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TABLE OF CONTENTS
PAGE
SUMMARY OF FINDINGS 1
ACTION REQUIRED 4
SCOPE AND OBJECTIVES 4
BACKGROUND 5
FINDINGS AND RECOMMENDATIONS 8
1. INCREASED ATTENTION IS NEEDED TO THE ACQUISI-
TION OF CONSULTING SERVICES THROUGH SMALL
PURCHASES 8
2. INCREASED COMPLIANCE WITH PROCESSING GUIDELINES
IS NEEDED 19
3. OPPORTUNITIES EXIST FOR INCREASED ECONOMY IN
SMALL PURCHASES 25
4. EPA NEEDS TO ELIMINATE DUPLICATION OF EFFORT
IN SMALL PURCHASES AUTOMATED SYSTEMS DEVELOP-
MENT 30
APPENDIX 1 - MARCH 7, 1990, RESPONSE TO DRAFT AUDIT
REPORT FROM THE ASSISTANT ADMINISTRATOR FOR
ADMINISTRATION AND RESOURCES MANAGEMENT 33
APPENDIX 2 - ADDITIONAL OIG COMMENTS TO MARCH 7, 1990,
RESPONSE TO DRAFT AUDIT REPORT 41
APPENDIX 3 - DISTRIBUTION OF REPORT 43
H
WASHINGTON, D.C.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 20
MEMORANDUM
OFFICE OF
THE INSPECTOR GENERAL
SUBJECT:
FROM:
TO:
Audit Report No. E1BMF9-11-0040- 0100202
Improvements Needed In Controls Over
Small Purchases '
Kenneth A. Konz
,
Acting Assistant Inspector General
for Audit (A-109) /
Charles A. Grizzle
Assistant Administrator for Administration
and Resources Management (PM-208)
SUMMARY OF FINDINGS
Opportunities exist in the Environmental Protection Agency (EPA)
to improve the process for both requesting and awarding small
purchases. Our review of the controls over small purchases
found that: (1) program offices used small purchases to acquire
organization development services from consultants even though
the Agency has organization development contracts; (2) in some
cases, consultants were hired when EPA employees could have per-
formed the work; (3) the Office of Administration and Resources
Management (OARM) processed small purchases and other simplified
purchases without always following written procedures; (4) no
consideration had been given to consolidating procurement
requests for multiple subscriptions to the same publisher or to
identifying subscriptions that might be unnecessary; and (5) EPA
had separately developed small purchases automated systems. As
a result, the Agency may not have spent funds in the most advan-
tageous manner, and has spent unnecessary time and money process-
ing small purchase orders.
Small purchases are purchases for $25,000 or less. They have
less stringent requirements pertaining to competition, price
reasonableness, and small businesses than large purchases (over
$25,000). Other simplified purchases include blanket purchase
agreements (BPAs) and imprest fund purchases. BPAs are used to
fill anticipated repetitive needs for supplies or services by
establishing "charge accounts" with qualified sources of supply.
An imprest fund is a cash fund of a fixed amount established by
an advance of funds for disbursement as needed in making cash
payments for relatively small purchases.
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1. INCREASED ATTENTION IS NEEDED TO THE ACQUISITION OF
CONSULTING SERVICES THROUGH SMALL PURCHASES
In a June 11,.1987, special review report titled, "EPA Officials
Channel More Than $300,000 To One Facilitator's Teambuilding
Sessions," the Office of Inspector General (OIG) identified the
repetitive sole source acquisition of this consultant as being
an abuse of the procurement process. Although the Agency
established organization development contracts in response to
this report, we found that some program offices have still used
small purchases to acquire consulting services for this need,
including this same teambuilding facilitator. We identified four
fiscal 1989 purchase orders totaling $51,900 in our sample of 28
consultant procurements that could have been obtained through
these contracts. In our opinion, the justifications for each of
these cases were inadequate. Program personnel either did not
know about the Agency's organization development contracts or did
not want to use them. By not always using these contracts, the
Agency may be spending more money than necessary for these
services.
Some program offices acquired consulting services when EPA
employees could have done the work. In our sample of 28
consulting services procurements, we found two such purchases
totaling $50,894. These procurements involved such tasks as
assisting in preparing a communications plan and gathering
information available within the Agency.
