UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 204*0
,
A
NOV 10
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Audit Report No. M5BFL9-11-0010-9100051
Audit of Superfund Interagency Agreements with the
National Oceanic and Atmospheric Administration
FROM: Kenneth D. HocJonan 7) vwnik K
Divisional Inspector General for Audit
Internal Audit Division (A-109)
TO: Harvey G. Pippen, Director
Grants Administration Division (PM-216)
We requested the Inspector General, Department of Commerce
(DOC) to perform an audit of four Superfund Interagency Agree-
ments entered into between EPA and the National Oceanic and
Atmospheric Administration (NOAA). The DOC report of July 26,
1988, is attached. The report, which addresses obligations and
expenditures during fiscal years 1984 through 1986, concludes
that on two agreements (AD13F18260 and AD13F28260) NOAA's charges
were properly controlled and adequately supported. However, for
the other two agreements, problems were identified with the
approaches used to assign and control project costs. Specific
problem areas are addressed below.
DOC's review of agreement number DW13053601 ($76,742) identi-
fied problems with direct labor charges and equipment purchases.
Over 80 percent of the supporting information was unavailable for
review because it was in the records storage center. The DOC
auditors stated that the direct labor costs were questionable -
because the charges were based on estimated labor hours, rather I
than actual hours expended, and that the controls over the acquisi-
tion and disposition of project equipment were inadequate. NOAA
purchased equipment costing $3,452, although the Interagency
Agreement specifically disallowed equipment purchases and subse-
quently was not modified.
HEADQUARTERS LIBRARY
ENVIHONNIENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
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The work on agreement number DW13144801 began several months
before a. NOAA reimbursable task number was established. Once
established, program personnel had to use their best recollec-
tions in trying to identify the old cost records attributable to
the EPA project.
NOAA has taken corrective action by informing managers and
staff that controls must be strengthened to ensure: (1) costs
charged to the project are supported; (2) equipment purchase
provisions are adhered to; and (3) work begins after a task
number is assigned. EPA can take action by reinforcing NOAA's
responsibilities under an interagency agreement; following up
on unsupported project costs; and obtaining reimbursement for
unauthorized equipment purchases. Accordingly, the following
recommendations are made.
RECOMMENDATIONS
We recommend that the Director, Grants Administration
Division:
1. Ensure that the cost reporting and Superfund documenta-
tion retention requirements are in all future inter-
agency agreements with NOAA.
2. Not reimburse NOAA until NOAA provides documentation
supporting costs incurred under DW13053601. If
sufficient documentation is not provided and EPA has
reimbursed NOAA for costs billed, then EPA should
present NOAA with an adjusted bill that requests return
of EPA's reimbursement.
3. Request $3,452 reimbursement from NOAA for the
unauthorized equipment that was purchased under
DW13053601.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official
is required to provide this office with a copy of the proposed
determination on the findings within 150 days of the audit report
date. The Director, Grants Administration Division is the action
official for this report.
Should your staff have any questions concerning this report,
please have them contact John Walsh on 475-6753.
Attachment
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APPENDIX
DISTRIBUTION OP REPORT
Assistant Administrator for Solid Waste
and Emergency Response (WH-562)
Chief, Financial and Administrative Management
Section, Office of Emergency and Remedial
Response (WH-548D)
Comptroller (PM-225)
Director, Financial Management Division (PM-226)
Chief, Grants Information and Analysis Branch (PH-216F)
Agency Followup Official (PM-208)
Agency Followup Official {PM-225)
Attn: Resources Management Division
Audit Followup Coordinator (PM-208)
Attn: Program Operations Support Staff
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UNITED STATES DEPARTMENT OF COMMERCE
Office of Inspector Generel
Washington. D C. 2O23O
August 11, 1988
Mr. Ernest E. Bradley III
Assistant Inspector General
for Audit
U.S. Environmental Protection Agency
Washington, D.C. 20460
Dear Mr. Bradley:
*
In response to your request, we have completed an audit of
four interagency agreements involving work performed by the
National Oceanic and Atmospheric Administration (NOAA) on
behalf of the Environmental Protection Agency (EPA). The
four interagency agreement numbers are AD13F18260,
AD13F28260, DW13053601, and DW13144801. Our audit report
is enclosed.
