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«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»

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Catalyst for Improving the Environment

Audit Report

Consumer Federation of America

Foundation - Costs Claimed Under

EPA Cooperative Agreements

CX825612-01, CX825837-01, X828814-01,

CX824939-01, and X829178-01

Report No. 2004-4-00014

March 1, 2004

This audit report contains findings that describe problems the Office of Inspector General (OIG) has

identified and corrective actions the OIG recommends. The report represents the opinion of the OIG, and findings contained in this report do not necessarily represent the final EPA position. Final determinations on matters in this report will be made by EPA managers in accordance with established audit resolution procedures.

Keith Reichard

Report Contributors:

Stephanie Oglesby Eric Hanger Kyle La Londe Abbreviations CFR Code of Federal Regulations EPA Environmental Protection Agency Federation Consumer Federation of America Foundation Consumer Federation of America Foundation (established by the Federation) OIG Office of Inspector General OMB Office of Management and Budget


W ASHINGT ON, D.C. 20460



March 1, 2004


SUBJECT: Report No. 2004-4-00014 Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, CX824939-01, and X829178-01 /s/ Michael A. Rickey FROM: Michael A. Rickey Director, Assistance Agreement Audits TO: Richard Kuhlman Director, Grants Administration Division As requested, we have examined the outlays reported by the Consumer Federation of America Foundation (Foundation) for the Environmental Protection Agency (EPA) Cooperative Agreements CX825612-01, CX825837-01, X828814-01, CX824939-01, and X829178-01. These agreements provided financial support for various projects under section 103 of the Clean Air Act.

We concluded that the work under the cooperative agreements was not performed by the Foundation, but by an associated organization, the Consumer Federation of America (Federation). The Foundation had no employees, space, or overhead expenses that were separate from the Federation. The Federation was a 501(c)(4)1 lobbying organization that was prohibited from receiving Federal funds under the Lobbying Disclosure Act2, and the arrangement between the Foundation and the Federation violated the Lobbying Disclosure Act prohibition. As a result, we have questioned $4,714,638 as unallowable for Federal participation.

Organizations described in the Internal Revenue Code, Section 501 (c)(4) are social welfare organizations operated exclusively to promo te social welfare. Section 501(c)(4) organizations may engage in an unlimited amount of lobbying, provided that the lobbying is related to the organization’s exempt status. Section 501(c)(3) organizations are commonly referred to under the general heading of "charitable organizations." Unlike a Section 501(c)(4) organization, a Section 501(c)(3) organization may not attempt to influence legislation as a substantial part of its activities and it may not participate at all in campaign activity for or against political candidates.

Lobbying Disclosure Act, as amended, 2 U.S.C. § 1611 Subsequent to the period covered by this audit, the Federation and the Foundation merged into a single 501(c)(3)3 organization. This organization is not disqualified from receiving Federal assistance and has received new awards. Therefore, our report discusses observed financial management practices that are contrary to Federal requirements. If these accounting and management practices are not corrected, the funds received under new Federal awards will be unallowable for Federal participation, and subject to recovery.

These financial management and internal control issues are serious concerns, and the recipient does not agree with our findings and conclusions regarding compliance with Federal grants management requirements. For example, the recipient stated in its response that “its employees prepare personal activity reports and other time-keeping records sufficient to support all (or substantially all) of the labor hours charged to the CAs.” As discussed in detail in the report, our observations disagree with the recipient’s assertion. The time sheets that were available did not meet Federal requirements, and the recipient used budget estimates rather than the time sheets to identify cooperative agreement costs.

If EPA continues to award assistance to this recipient, it is paramount that EPA ensures the recipient understands its obligations and has the financial management capabilities to administer Federal monies according to Federal requirements. If there is any doubt about the recipient’s capabilities or the internal controls in place to ensure the proper administration of an assistance agreement, current awards should be terminated and no new awards made.

We also have serious concerns about the role EPA may have had in the award and oversight of the subject cooperative agreements. In its response to the draft report, the Federation stated that EPA asked the Federation to manage a program on indoor air quality and to manage a national public service campaign to educate consumers about health risks of radon. According to the Federation, both awards were “initiated” by EPA, and EPA determined the need and the scope of the programs. When the Federation became ineligible to receive Federal funds due to the requirements of the Lobbying Disclosure Act, the Federation stated that EPA arranged these programs to be transferred to the Foundation under new cooperative agreements. Further, the Federation stated that EPA was aware of the relationship between the Federation and the Foundation, and, in fact, relied on this relationship to assure that the transferred programs would continue to be managed by the same Federation personnel. The Federation also claimed that some contracts were awarded at the direction or specific instructions from EPA. The activity described by the Federation in its response is contrary to EPA policy.

