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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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In addition, under the provisions of Title 40 CFR 30.45, some form of cost or price analysis shall be made and documented in the procurement files in connection with every procurement action. The recipient did not always conduct the cost or pricing data supporting the purchases of goods and services for the cooperative agreements to demonstrate compliance with Title 40 CFR 30.45. Price analysis may be accomplished in various ways, including the comparison of price quotations submitted and market prices and similar indicia, together with discounts. Cost analysis is the review and evaluation of each element of cost to determine whether the proposed costs are reasonable and allowable. Without sufficient cost or pricing analyses, we cannot be assured that fair and reasonable prices were obtained.

Examples of the recipient’s improper procurement practices follow:

• Under agreement CX825612-01 which was awarded in 1997, the recipient used a contractor to develop and distribute public service announcements for the public outreach of indoor air pollution caused by radon. The contract was awarded in 1996, prior to the EPA agreement, without competition and the required cost or pricing analysis. The contract did not include a price and was not amended to include the subsequent work that was added by EPA amendment numbers 1 through 4. According to the recipient officials, two EPA officials requested that the public service announcements be developed and distributed by this specific contractor.

• Under agreement CX825837-01, the recipient awarded a contract to conduct consumer research studies to determine the number of people who smoke inside the home. The recipient did not have support that a cost or price analysis was conducted prior to contractor selection.

• The recipient did not perform the required cost or price analyses when selecting consultants for legal and consulting services. In addition, the recipient did not comply with Title 40 CFR 30.27, which provides the maximum daily rate consultants can be paid with Federal funds. The maximum daily rate cannot exceed level 4 of the Executive Schedule, which, in 2002, was $130,000, or $62.50 per hour. The recipient paid a contractor $185 per hour for professional consulting services. The recipient also paid attorneys for legal services, and the hourly rates for the two attorneys were $265 and $250.

Furthermore, the recipient did not ensure all contracts were complete and contained the required contract provisions cited in Title 40 CFR 30.48. According to the regulation, contracts in excess $100,000 shall contain (1) conditions that allow for administrative, contractual, or legal remedies; (2) suitable provisions for termination by the recipient; and (3) a provision to the effect that the recipient, EPA, and the Comptroller General of the United States shall have access to any books, documents, papers and records of the contractor that are directly pertinent to a specific program. The regulation also states that all contracts, including small purchases, shall contain the procurement provisions of OMB Circular A-110, Appendix A, as applicable. None of the contracts we reviewed contained the required provisions.

Competition promotes obtaining the best goods and services at the best price. The lack of competition when procuring goods and services under a cooperative agreement can result in lower quality services and wasted funds. As a result of this lack of competition and cost or pricing analysis, there was no assurance that the contract costs paid under the cooperative agreements were reasonable. Therefore, these costs are not allowable under Federal rules.

Recipient’s Response

Under agreement no. CX825612-01, the recipient alleged that the selected contractor was, in effect, EPA’s designated contractor for production and distribution of the public service announcements, and EPA required the Foundation to award the contract without competition. EPA was also instrumental in the selection of the same contractor under an expired cooperative agreement. After the unacceptable performance by a large “Madison Avenue” agency on public service announcements on indoor air quality, EPA concluded that a small, specialized agency would offer lower costs and better results. Consequently, EPA suggested a specific contractor be engaged to produce the public service announcements under the previously cooperative agreement.

To the extent, if any, that the Foundation had discretion in the choice of a contractor for the public service announcement production and distribution, the sole-source selection was justified as a follow-on to the work the contractor was performing under the expired agreement.

In addition, the Foundation notified EPA in its application for the new cooperative agreement that it intended to use the existing contractor to perform services. The recipient believes that it was in compliance with the competition requirements in Title 40 CFR 30.43 based on the EPA approval of its scope of work for the new cooperative agreement which outlined the contractor selected for services. However, the recipient contended that it did not place in its procurement files a formal explanation of the basis for contractor selection, or a justification for its use of less than “open and full competition.” Nor were such explanations placed in the procurement file when contracts were extended on the basis of EPA incremental funding of the corresponding cooperative agreement. These omissions have been or will soon be corrected.

The recipient also indicated that the contract was awarded in July 1997 just after the execution of the cooperative agreement. Further, from 1998 through 2002, as EPA amended the cooperative agreements, the Foundation also extended the public service announcement contract as well. Also, prior to the award of the contract, the Foundation compared prices for similar services that were paid to advertising agencies under another EPA cooperative agreement between 1994 and 1996 before negotiating price with the selected contractor.

The second procurement contract was awarded in October 1997 under cooperative agreement CX825837-01. From 1998 through 2002, as EPA amended the cooperative agreement, the contract was extended as well.