Your request also referred to a fifth interagency agreement,
AD13F2A089. We did not include that agreement in our current
audit coverage because our previous audit report forwarded to
you in June 1984 addressed most of the costs charged to that
project.
You also asked us to evaluate NOAA's ability to provide
monthly site-specific cost information that could be verified
to NOAA's accounting system. We found that NOAA can provide
such information, but would prefer to do so on a quarterly
basis, rather than monthly. To obtain such data, EPA needs to
(1) establish separate interagency agreements for work to
be performed at each site and (2) incorporate the cost
reporting requirements in these agreements.
Please contact Homer Hughes; Director, Science and Technology
Audit Division, if you should need further information about
our work at NOAA. He can be reached on 377*2220.
Sincerely,
5hn R.
isistant Inspector General
for Auditing
Enclosure
75 YiMis Slimulatmj: America's Progress *
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INTERAGENCY AGREEMENTS
WITH THE
ENVIRONMENTAL PROTECTION AGENCY
NATIONAL OCEANIC AND
ATMOSPHERIC ADMINISTRATION
1-179-6-006
U.S. DEPARTMENT OF COMMERCE
OFFICE OF INSPECTOR GENERAL
OFFICE OF AUDITS
JULY 1988
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UNITED STATES DEPARTMENT OF COMMERCE
The Inspector General «=«WB
Washington. DC 2O23O
JUL261988
HEMORANDUM FOR:
FROM:
SUBJECT:
William E. Evans
Under secretary for
Oceans and Atmosphere
Frank DeGeo:
Inspector
Interagency Agreements with the
Environmental Protection Agency
Audit Report No. 1-179-8-006
Attached is the final report on the subject audit, including a
complete copy of NOAA's response to our draft report.
An executive summary of the report appears on page i, and our
recommendations are presented on page 5. NOAA's response to
the draft report provides an acceptable action plan for our
recommendations.
We appreciate the cooperation and courtesies extended by NOAA
officials during the audit.
Attachment
75 Years Stimulating America's Progress * 19I3-I9AS
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CONTENTS
Page
EXECUTIVE SUMMARY i
INTRODUCTION 1
Purpose and Scope of Audit 1
FINDINGS AND RECOMMENDATIONS 2
Xgreement Numbers AD13F18260 and AD13F28260 2
Agreement Number DW13053601 2
Agreement Number DH13144801 5
Recommendations 5
NOAA Comments 6
APPENDIX - NOAA Response to Draft Report
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INTERAGENCY AGREEMENTS
WITH THE ENVIRONMENTAL
PROTECTION AGENCY
EXECUTIVE SUMMARY
Through the use of interagency agreements, the National
Oceanic and Atmospheric Administration (NOAA) performs work
on a reimbursable basis for various federal agencies,
including the Environmental Protection Agency (EPA). In
response to EPA's request, we have completed an audit of NOAA
costs charged against four of the reimbursable agreements
with EPA.
For two of these agreements, we found that NOAA's charges
were properly controlled and adequately supported. However,
for the other two agreements, there were some significant
problems with the approaches used to assign and control
project costs. Specific problem areas are described below.
o Direct labor costs were questionable because these
charges were not based on records showing the actual
hours expended.
o Controls over the acquisition and disposition of project
equipment were inadequate.
o Financial control problems resulted because a reimbursable
task number was not established until many months after
the EPA project work began. Without a task number,
applicable costs could not be assigned to the EPA project
when the costs were incurred.
Although the extent of past inaccuracies resulting from these
deficiencies cannot be determined, it is clear that prompt
action is needed to correct the problems and provide a basis
for ensuring that charges to future reimbursable projects are
accurately recorded. NOAA agreed with our recommendations
and advised that appropriate implementing actions have been
taken.