2- INCREASED COMPLIANCE WITH PROCESSING GUIDELINES IS NEEDED
When processing small purchases and other simplified purchases,
OARM did not always comply with written procedures. For example,
procurement requests were not always processed within the
required timeframes and properly approved; adequate competition
and the best prices may not have always been obtained; and BPA
and imprest fund purchases frequently exceeded the maximum
amounts authorized. The Headquarters Accounting Operations
Branch (HAOB) was not always aware of the procedures. And when
they and the Small Purchases Unit (SPU) were aware, the
procedures were not always followed. As a result, potentially
unauthorized procurements could be made, purchases may not be
made in the most advantageous manner, and program offices could
receive goods and services late.
3. OPPORTUNITIES EXIST FOR INCREASED ECONOMY IN SMALL PURCHASES
The Agency has an opportunity to increase economy and efficiency
in the area of consolidating subscription procurement requests.
Because subscription purchases were not consolidated, EPA did not
always take advantage of quantity discounts, and spent thousands
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of dollars more than necessary in processing costs. In addition,
by ordering subscriptions from service companies, EPA sometimes
spent twice as much for publications, compared to ordering
directly from the publisher. Further, as many as 80 purchase
orders were awarded during fiscal 1989 for travel publications
containing information readily available through other convenient
sources.
One reason these conditions occurred is because SPU does not
formally monitor procurement requests for subscriptions from
different program offices to determine if multiple procurement
requests to the same publisher could be consolidated. Also,
there is no EPA guidance pertaining to consolidating subscription
procurement requests from different program offices.
4. EPA NEEDS TO ELIMINATE DUPLICATION OF EFFORT IN SMALL
PURCHASES AUTOMATED SYSTEMS DEVELOPMENT
EPA has separately developed at least two small purchases auto-
mated systems. The Small Procurement Automated Tracking System
(SPATS) at the Andrew W. Breidenbach Environmental Research
Center in Cincinnati, Ohio, and the Small Purchase Automated
Management System (SPAMS) in Headquarters, were separately
developed. Both SPATS and SPAMS have management information
capabilities, run on the same computer system, and became fully
operational in 1986. Office of Management and Budget (OMB)
Circular A-109 dictates that agencies avoid duplicating efforts.
By developing one system for implementation at both locations,
the Agency could have saved development and maintenance costs of
the second system. The Office of Information Resources
Management (OIRM) is currently working on a mission needs
analysis to develop the procurement aspects of the Integrated
Administrative System. This mission needs analysis is expected
to move the Agency closer to the development of a National Small
Purchasing System.
To correct the problems described above, we are making
recommendations concerning increased use of the Agency's
organization development contracts; better justification for
consulting services acquisitions; increased compliance with
written procedures; controls to improve efficiency and economy;
and enhanced controls over automated systems development.
We held an exit conference with OARM officials on February 21,
1990, to present our findings and recommendations and to ensure a
clear understanding of our report by management. At this
conference, OARM officials discussed their position relative to
our findings and recommendations. In addition, the Assistant
Administrator for Administration and Resources Management
provided us formal written comments on our draft report in a
memorandum dated March 7, 1990. OARM generally agreed with our
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findings and recommendations and indicated that they are
currently taking actions or will be taking actions to implement
our report recommendations. However, OARM disagreed with our
recommendations that the number of copies of Official Airline
Guide publications should be limited and that the Federal Travel
Directory needs to be better distributed. To provide a balanced
understanding of the issues, we have summarized management's
position at appropriate locations in the report and provided
their verbatim comments in Appendix 1.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official is
required to provide this office with a written response to the
audit report within 90 days of the audit report date. For
corrective actions planned but not completed, reference to
specific milestone dates will assist this office in closing this
report.
SCOPE AND OBJECTIVES
The purpose of this audit was to assess the effectiveness of
Headquarters controls over small purchases. Our specific
objectives were to evaluate whether; (1) small purchases were
procured in accordance with Federal procurement regulations and
Agency procedures; (2) related small purchase procurement actions
were used to circumvent the normal procurement process; (3) small
purchases were made in the most cost-beneficial manner; (4) the
security and internal controls for the SPAMS were adequate; (5)
the development of separate small purchases automated systems at
different Agency locations was economical; and (6) consulting
services acquired through small purchases were adequately
justified.
