«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»
Finally, we note that nearly all of the issues raised in the DAR relate almost exclusively to compliance with documentation requirements (e.g., procurement procedures, cost/price analysis, written procedures, standard contract clauses) rather than compliance with substantive rules and regulations. These documentation issues were first called to our attention in March 2002 by the EPA Grants Management Office. At that time, we took immediate steps to address EPA’s concerns; by May 2002, EPA had approved our proposed plan of action, which we then implemented.
Consequently, we do not believe that any of these documentation issues can reasonably support a disallowance of costs.
As noted, OMB Circular A-122 provides that the "costs of activities performed primarily as a service to members, clients, or the general public when significant and necessary to the organization's mission must be treated as direct costs whether or not allowable and be allocated an equitable share of indirect costs."9 For that reason, the DAR asserts these costs must be "separately identif[ied] and accumulate[d]." The DAR fails to note, however, that Attachment A, subparagraph B(4) applies only when these costs are "significant." Attachment A, subparagraph B(2) reinforces this point, providing that
In fact, with one minor exception, neither the Foundation nor CFA incurred
According to the Circular, examples of these types of activities include:
any costs providing "services" within the meaning of Attachment A, subparagraph B(4). During the period covered by the audit, the Foundation had no members, no benefit or service programs, did not lobby or engage in public relations, and conducted no meetings and conferences. CFA did have members, but it did not recruit new members, had no benefit or service programs targeted primarily at members, did not lobby on behalf of members, and held no meetings or conferences primarily for the benefit of members (other than meetings held to conduct the general administration of the organization). It is true that CFA members could receive benefits from its programs - including publications, e-mailed information, technical assistance and conferences, as well as the small amount of consumer lobbying that CFA did each year - but they received these benefits primarily as members of the general public. CFA did not offer benefits to CFA members exclusively, or on terms or conditions different from those offered to non-members. Indeed, CFA functioned as a public-interest organization whose purpose was to serve the interests of consumers in general, not as a membership organization.
There was one exception. During the period covered by the audit, it was CFA’s practice to reimburse certain CFA member representatives for the travel expenses they incurred to attend CFA meetings and conferences. As a result, each year CFA paid the travel expenses for about 50 trips by member representatives to attend CFA meetings or conferences. The total amount of these reimbursements was approximately $16,000 per year. However, a significant portion of these reimbursements were for the "general administration of the organization" – e.g., trips by CFA directors to attend meetings of the CFA Board of Directors, and trips by CFA member representatives to CFA’s policy subcommittee meetings and the CFA annual membership meeting. Thus, the total amount arguably covered by Attachment A was approximately $11,000 per year. Finally, nearly all of these travel reimbursements were treated on the organization's books as direct costs - i.e., they were charged by CFA to specific funds provided to the organization to cover such costs and not included in indirect costs. Thus, the total amount arguably covered by Attachment A, subparagraph B(4), if any, certainly qualified as a "minor amount" within the meaning of Attachment A, subparagraph B(2).
CFA accounted for its lobbying expenses. The individuals who engaged in lobbying activities on behalf of CFA submitted a record of the time spent on those activities twice a year. Lobbying expenses were excluded from the indirect expense pool and therefore not claimed for recovery under any federal award.
Therefore, because we properly accounted for costs under Attachment A, subparagraph B(4), this portion of the DAR, and any recommendations based thereon, should be regarded as resolved.
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OMB Circular A-122, Attachment B, subparagraph 7(m) advises that the distribution of salaries and wages to awards must be supported by "personal activity reports," prepared at least monthly, reflecting an after-the-fact determination of the actual activity of each employee for the total activity for which the employee is compensated.
CFA has a complete set of personal activity reports ("PARs") meeting the requirements of Attachment B, subparagraph 7(m), for the three individuals whose time constituted approximately 70% of the labor hours charged to the CAs during the period covered by the audit. These PARs were made available to the OIG auditors during their visit to the CFA offices. In addition, at the request of the EPA Grants Management Office, the individuals who supplied almost all of the remaining labor hours charged to the CAs (approximately 30% of the total), prepared activity reports which record, activity by activity, the time they spent on activities that were charged to the CAs. This documentation can be used to make an accurate determination of the actual labor costs chargeable to each CA. If such a determination is required by EPA Grants Management Office, we expect that, given the amount of work performed by program staff, the labor costs chargeable to the CAs will be at or near Appendix B
the labor costs actually charged.