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INTRODUCTION
Through the use of interagency agreements, the National
Oceanic and Atmospheric Administration (NOAA) performs work
on a reimbursable basis for various federal agencies, including
the Environmental Protection Agency (EPA). Zn response to
EPA's request, we have completed an audit of NOAA costs charged
against four of the reimbursable agreements with EPA. These
agreement numbers are AD13F18260, AD13F28260, DW13053601, and
DW13144801. EPA advised that these agreements were funded
with money provided under the superfund legislation.
Purpose and Scope of Audit
4
The purpose of our audit was to identify the amounts which
NOAA charged to the four agreements during fiscal years 1984
through 1986 and to ascertain whether these costs were
determined in accordance with policies and requirements
applicable to reimbursable work performed for other agencies.
He evaluated the adequacy of internal controls applicable to
the identification and assignment of costs to specific
agreements. Also, our work included tests to establish the
appropriateness of costs actually charged under these
agreements. During the audit, we examined pertinent records
and interviewed selected personnel at NOAA's offices in
Rockville, Maryland; Seattle, Washington; and Milford,
Connecticut.
Two issues regarding the scope of our review should be noted:
o In reviewing indirect costs, we limited the scope of our
work to determining whether these costs were charged in
accordance with established NOAA overhead rates and on a
basis consistent with the rates charged to NOAA units and
other agencies. We did not assess the accuracy of NOAA's
various overhead rate components because such a review
would require a major commitment of audit resources, and
we could not divert such resources from higher priority
audits at this time.
o We have not determined whether the provisions of the four
interagency agreements were consistent with the statutory
authority governing EPA's expenditure of superfund
monies. We believe such determinations are more
appropriate for EPA's Inspector General.
Our audit was performed under the authority of the Inspector
General Act of 1978 and Department Organization Order 10-13,
dated May 22, 1980. The audit was conducted in accordance
with generally accepted government auditing standards.
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RECOMMENDATIONS
For two of the four agreements between EPA and NOAA, we found
that HOAA'» charges vere properly controlled and adequately
supported. However, for the other two agreements, there vere
some significant problems vith the approaches used to assign
and control project costs. Although the extent of past
inaccuracies resulting from these deficiencies cannot be
determined, it is clear that prompt action is needed to correct
these problems and provide a basis for ensuring that charges
to future reimbursable projects are accurately recorded.
Agreement Numbers ADI 3 Fl 8 2 60 and AD13F2826Q
These agreements provided for NOAA's National Ocean Service
to conduct work associated with the improvement of diver
safety in contaminated waters and to provide a training
course for underwater divers. Estimated project costs were
$398,000, and NOAA's reported expenditures and billings
totaled $341,472.
Based on our evaluations and tests, we believe the two
agreements were adequately controlled by NOAA to reasonably
ensure that applicable project costs were accurately recorded
and billed. He found no evidence of improper charges.
Under NOAA's financial management system, reimbursable task
accounts were established to accumulate costs incurred under
the EPA agreements. Direct costs were accumulated from
detailed records that specifically identified the charges
applicable to the EPA agreements. We tested costs charged
under the two agreements and found that:
o Labor charges were supported by appropriate worksheets
and timecards.
o Charges for travel, materials, and other direct costs
were substantiated by supporting documentation.
o Indirect costs were charged in accordance with established
NOAA overhead rates and on a basis consistent with the
rates charged to NOAA units and other agencies.
Agreement MyiPbgr DW13053601
The purpose of this interagency agreement was to provide for
NOAA's National Marine Fisheries Service in Seattle, Washington
to assist EPA's efforts in investigating the significance of
chemical contamination. Specifically, NOAA's Northwest and
Alaska Fisheries Center was to determine the baseline incidence
of disease/abnormalities in biota from selected reference
areas in Puget Sound and adjacent waters. Estimated projects
costs were $75,000, and NOAA's reported expenditures and
billings totaled $76,742.
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We completed a limited review of activities associated with
this agreement. Our review was limited because over 80 percent
of NOAA's project costs were incurred during FY 1984, and
much of the information needed to proceed with a complete
audit was not available or would require time-consuming effort
to retrieve and reassemble from a records storage center.
Generally, we found some fundamental problems in the approaches
used to record and control direct project costs, including
charges for labor and equipment. These conditions have
prevented NOAA from accurately determining the amount of direct
costs that should be charged to this reimbursable agreement.