This audit report contains findings that describe problems the Office of Inspector General (OIG) has identified and corrective actions the OIG recommends. The report represents the opinion of the OIG, and findings contained in this report do not necessarily represent the final EPA position.

The OIG has no objection to the release of this report to any member of the public upon request.

See footnote 1 Action Required

In accordance with EPA Manual 2750, the action official is required to provide this office with a proposed management decision specifying the Agency’s position on all findings and recommendations in this report. The draft management decision is due within 120 days of the date of this transmittal memorandum.

If you have questions concerning this report, please contact Keith Reichard, Assignment Manager, at (312) 886-3045.


–  –  –

The Foundation certified that the outlays reported on the Financial Status Report, Standard Form 269A, and Federal Cash Transactions Report, Standard Form 272A, were correct and for the purposes set forth in the agreements. The preparation and certification of each report was the responsibility of the Foundation. Our responsibility was to express an opinion on the reported outlays based on our examination.

Our examination was conducted in accordance with the Government Auditing Standards, issued by the Comptroller General of the United States, and the attestation standards established for the United States by the American Institute of Certified Public Accountants. We examined, on a test basis, evidence supporting the reported outlays, and performed such other procedures as we considered necessary in the circumstances (see Appendix A for details). We believe that our examination provides a reasonable basis for our opinion.

Although EPA awarded the cooperative agreements to the Foundation based on applications that showed labor and other operating costs, the Foundation did not have any employees, space, or overhead expenses. Instead, the Consumer Federation of America (Federation), a lobbying organization described under Section 501(c)(4) of the Internal Revenue Code, effectively received the EPA funds and performed the work under the five cooperative agreements. The Lobbying Disclosure Act, as amended, 2 U.S.C. 1611 (Lobbying Disclosure Act), prohibits 501(c)(4) lobbying organizations from receiving Federal funds constituting an award, grant, or loan.

Further, our examination disclosed that: (1) the financial management system used to account for the Federal funds was not in compliance with the Code of Federal Regulations (CFR), Title 40, Part 30, section 21; and (2) the procurement standards required by Title 40 CFR Parts 30.40 through 30.48 were not always followed. In addition, sub-grants were not administered in accordance with the provisions of Title 40 CFR Part 30.

In our opinion, because of the effects of the matters discussed in the preceding paragraphs, the reported outlays on the Financial Status Report and Federal Cash Transactions Reports do not present fairly, in all material respects, the allowable outlays incurred in accordance with the criteria set forth in the agreements. As a result, the total $4,714,638 reported is unallowable for Federal participation.

The following sections provide details on the results of our examination. In addition, we have included the Federation’s response to the draft report in Appendix B. The responses are also summarized after each finding with our comments.

–  –  –

Background EPA awarded five cooperative agreements to the Foundation under Section 103 of the Clean Air Act. The following table provides some basic information about the authorized project period and the funds awarded under each of the agreements.

–  –  –

Cooperative Agreement Number CX825612-01: This agreement was for the Foundation to develop and distribute a comprehensive media campaign to educate and inform the public about radon and other indoor air pollutants. The scope of work included the development, production, and promotion of television, radio, and transit public service announcements. The Foundation was to conduct various consumer studies.

Cooperative Agreement Number CX825837-01: This agreement was for the Foundation to create a national public communications media campaign to reduce childhood exposure to environmental tobacco smoke. The scope of work also included the development, production, and promotion of television, radio, and print public service announcements. In addition, the Foundation was to conduct consumer studies related to environmental tobacco smoke and children to determine which messages would best motivate parents and others to refrain from smoking around children.

Cooperative Agreement Number X828814-01: This agreement was for the Foundation to increase consumers’ awareness of the importance of purchasing and using energy efficient products and to ultimately affect their buying decisions. The Foundation was to provide grants to the Consumer Federation of America’s State and local members to further community outreach efforts.

Cooperative Agreement Number CX824939-01: This agreement was for the Foundation to educate individuals and groups about radon health risks, testing, and mitigation. On a national level, the Foundation was to operate a toll-free line to provide guidance and assistance to consumers. On a local level, the Foundation was to work with the Consumer Federation of America’s State and local members to provide community outreach, especially in areas with proven high levels of radon. The Foundation also was to educate individuals and groups about the health effects of indoor air pollutants.

Cooperative Agreement Number X829178-01: This agreement was for the Foundation to continue working with the Consumer Federation of America’s State and local members to expand outreach on indoor air quality issues, particularly secondhand smoke and radon. The Agreement’s scope of work also included the continued operation of the Radon Fix-It Program, and other indoor air research, promotion, and support.

To assist the reader in obtaining an understanding of the report, key terms are defined below:

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