The Honor System Is Not a FAR Provision
When the State Department terminated 178 domestic contracts in the first half of 2025, the paperwork was always going to be the dull part. It also turns out to be the part where government property goes to be forgotten.
A new audit from State’s Office of Inspector General, AUD-AFA-27-03, examined 30 of those terminations, worth $173.9 million. Contractors on seven of them had been issued government laptops and cell phones. On four, a contracting officer in the Bureau of International Narcotics and Law Enforcement Affairs (INL) settled the termination and closed out the contract without verifying that the devices came back.
The officer’s explanation, as OIG relays it, was that returning equipment is the contractor’s job and that the contracting officer has no role in offboarding. Confirming returns is not INL’s practice. The contracting officers trust that contractors are returning items, and they trust the issuing office to be tracking them.
OIG says that is not what the Federal Acquisition Regulation requires. Before signing a settlement, a contracting officer must determine the accuracy of the government property account. Trust is not a listed method.
To be precise, OIG did not find the devices were lost. It found that nobody checked. That distinction cuts both ways: the government cannot say the property is gone, and it cannot say the property is back.
A second INL-funded contract went sideways differently. The contractor said it never took possession of the program property at all. Rather than settle the dispute, INL program officials inventoried what remained on site after termination and made disposal decisions based only on that.
Whether everything the government had furnished was accounted for was never determined. The awarding contracting officer, who has since left the Department, had not documented the property transfer in a contract modification, as the statement of work required.
An Academy Closes and the Inventory Gets a Spreadsheet
Another terminated INL contract supported the International Law Enforcement Academy in Roswell, New Mexico. The report notes in a footnote that the facility was closed, and does not say when or why.
The contractor listed more than $550,000 in office furniture, equipment and supplies on an Excel spreadsheet. The Department did not review it for accuracy or completeness. The contracting officer’s representative told OIG that no evidence of any inventory reconciliation could be found across the life of the contract, December 2022 to March 2025, even though the Foreign Affairs Manual requires an annual physical inventory.
On one terminated INL contract, which the report does not name, 651 items were slated for transfer to other INL locations: cameras, laptops, monitors, translation equipment, interpreter headphones, microphones and video decoders. INL’s spreadsheet carried no cost data, so OIG could not put a value on them. The current representative says they sit in a Department warehouse in Maryland, awaiting transfer to other International Law Enforcement Academy facilities overseas.
The required disposal report, Standard Form 1424, was not prepared. For $36,810 in property to be abandoned or destroyed, INL instead supplied a Department form with no contract number and no breakdown of what was in the pile.
Roswell was not an outlier. Eleven of the 30 contracts involved termination inventory, and none of the 11 contractors filed the standard inventory schedule. They sent informal lists without contract numbers or submission dates. For nine of the 11, key inventory records were simply unavailable, and the current contracting officers did not know what had happened to the property.
Terminated, Effective Whenever
The same loose grip shows up elsewhere in the file. Twenty-five of the 30 contracts had inadequate written termination notices. Seven contractors received no formal notice that the Department could demonstrate, and 16 notices cited the wrong FAR provision. Five contractors asked for corrected notices, noting the clause cited did not support a valid termination.
On 10 contracts, the notice and the confirming modification gave different effective dates, one by 59 days. Since the effective date controls when work stops and costs stop accruing, it is a fairly important number to have two of.
Settlements were similar. Of 25 contracts needing a settlement agreement, the Department documented the required bilateral agreement for one. Six were closed out on the contractor’s release of claims alone, which OIG says is not a substitute. Five were paid without a formal agreement. In one case the contractor’s proposal could not be found, yet the officer negotiated an amount and approved payment.
Only two of seven negotiated settlements have the memorandum explaining how the number was reached. And for five contracts, the Department could not show that the Chief Acquisition Officer approved the termination or that the required internal review occurred first. On two of them, the CAO’s documented decision was to descope the contract, not end it, and then they were ended.
In fairness, the conditions were brutal. The Department reviewed 5,578 contracts worth about $65 billion in roughly two months, assigned one contracting officer to execute the terminations, and then cut about 1,300 employees in July 2025. A shutdown followed. One responsible officer did not know the contract had been selected, and another learned of the termination from the contractor.
OIG also found thin policy, training and oversight. Conditions explain how this happened. They do not explain where the records are.
A Finding With Frequent-Flyer Status
None of this is new. OIG reported similar weaknesses in 2020 and in a 2023 audit of Afghanistan-related contract terminations, and 10 related recommendations remain open. The Bureau of Global Acquisitions told OIG it would complete several fixes by the fourth quarter of FY 2026, which ended September 30. Its terminations policy is now expected in the first quarter of FY 2027.
Because those older recommendations are still open, OIG declined to issue new ones on training, tracking and file management. Six of this report’s nine recommendations are instead dollar-specific: deobligating $8.1 million left on six contracts. One of them, $49,013, was closed after OIG accepted it was owed to the contractor.
The largest is INL’s $3.47 million. INL says it deobligated $3,472,122.86 on October 9, 2026, after the contractor’s final invoice and release of claims, and that the money, from FY 2022 and 2024 supplemental appropriations, will go to current priorities. The report does not say what prompted the action. OIG’s fieldwork ended in July, and the funds were still obligated in August.
One inference, flagged as such. Table A.2 of the OIG report lists that contract at $6.5 million, all of it unliquidated, while INL’s response in Appendix D reports deobligating about $3.47 million. The reasoning is subtraction, and it suggests roughly $3 million went somewhere else, possibly termination settlement costs. The table’s data may predate later payments, and the report does not say.
That gap points at what the audit does not do. It never calculates what the terminations saved, net of settlements. USDA’s inspector general did that exercise and found $64.4 million saved after at least $4.9 million in settlement costs. GAO has separately found that much of DOGE’s claimed savings could not be substantiated.
A caution on the numbers: OIG hand-picked 30 high-value contracts from 178, so the percentages describe the sample, not every termination. The universe is itself a moving target. OIG’s project announcement cited more than 350 terminations from USASpending data, while Global Acquisitions gave auditors 399.
Inquiries are being directed to the Bureau of Global Acquisitions and INL. Among the unanswered questions: have the devices tied to the four closed-out contracts since been accounted for, where did the rest of the $6.5 million on contract 191NLE23F0047 go, and who authorized ending the two contracts the CAO had marked for descoping?
