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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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According to the recipient officials, since the sub-awards were only between $2,000 and $8,000 each, they believed that requesting a financial status report was a burden. The recipient paid the sub-award recipients half the funds once a signed agreement was received, and the remaining half of the award was paid after the sub-recipient submitted the final performance report. The recipient did not question what the Federal funds were used for or how much it cost the recipient to do the assigned work. Accordingly, without final financial status reports, the actual costs for the sub-awards could not be determined.

Recipient’s Response

Based on these three key elements - a discrete activity with fixed costs and easily measurable programmatic results, a detailed up-front budget analysis, and payment upon completion of easily established milestones - these small sub-awards are fixed-obligation sub-awards, rather than cost reimbursable sub-awards. It is unnecessary, indeed wasteful, to require the sub-recipient to track and report its actual award costs.

Auditor’s Reply

The Federation does not have the authority to disregard Federal requirements when using Federal funds. The regulations require financial reports for the use of Federal funds.

Further, in at least some instances, the sub-recipients were nonprofit organizations that may have engaged in lobbying activity. The Federation did require sub-recipients to provide certifications that the funds would not be used for lobbying activities. Without an accounting of the sub-award monies, any unused funds could eventually be used for unauthorized or unallowable activities10.

Performance Reports

The recipient did not submit all the required performance reports specified by the cooperative agreements. Three of the agreements required the recipient to submit quarterly progress reports, one required semiannual reports, and one required annual reports. In addition, all five agreements required final performance reports. During the period covered by our audit, the recipient had only submitted 5 of the required 53 progress reports. Consequently, EPA did not have sufficient information to make an assessment of the recipient’s progress in meeting the agreements objectives, or determine whether the unexpended funds were adequate to complete all work required.

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The Foundation exceeded the reporting requirements in many respects by submitting more frequent reports than were mandated by the specific cooperative agreements. At no For instance, the recip ient awa rded the New Jersey Public Interest Research G roup an $8,000 sub-aw ard.

According to the web site, the organization is a "Citizen Lobby and Law and Policy Center" and its membership dues support a staff of attorneys, scientists, and other professionals who monitor government and corporate decisions and advocate on the public's behalf.

point during the work on any cooperative agreement has an EPA project officer ever indicated that the Foundation failed to produce reporting documents in violation of the terms of a cooperative agreement. Each project officer received, on a monthly basis, a copy of the job cost activity report that summarized the budget versus actual financial activity under each cooperative agreement, in addition to frequent phone calls and emails providing updates on the Foundation’s work for particular projects.

Auditor’s Reply

We disagree with the recipient’s contention that it exceeded the reporting requirements specified in the cooperative agreements. The provisions of Title 40 CFR 30.51 state that performance reports shall contain brief information on each of the following: (1) a comparison of actual accomplishments with the goals and objectives established for the period; (2) reasons why established goals were not met, if appropriate; and (3) other pertinent information including analysis and explanation of cost overruns or high unit costs. The progress reports are necessary to ensure the recipient is managing and monitoring each cooperative agreement.

The recipient provided EPA various reports on State and local outreach initiatives, Radon Fix-It program reports, and media usage reports for some of the cooperative agreements.

However, these reports only discussed one or two of the cooperative agreements’ project tasks. These reports did not satisfy quarterly, semi-annual, or annual progress reports because they did not include information on all goals and objectives established for the cooperative agreements.

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1. Annul Cooperative Agreement Nos. CX825612-01, CX825837-01, X828814-01, CX824939-01, and X829178-01, and recover all funds paid to the recipient.

2. Suspend work under current grants or cooperative agreements not covered by this audit, and make no new awards until the recipient can demonstrate that its financial management practices and controls over Federal funds comply with all regulatory

requirements. At a minimum, the recipient must:

a. Demonstrate that its accounting practices are consistent with Title 40 CFR 30.21.

The recipient’s financial management system must:

(1) Ensure that financial results are current, accurate, and complete.

(2) Include records that adequately identify source and application of funds for Federally-sponsored programs. These records should be in sufficient detail to allow a comparison of the budgeted grant costs by cost element with the actual incurred and claimed costs.

(3) Include written procedures to determine reasonable, allowable, and allocable costs in accordance with OMB Circular A-122.

(4) Include accounting records that are supported by adequate source documentation.

(5) Include an adequate time distribution system that meets the requirements of OMB Circular A-122, Attachment B, paragraph 7. The system should account for total hours worked and leave taken, and identify the specific activities and final cost objectives that the employees work on during the pay period, including membership and lobbying activities. It should also serve as the basis for charging labor costs to Federal grants and cooperative agreements.

b. Demonstrate that its procurement practices are consistent with the provisions under

Title 40 CFR 30.40 through 30.48. At a minimum, the recipient’s system must:

(1) Ensure that cost and pricing analyses are conducted for all purchases as required under Title 40 CFR 30.45, and that documentation is maintained to support all cost and pricing analyses.