Indirect costs were charged in accordance with established
NOAA overhead rates and on a basis consistent with the rates
charged to NOAA units and other agencies. Specific areas in
need of management attention are described below.
Direct Labor -- The Center's environmental conserva-
tion personnel who administered this agreement 4o not have a
basic understanding about the policies and procedures to be
used in recording direct labor costs applicable to reimbursable
agreements. Contrary to established requirements, these
personnel have no procedures for recording actual labor hours
expended on reimbursable agreements. Instead, the hours
charged to each project are based on predetermined estimates.
Consequently, billings for the reimbursable agreements are
based on estimated labor hours, rather than actual hours
expended. Such practices result in inaccurate billings being
sent to the reimbursing organizations, with some projects
being overcharged while others are undercharged.
Moreover, NOAA's appropriated funds are improperly supple-
mented to the extent that labor costs which should have been
charged to in-house projects are charged to reimbursable
agreements. Conversely, NOAA's appropriated funds are impro-
perly depleted to the extent that costs which should have
been charged to reimbursable agreements are charged to appro-
priated funds.
Department Administrative Order (DAO) 203-5 provides guidance
for determining the charges to be assessed for services
performed for other federal agencies and organizations. This
order specifies that fees and charges will be set at levels
to recover the full cost of rendering a service which conveys
special benefits to a recipient above and beyond those accruing
to the public at large. Further, the order provides that
costs will be determined in accordance with the Department's
accounting principles and standards.
DAO 203-4 sets forth the Department's accounting principles
and standards. This order provides for recording personal
service costs at the time and on the basis of work actually
performed. In addition, NOAA's Budget Handbook requires that
reimbursable agreements provide specifically for the recovery
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of total costs and that actual costs are to be billed. Thus,
Departmental and NOAA requirements have made it clear that
reimbursable billings are to be based on the cost of work
actually performed.
Based on the existing practices described to us, it is clear
that the Center's environmental conservation staff has not
accurately recorded and assigned direct labor hours for projects
being performed under reimbursable agreements. He believe it
is essential to adhere to established requirements for billing
the reimbursing agencies on the basis of actual costs incurred,
rather than estimated costs. Unless this is done, a situation
will exist where the reimbursing organizations are routinely
overcharged or undercharged, and NCAA's appropriated funds
are improperly supplemented or depleted. Also, lacking accurate
information about the actual use of labor hours, NOAA officials
are deprived of important management control data that could
be useful in directing and controlling personnel resources.
purchase of Equipment — Although the interagency agreement
specified that NOAA was not authorized to acquire equipment
in conjunction with this project, NOAA personnel neverthe-
less purchased equipment costing $3,452. These costs were
included in the billings to EPA. There was no indication
that the agreement had been modified to allow such purchases
or that any other form of EPA approval had been given to
authorize such procurement actions.
Three types of equipment were purchased under this agreement.
All of this equipment could have been used on the EPA work,
but we believe it is questionable whether some of these items
were actually purchased for and used on the EPA project.
Specifically, EPA was billed $990 for two chest freezers
(25.7 cubic feet each) purchased for use on the NOAA ship,
McArthur. Work on the EPA project, however, was not conducted
on the McArthur but was carried out aboard another vessel.
This gives a strong indication that the EPA project was
inappropriately billed for the two freezers, although no
conclusive evidence is available to show what use was made
of these items.
As with direct labor, it is important that NOAA establish
sufficient controls to ensure that costs of equipment and
other items are accurately assigned to the benefiting
projects. Without a systematic approach to accomplish this,
there is no basis to provide for accurate billings to the
reimbursing agencies.
Also, NOAA personnel should recognize the importance of
adhering to the terms of reimbursable agreements. Speci-
fically, if EPA or other reimbursing organizations specify
that no equipment is to be acquired with project funds, then
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•uch prohibitions should be complied with, unless the reimburs-
ing organization subsequently provides written authority to
make equipment purchases.