With respect to cost or price analyses, the Foundation stated that it did not prepare a formal memorandum or other formal written materials explicitly designed to record a price analysis. The Foundation did state that for cooperative agreement CX825612-01, there was a closeout report prepared for a previous cooperative agreement and it listed contractors funded by the previous agreement along with dollar amounts charged by the contractors. This closeout report suffices a cost/price analysis for cooperative agreement CX825612-01. For all other contracts, the recipient is now requiring that the preparation of contemporaneous price/cost analysis be included for each procurement action.

The Foundation stated that it performed a cost or price analysis when contracting for the legal and accounting services in question. The Foundation also stated that it did not prepare a contemporaneous memoranda or other formal written materials explicitly designed to record its cost or price analysis. The preparation of a contemporaneous price/cost analysis memorandum is now required by the Federation’s procurement manual and has become standard organizational practice.

With respect to legal and accounting services paid in excess of the maximum daily rate specified by Title 40 CFR 30.27 (b), the Foundation contended that it had contracts with a law firm and an accounting firm and was not paying for “individual consultants.” Thus, the maximum daily limit does not apply.

The Foundation admitted that not all of its contracts under the cooperative agreements contained all the standard contract clauses required by Title 40 CFR 30.48.

Auditor’s Reply Even though the recipient contended that the decision to award the public service announcement contract under agreement no. CX825612-01 without open and free competition was justifiable, we disagree. EPA’s approval of the scope of work for agreement CX825612-01 did not equate to a waiver or deviation from the recipient’s compliance with Federal regulations. Further, there was also no evidence to support the recipient’s argument that EPA required the same program contractor selected in a previous cooperative agreement be used again. Even if there was any evidence, no EPA employee has the authority to direct a recipient to award a contract or contracts to any organization.

EPA’s Code of Conduct at Title 5 CFR Part 2635.101 states that EPA employees must not use their Government positions to “coerce, or appear to coerce, anyone to provide any financial benefit to themselves or others.” The code also states that EPA employees “must not take any action, whether specifically prohibited or not, which would result in or create the reasonable appearance of giving preferential treatment to any organization or person.” In addition, the provisions of 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.” These regulations prohibit EPA staff from directing whom recipients should hire or whom they should contract with under a grant or cooperative agreement.

Further, although the recipient argued that the contract was awarded in July 1997 and a pricing analysis was conducted before the award, no documentation was provided to support the recipient’s argument. The contract provided during our field work was dated October 10, 1996, not July 1997. Further, the October 10, 1996, contract did not have a contract price, and no amendments to this contract were provided to support the contract amendments. In addition, the contract was between the Federation and the contractor, not the Foundation, which further supports our position that the Federation was an ineligible recipient of Federal funds as discussed in the first finding.

As mentioned in the draft audit report, the recipient awarded a contract to conduct consumer research studies under cooperative agreement CX825837-01. The recipient did not have support that a cost or price analysis was conducted prior to contractor selection.

Finally, the cost or price analysis the recipient referred to was a list of contractors and corresponding billings from the contractors that were used in a previous cooperative agreement. The list was developed for a previous cooperative agreement, which does not support the recipient’s compliance with Federal regulations. The provisions of Title 40 CFR 30.45 states that some form of cost or price analysis shall be made and documented in the procurement files in connection with every procurement action. The recipient referred to a document that only identified costs incurred under a previous cooperative agreement. There was no evidence that a cost or price analysis was conducted for cooperative agreement CX825612-01 in compliance with Federal regulations.

With respect to cost or price analyses for the legal and accounting services, the recipient did not provide any documentation to support that a cost or price analysis was performed.

The recipient also alleged that the contracts were with firms and not individuals; thus, the maximum daily rate specified by Title 40 CFR 30.27 (b) does not apply. We disagree.

The provisions of Title 40 CFR 30.27 provides that the maximum daily limit does not apply to contracts with firms for services which are awarded using the procurement requirements in this part (Title 40 CFR Part 30). The grantee has not demonstrated that the procurement requirements of Title 40 CFR Part 30 were followed in procuring the legal and accounting services. Accordingly, the maximum daily rate limitation does apply.

Sub-Award Costs Were Unsupported

The recipient issued almost $300,000 in sub-awards under three of its cooperative agreements with EPA and did not require sub-recipients to submit financial reports identifying expended funds. According to Title 40 CFR 30.5, sub-recipients are subject to OMB Circular A-110 or Title 40 CFR Part 31, as applicable. Both sets of rules require financial reporting at least annually and at the conclusion of the supported project.

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