«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»
The primary objectives of an adequate accounting system are to: (1) ensure that the system for recording transactions separately identifies the receipts, disbursements, assets, liabilities, and fund balance for each grant, and (2) provide a summary of financial information that will enable the recipient to prepare reports required by the agreements.
The recipient’s accounting system should be capable of organizing and summarizing transactions in a form that provides the basis for preparing financial statements. The accounting system should provide a system supported by source documentation for all transactions. Plus, the recipient should be able to trace the amounts identified on the financial status reports for the agreements back to the general ledger and to the financial statements. Providing an audit trail is crucial for any audit of the reported financial transactions. However, as we previously stated, the recipient’s job cost activity reports did not reconcile to the general ledger. Thus, we have no assurance that the financial status reports, the general ledger, or the financial statements were accurate and reliable.
One possible reason for the recipient’s inability to reconcile the job cost ledger to the general ledger might be the misclassified contractual costs. As stated in the audit report, the recipient classified some of the contractual costs reported in the job cost activity reports as printing or personnel costs in the general ledger.
Unsupported Contract Costs
The recipient could not provide: (1) a summary of costs incurred by contract and reported under each cooperative agreement, and (2) copies of some of the contracts or purchase orders awarded under the cooperative agreements. Without this basic information, the recipient was unable to show that contract costs recorded in the accounting records were paid in accordance with the contract terms.
An adequate accounting system with proper internal controls would allow the recipient to compare invoice amounts with the terms of the contract or purchase order to ensure that the billings were allowable for payment. Also, the recipient was not able to identify all the contractors that performed work under the EPA agreements. Title 40 CFR 30.21 requires that a financial management system provide for: (1) records that identify adequately the source and application of funds for Federally-sponsored activities, and (2) the effective control and accountability for all funds. Further, Title 40 CFR 30.47 requires that the recipient maintain a contract administration system to ensure contractors conform with the terms, conditions, and specifications of the contracts, and ensure timely followup of all purchases. Since the recipient did not adequately control and account for contracts and purchase orders, the reported costs are not allowable under the agreements.
Recipient’s Response The recipient contended that the job cost activity reports contained a summary of costs incurred by contract and reported under each cooperative agreement, and were provided to the OIG audit team.
The recipient is confident that each procurement contract awarded during the period covered by the audit was adequately evidenced by written agreements, detailed written offers or proposals that were accepted by the Foundation, and/or by other relevant transactional documentation sufficient to show price, delivery dates and other material terms and conditions. During the audit period, no contractor invoice was paid without cross-checking the terms of the invoice, including price, against documents setting forth the contract terms. Thus, all contract costs recorded in recipient’s accounting records were paid in accordance with the contract terms.
Auditor’s Reply Although the job cost activity reports contained a summary of claimed contractual costs, the reports did not provide a summary of costs by individual contractor for each cooperative agreement. Further, the recipient did not provide us with a summary of costs incurred by contract and reported under each cooperative agreement The provisions of Title 40 CFR 30.47 state that a system for contract administration be maintained to ensure contractor conformance with the terms, conditions, and specifications of the contract and to ensure adequate and timely followup of all purchases. Without a summary of costs claimed by contractor and vendor files with contracts/purchase orders and updated billing information, we cannot effectively evaluate the claimed contractual costs to ensure conformance with terms, conditions, and specifications of the contract and the regulations.
Absence of Written Procedures
The recipient did not have written accounting procedures identifying direct and indirect costs, and the basis for allocating such costs to projects, as required by the regulations.
Title 40 CFR 30.21(b) states that the recipient’s financial management system shall provide written procedures for determining that costs are reasonable, allowable, and allocable in accordance with the Federal cost principles and the terms of the agreement.
The existence of these procedures would have established a basis for the recipient’s consistent treatment of direct and indirect costs.
As illustrated in the table on page 5, the recipient estimated its direct lobbying effort from 1998 through 2002 to be $940,000, yet its financial management system was not structured to identify all lobbying efforts as a direct cost objective as required by OMB Circular A-122, Attachment A, subparagraph B(4). Consequently, there was no way to determine where or how these costs were recorded in the general ledger. Without written policies and procedures to distinguish between direct and indirect expenses, we cannot properly evaluate either the direct or indirect costs reported for the EPA agreements.
The Foundation had written guidance for “determining the reasonableness, allocability, and allowability” of costs and it was supplemented by OMB Circular A-122. However, the Federation did agree that more formal written procedures were preferable to the guidance on cost allowability that was used. The Federation promptly prepared and adopted a “Cost Policy Statement,” which merely formalized procedures that were wellestablished in the assistance management field.