We acknowledge, however, that we used budget estimates to support our claimed labor costs, rather than the personal activity reports and other after-the-fact documentation reference above. In March 2002, the EPA grants manager called our attention to the requirements of Attachment B, subparagraph 7(m). After discussions with the Grants Management Office, we instituted a revised time-keeping system covering all employees who charge their time, in whole or in part, to Federal awards.
This new system - which includes a revised time-sheet, and is supported by specific instructions on time-keeping in the CFA Employee Manual - satisfies the requirements of Attachment B.10 In addition, our internal procedures now require all invoicing for labor be based exclusively on these time-sheets and the record of time actually spent that it contains. Accordingly, this audit issue should be regarded as closed.
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Section 30.21(b) of EPA’s Uniform Administrative Requirements for Grants and Cooperative Agreements, 40 CFR §30.21(b), requires that a recipient’s financial management system provide for "[c]omparison of outlays with budget amounts for each award." Although CFA acknowledges that prior to 2001, a "comparison of outlays with budgeted amounts" could not be made using the Foundation’s general ledger only, nothing in 40 CFR §30.21(b) or OMB Circular A-110 requires that this comparison be made using the general ledger. During the period covered by the audit, the Foundation prepared Job Cost Activity Reports ("JCARs") on a consistent basis for each of its EPA CAs, and maintained those reports in the CA project file, and were provided to the OIG auditors for examination. These JCARs accurately reflect the amounts expended on each CA, allowing the required comparison of "outlays to budgeted amounts," and reconciling back to the OMB Circular A-133
audit report. Accordingly, we believe that the Foundation fully complied with 40 CFR §30.21(b) for the period covered by the audit.
As a result of discussions with the EPA Grants Management, CFA has instituted additional internal controls that directly address the concerns raised in the DAR. The independent public accountant performing the OMB Circular A-133 audit will now conduct compliance testing during the fiscal year. Compliance testing will be conducted between the six and nine months of each fiscal year to assure that the JCARs reconcile to the general ledger at year end and the transactions comply the CA terms and conditions, and OMB Circular A-122.
At the outset, we strongly object to the DAR questioning the classification of contractual costs on the Foundation’s general ledger without specifying the nature of the alleged errors, or identifying specific examples of the contract costs in question.
Under the circumstances, it is impossible for us to prepare an effective response on this point. Because of this failure to provide any specifics, we submit that this portion of the DAR, and any recommendations based thereon, should be stricken from the final report.
In addition, to the best of our knowledge, all contractual costs were properly classified on the general ledger. In fact, each year since 1997, our classification of costs was tested as part of an OMB Circular A-133 audit conducted by an independent auditor, and found to be satisfactory. Accordingly, it seems clear that the DAR’s objection to our classification of costs amounts, at the very worst, to a disagreement about proper classification with our A-133 auditor, and not to a finding of non-compliance. For this reason as well, this portion of the DAR, and any recommendations based thereon, should be stricken from the final report.
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The DAR’s allegations are untrue. With respect to 4[A], the Foundation’s Job Cost Activity Reports (referred to in Part 3[A] above) contain a summary of costs incurred by contract and reported under each CA. These JCARs were provided to the OIG audit team during their visit to our offices.
With respect to 4[B], we strongly object to the DAR’s allegation that "[t]he Foundation was unable to provide... copies of some contracts or and purchase orders awarded" under the CAs because the report gives no indication of which contracts and purchase orders are alleged to be missing. Without such information, it is impossible for us to prepare an effective response. Therefore, we submit that this portion of the DAR, and any recommendations based thereon, should be stricken from the final report.
We are confident that each procurement contract awarded by the Foundation during the period covered by the audit is adequately evidenced by written agreements, by 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. In fact, during the period covered by the audit, no contractor invoice was paid without cross-checking the terms of the invoice, including price, against documents setting forth the contract terms. On that basis, we can show that all contract costs recorded in our accounting records were paid in accordance with the contract terms.
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Section 30.21(b)(6) of the EPA Uniform Regulation, 40 CFR §30.21, requires that a recipient’s financial management system provide "written procedures for determining the reasonableness, allocability and allowability of costs in accordance with the provisions of the applicable Federal cost principles and the terms and conditions of the award." Significantly, the regulation does not require that the recipient have a formal "accounting manual" or similar document; it is sufficient for purposes of the regulation if there are "written procedures" that accomplish the same practical result.