(2) Include documentation to support the basis of contractor selection; justification for lack of competition when competitive bids are not obtained; and the basis for award cost or price, as required under Title 40 CFR 30.46.

(3) Include files of all contracts, amendments, billings, amounts paid to contractors, etc., to ensure contract ceilings are not exceeded and that the contractors conform with the terms, conditions, and specifications of the contract as required under Title 40 CFR 30.47.

(4) Include in all contracts the required provisions in compliance with Title 40 CFR 30.48 and the Appendix to Title 40 CFR Part 30.

c. Demonstrate that its practices for awarding and administering sub-awards comply with the provisions of Title 40 CFR 30.5. Specifically, the recipient must ensure that all sub-recipients submit final financial status reports at the end of a project as required by the provisions of Title 40 CFR Parts 30 and 31.

d. Submit the required indirect cost rate proposals prepared in accordance with OMB Circular A-122.

3. Require the recipient to prepare and submit performance reports for current grants or cooperative agreements in accordance with EPA regulations and the terms and conditions of the awards. The performance reports need to include progress in meeting planned objectives in the cooperative agreements or grants.

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We performed our examination in accordance with generally accepted government auditing standards, and the attestation standards established for the United States by the American Institute of Certified Public Accountants. We also followed the guidelines and procedures established in the “Office of Inspector General Project Management Handbook,” dated November 5, 2002.

We conducted this examination to express an opinion on the reported outlays, and determine whether the recipient was managing its EPA cooperative agreements in accordance with

applicable requirements. To meet these objectives, we asked the following questions:

1. Is the recipient’s accounting system adequate to account for cooperative agreement funds in accordance with Title 40 CFR 30.21?

2. Does the recipient maintain an adequate labor distribution system that conforms to requirements of OMB Circular A-122?

3. Is the recipient properly drawing down cooperative agreement funds in accordance with the Cash Management Improvement Act?

4. Does the recipient’s procurement procedures for contractual services comply with Title 40 CFR 30.40 to 30.48?

5. Is the recipient complying with its reporting requirements under Title 40 CFR 30.51 and 30.52?

6. Are the costs reported under the cooperative agreements adequately supported and eligible for reimbursement under the terms and conditions of the cooperative agreements, OMB Circular A-122, and applicable regulations?

In conducting our examination, we reviewed the project files and obtained the necessary cooperative agreement information. We interviewed recipient personnel to obtain an understanding of the accounting system and the applicable internal controls as they related to the reported costs. We obtained and reviewed single audit reports and an On-Site Visit Report prepared by EPA to determine whether any reportable conditions and recommendations were addressed in those reports.

We reviewed management’s internal controls and procedures specifically related to our objectives. Our examination included reviewing the recipient’s compliance with OMB Circular A-122, Title 40 CFR Part 30, and the terms and conditions of the agreements. We also examined the reported costs on a test basis to determine whether the costs were adequately supported and eligible for reimbursement under the terms and conditions of the agreements and Federal regulations. We conducted our fieldwork from March 3 through May 15, 2003.

We chose to conduct an in-depth review of personnel, contractual, and indirect costs for the five cooperative agreements. We chose those specific cost elements because of the risk associated with the costs and, for some of the cooperative agreements, the relatively high dollar amount.

We also chose to review printing and public service announcement costs for two of the cooperative agreements because of the relatively high dollar value.

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SUBJECT: Draft Audit Report of "Costs Claimed under EPA Cooperative Agreements CX825612-01, CX825837-01, X-828814-01, CX 824939-01 and X 829178-01" Comments of Consumer Federation of America

Dear Mr. Rickey:

This letter, and the Response and legal memorandum attached hereto, set forth the written comments of the Consumer Federation of America ("CFA") on the draft audit report ("DAR") on costs claimed by the Consumer Federation of America Foundation (the "Foundation") under the above-referenced EPA cooperative agreements ("CAs"). The Response proceeds through the DAR point-by-point, presenting CFA’s detailed response to questions in the report regarding the Foundation’s compliance with EPA regulations and OMB Circulars. The legal memorandum analyzes OIG’s claim that the Foundation was not eligible to receive Federal funds under Section 18 of the Lobbying Disclosure Act of 1995, that each CA awarded to the Foundation was therefore illegal, and that the Foundation must therefore refund every penny of the $4.7 million it received under the CAs. This letter sets forth a brief overview of CFA’s comments.

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