We requested a copy of the recipient’s written accounting procedures during our field work, and were told by a recipient official that accounting procedures did not exist. The recipient did not provide us the guidance or “Cost Policy Statement” mentioned in the response above. Thus, written accounting procedures for determining the reasonableness, allocability, and allowability of costs is still needed to satisfy the requirements of Title 40 CFR 30.21 (b)(6).
Unsupported Indirect Cost Rates The recipient did not prepare and submit to EPA its indirect cost rate proposals for years 1997 and 2002 as required by OMB Circular A-122. Also, although the recipient developed indirect cost rates for 1998 through 2001, the recipient did not submit these proposals to EPA.
OMB Circular A-122, Attachment A, subparagraph E(2), requires a nonprofit organization to submit an initial indirect cost proposal to the cognizant Federal agency no later than 3 months after the effective date of the award. The Circular also includes the requirement that organizations with previously negotiated indirect cost rates must submit a new indirect cost proposal to the cognizant agency within 6 months after the close of each fiscal year. Additionally, OMB Circular A-122, Attachment B, paragraph 25(c) requires that the recipient submit, as part of the annual indirect cost rate proposal, a certification that the recipient has complied with lobbying requirements and standards of paragraph 25.
In addition, the recipient’s indirect cost rates for 1999 through 2001 were calculated incorrectly. Instead of using direct labor as the allocation base, the recipient used indirect costs. Further, as discussed on page 11, the recipient did not maintain support for its salaries and wages as required by OMB Circular A-122. As a result, we were unable to determine whether labor costs recorded in the recipient’s general ledgers were allowable.
Consequently, we cannot determine the acceptability of the proposed rates.
The Foundation contended that the terms and conditions of the award documents instructed them to not submit indirect cost rate proposals to EPA. Also, the Foundation acknowledged that the standard terms and conditions of the award documents required them to prepare an indirect cost rate proposal for 1997 and to maintain that proposal on file. The proposal was prepared in 1999 in connection with a U.S. Information Agency award, and it was shown to the OIG audit team.
The Foundation acknowledged that the indirect cost rates for 1999 through 2001 were miscalculated. The error was identified and corrected, and when the revisions are made to EPA, will lead to substantial increases in the indirect cost.
Auditor’s Reply Contrary to the cooperative agreements’ terms and conditions, OMB Circular A-122, Attachment A, subparagraph E(2), requires a nonprofit organization to submit an indirect cost proposal to the cognizant Federal agency no later than 3 months after the effective date of the award. The Circular further states that organizations with previously negotiated indirect cost rates must submit a new indirect cost proposal to the cognizant agency within 6 months after the close of each fiscal year. EPA does not have the authority to omit this requirement from award recipients.
The recipient did not provide us evidence that it had prepared an indirect cost rate proposal for 1997. Although the recipient had prepared an indirect cost rate for 2002, it was unacceptable because it was based on 2001 actual costs.
With respect to the 1999 through 2001 indirect cost rates, the recipient did not provide us the corrected indirect cost rates. In addition, OMB Circular A-122, Attachment A, subparagraph B(4), states that the recipient’s membership and lobbying costs must be identified and treated as direct costs and allocated an equitable share of indirect costs. As mentioned in the report, the recipient did not account for all lobbying and membership costs as direct costs. Further, as discussed on page 11, the recipient did not maintain support for its salaries and wages as required by OMB Circular A-122. Consequently, it may not be possible to evaluate and negotiate the proposed indirect cost rates.
Improper Procurement Practices
The recipient did not: (1) always competitively procure contractual services in accordance with Title 40 CFR 30.43; (2) adequately justify the lack of competition for purchases over $100,000 as required by Title 40 CFR 30.46; (3) always perform the required cost or price analyses for the procurement of goods and services obtained under the EPA agreements as required by Title 40 CFR 30.459; and (4) include any of the contract clauses required by Title 40 CFR 30.48. In one case, the contractor did not include a contract price in the contract.
Title 40 CFR 30.43 provides that all procurement transactions shall be conducted in a manner to provide, to the maximum extent practical, open and free competition. The recipient did not always comply with the provisions of Title 40 CFR 30.43 in that it awarded contracts both over and under the small purchase threshold of $100,000 without competition and had no justification to support this lack of competition.
For purchases over $100,000, Title 40 CFR 30.46 requires that procurement records and files shall include the following at a minimum: basis for contractor selection; justification for lack of competition when competitive bids or offers are not obtained; and basis for award cost or price. The recipient provided no justification for this lack of competition or the basis for the award cost or price in the procurement files.
We recognize that the recipient did comply with the requirements of Title 40 CFR 30.43 and 30.45 in some instance s. However, because o f the recip ient’s inadequate financial management system, we were unable to quantify any costs that might be allowable.