech ‘Startup’ LOSES $1 Million Every Month)

That report notes that 18F knew they would operate at a loss for their first few years, but the OIG is not satisfied that the agency has a plan to reimburse the spent funds. 18F initially projected to break even by 2019, but after financial projections earlier this year, the agency changed their break-even date to 2020.

In the new OIG audit, which only covers the financial records up to the end of the third quarter in 2016, 18F would have had to bring in $56 million by the end of the fiscal year Sept. 30.

Part of 18F’s financial difficulties come from the amount of time they spend on work that can’t be billed to other federal agencies. More than 50 percent of staff work is spent on projects that cannot be billed, the OIG reports.

The OIG recommended that 18F create a viable plan to return the money it has already spent, as well as do a “comprehensive review of 18F’s past work to ensure accuracy of all billings.”

The watchdog also requested of 18F that the internal, non-billable projects “have appropriate supervisory review.”

Examples of the internal, non-billable projects 18F staff completed include:

  • A logo change and other activities to develop the 18F brand, which took 727 hours, and cost about $140,104 in payroll
    Image: Screenshot of Government Accountability Office report

    Image: Screenshot of Government Accountability Office report

     

  • Promoting the agency’s accomplishments “through blog posts, websites, social media accounts, and speaking events,” which took around 13,989 hours, cost approximately $2.34 million
  • Making flash cards that “define 18F’s agile development approach and build a shared vocabulary among 18F staff and federal agencies,” an activity that took 1,413 hours and cost $235,950
  • Creating a program to police pronouns like “guys,” “guyz,” and “dudes” on the agency’s Slack messaging board, and suggested replacing such terms with “team” 20 hours, worth about $4,148

    Image: Screenshot of Government Accountability Office report

    Image: Screenshot of Government Accountability Office report

The OIG uncovered communications about financial projections from February, 2016, where 18F’s director of operations said, “to be frank, there are some of us that don’t give rip about the losses.”

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