When nonexpendable equipment is acquired with reimbursable
funds, it is important that NOAA coordinate vith the reimburs-
ing agency to determine what disposition is to be made of the
equipment upon project completion. There was no indication
of such coordination for the EPA project. NOAA simply retained
the items for future use.
Agreement FUfflb.gr PW13144801
Under this agreement, NOAA laboratory personnel reporting to
the Northeast Fisheries Center were to study the effects of
polychlorinated biphenyls (PCBs) on the growth and reproduction
of American lobsters. Estimated project costs were $80,000,
and NCAA's reported expenditures and billings totaled $46,344.
NOAA's work on this project began many months before a reimburs-
able task number was established. Without an assigned task
number, there was no basis to charge any costs to the EPA
project. Consequently, the direct and indirect costs applicable
to the project were charged to NOAA's appropriated funds,
rather than to EPA.
When a reimbursable task number was eventually established,
costs were charged to the EPA project on a retroactive basis.
However, in determining the costs to be charged, program
personnel had to use their best recollections in trying to
identify the old cost records attributable to the EPA project.
These records had not been annotated to show whether the
costs pertained to work performed on behalf of EPA. Such
practices leave us with concern about the accuracy of the
costs that were ultimately charged to the EPA agreement.
NOAA's financial management system requires that costs be
identified with and charged to specific task numbers authorized
to cover clearly defined activities. The approach used to
charge costs to the EPA project did not meet the intent of
this policy. We believe it is important for NOAA to ensure
that its personnel understand the importance of not performing
reimbursable vork until a task number has been assigned so
that costs can be charged to the appropriate organization.
Recommendations
We recommend that the Under Secretary for Oceans and Atmosphere
take the following actions.
Strengthen controls over the reimbursable work performed by
field organizations of the National Marine Fisheries Service.
Undertake the following corrective measures as part of this
overall process.
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1. Provide personnel at the field sites with sufficient
guidance and instruction to understand the necessity for
assigning costs to reimbursing organizations on the basis
of actual costs incurred.
2. Ensure that the field personnel establish procedures for
(a) recording and assigning actual direct labor hours
expended on reimbursable projects, and
(b) assigning the costs of equipment and other acquisi-
tions to the benefiting projects.
4
3. Emphasize the importance of adhering to all provisions of
reimbursable agreements. Focus special attention on
those cases where the agreements specify that equipment
purchases are not authorized.
4. Coordinate with the reimbursing organizations to determine
what disposition should be made of any equipment items
that are purchased with funds provided by these organi-
zations .
5. Emphasize that no reimbursable work is to be performed
for another organization until a reimbursable task number
has been established for the project.
NOAA Comments
In response to our draft report, NOAA agreed with our
recommendations and advised that appropriate implementing
actions have been taken.
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APPENDIX
Page 1 of 5
UIMITBD •TATBB
W«»*,n5con. O C 8O23O
OP Tl-(g
JUL UG68
MEMORANDUM FORt
PROM:
SUBJECT*
John R. 6spanka
Assistant Inspector General for Auditing
Rodney P. Weihbr
Comptroller
Interagency Agreements with the Environmental
Protection Agency, Draft Report Mo. 1-179-8-OOX
We agree with your findings and recommendations on the subject
draft report and, as reflected in the attached, have taken
immediate corrective steps to preclude the possibility of similar
problems .in the future.
Thank you for your assistance in strengthening our operations.
Attachment
75 Years Stimulatinf America** Progress * 1913-1988
r ,
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Page 2 of 5
UNITED STATES DEPARTMENT OF COMMERCE
Washington. O.C. 30235
JUN 8
MEMORANDUM FOR: Regional Directors, NHFS
FROM:
«
SUBJECT s
Jame
s~U.
enr
Assistant Administrator for Fisheries
7
NMFS Reimbursable Programs
Tht» Inspector General Thf? following five specific actions were recommended by the ID
for NMFS:
I. Provido field personnel with sufficient guidance
and instructions to ensure assignment of costs to
reimbursing organisations on the basis of actual
cos t*. \ nr ur i eel.
P. Fnnurf? that field personnel establish procedures
f or :
(a> retarding and assigning actual direct laboi
hours expended on reimbursable projects, arid
Cb) assigning the costs of equipment and other
acquisitions to the benefitting projects.
3. Emphasize the importance of adhering to all
provisions of reimbursable agreements. Focus
special attention on those cases where the
agreements specify that equipment purchases are
not authorized.
*•. Determine in consultation with reimbursing
organiz.itions what to do with equipment items that
art.* purchased with funds provided by these
or gani za t i ons..
5. Emphasize tn*t no reimbursable work is to be
performed for another organization until a task
number has b*?e>-» established for the project.
75 Years Stimulating America's Progress * 1913-1988
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Page 3 of
Z support the IG's recommendations and ask that you advise
appropriate staff. It is extremely important that work does not
begin on a reimbursable project until the reimbursable task plan
is processed and a reimbursable task number is assigned, tn
emergency situations when work must begin prior to NOAA's
approval and assignment of a task number, all charges must be
separately identified by the assignment of a phase number to the
task number used. This will facilitate the cost adjustment
(which should be completed as soon as a task number is assigned)
aod possible subsequent audit. However, under no circumstances
should any work begin without a written agreement between
NMF5/NOAA and the reimbursing sponsor. Complete instructions
regarding the processing of reimbursable agreements can be found
in the NOAA Budget Handbook.
Please ensure that the IG's recommendations are implemented in
your organization.
tc: Science Directors* NMFS
Office Director*, NMFS
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Page 4 of 5
UfMITBO 3TATBB OKPARTMKNT OP CQMMKRCC
National Oceania and Atmoaphvrte Administration
D.C- 8O23O
OFFICE OF THE COMPTROLLER
JUN 3 0 IS88
MEMORANDUM FOR:
FROM:
SUBJECT:
Assistant Administrators
Executive Secretariat
Office of Administration
Office of Legislative Affairs
Office of Aircraft^fiperations
Office of NOAA
Rodney F. Wcih
Comptroller
Reimbursable Projects Performed by NOAA
The Office of the Inspector General (IG) has recently reviewed
the procedures followed by some tasks managers and associated
staff with regard to the executing and costing of reimbursable
tasks. The purpose of this memo is to address several areas
identified by the IG review which require strengthening and
additional guidance in the administration/management of
reimbursable activities.
o It is NOAA policy to recover full costs for reimbursable
work. This includes both direct resource expenditures such
as labor and supplies, and indirect distributed costs such
as EXAD and general support.
o Costs charged to a reimbursable task must not include
charges for resources not actually used to accomplish the
project. Normally such costs should be officially recorded
against the tasks when the work is performed and the
resources expended. If this is not possible or practical,
accurate supporting documentation must be maintained upon
which subsequent cost adjustments can be based. This
includes the recording and assignment of direct labor
hour*, and the costs of equipment, supplies and other
acquisitions to the benefiting project.
o All provisions of a reimbursable agreement must be adhered
to. Zf equipment purchases are prohibited, the task
manager must not record such costs against a reimbursable
task; when equipment acquisition is authorized, the
agreement should be as specific as possible as to types and
costs. It is mandatory that the agreement provide for
subsequent equipment disposition and ownership. Joint
ownership is prohibited.
75 Years Stimulating America*! Progress * 1913-1988
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Page 5 of 5
-2-
o Mo reimbursable work is to be performed for another
organization until a reimbursable task number has been
established and pertinent approvals obtained (pp. 99 and
131, Chapter 02, of the NOAA Budget Handbook). A task
number can be obtained via telephone from the Resource
Management Branch (FTS 377-8591).
4
Please ensure that all task managers including those at field
sites are aware of the above requirements and that they are
knowledgeable of the procedures contained in Section 03,
"Reimbursable Task Planning", which starts on p. B3, Chapter 02
of the NOAA Budget Handbook.
A copy of this memorandum should be filed with the NOAA Budget
Handbook. The requirements and procedures contained in the
memorandum will 'be included and/or emphasized in a future
handbook revision.
ccs All FMC's
BFX2 R. Pruden
BF2 D. Day and R. Cogswell
BF13 L. Lanther
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