We conducted our audit from June 19 to November 24, 1989. The
audit covered fiscal 1989 small purchases transactions processed
by the Headquarters Small Purchases Unit. To accomplish our
objectives, we reviewed procurement laws, regulations, and Agency
instructions, and interviewed Procurement and Contracts Manage-
ment Division (PCMD) officials about small purchases procedures.
To assess the effectiveness of small purchases controls, we
reviewed SPAMS printouts of fiscal 1989 purchase orders (POs) for
indications of such things as split purchases, double payments,
repetitive buys, and inadequate competition over $1,000. We
identified 119 cases, involving 356 POs, which we reviewed in
detail. We also reviewed a random sample of 29 POs awarded by
SPU for compliance with laws and regulations. Further, we
reviewed six randomly selected BPAs and six judgmentally selected
imprest fund procurement requests (PRs) for compliance with
written procedures. We selected five of the imprest fund cases
because the SPAMS printouts showed that they had corresponding
imprest fund or small purchases for similar amounts to the same
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company. We also reviewed one additional imprest fund purchase
because it was at the maximum limit for imprest fund purchases.
During our review of PO files, we contacted originating offices,
regional offices, and the Headquarters Accounting Operations
Branch, as necessary, for additional information.
To assess SPAMS' internal controls and evaluate the economy of
developing multiple small purchases automated systems, we inter-
viewed managers in the Purchasing and Contracts Management Branch
(PCMB) and reviewed available documentation. We interviewed an
official at the Andrew W. Breidenbach Environmental Research
Center (AWBERC) in Cincinnati, Ohio, regarding the development of
SPATS. We also interviewed officials in EPA Regions 1 and 3 to
determine whether they had similar systems. Finally, we
interviewed officials and reviewed available documentation in the
Office of the Comptroller and the Office of Information Resources
Management to determine the Agency's plans for future development
of procurement-related automated systems.
To evaluate the adequacy of justifications for the acquisition of
consulting services through small purchases, we judgmentally
selected 28 cases, involving 60 POs, from the SPAMS printouts,
which contained approximately 235 such procurements totaling
$1,071,105. For these cases, we reviewed documentation in the
SPU files and interviewed officials in the requesting offices.
We also reviewed work products prepared by the consultants, when
available. When necessary, we expanded our scope of work to
include fiscal 1988 transactions. As part of this work, we
followed up on the Agency's corrective actions taken in response
to a June 11, 1987, OIG special review report titled "EPA Offici-
als Channel More Than $300,000 To One Facilitator's Teambuilding
Sessions," and interviewed officials in the Office of Human
Resources Management, who oversee the Agency's organization
development contracts.
We performed this audit in accordance with the Government
Auditing Standards (1988 Revision) issued by the Comptroller
General of the United States. Significant weaknesses in internal
controls are discussed in the Findings and Recommendations
section of this report. No other issues came to our attention
which we believed warranted further detailed audit work.
BACKGROUND
The Federal Acquisition Regulation (FAR) defines a small purchase
as "an acquisition of supplies, nonpersonal services, and
construction in the amount of $25,000 or less." Small purchases
can be virtually any goods and services required by the Agency
that cost $25,000 or less. Examples include office equipment,
furniture, books and subscriptions, conference room rental,
maintenance agreements and repair, training, technical advice and
consulting services.
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Small purchases have less stringent requirements and much quicker
turnaround time than large contracts. The differences primarily
pertain to the requirements for competition and price reasonable-
ness, the use of small businesses, and the emphasis on short
leadtime. Sole source requests, when a specific vendor is
requested, are considered if the need is properly documented.
Competition is less rigorous for a small purchase than for a
formal contract. For example, competition is not required for
purchases under $1,000; purchases over $1,000 require that a
reasonable number of sources (usually three) be contacted to
attain a fair and reasonable price; and only PRs over $10,000
must be advertised in the Commerce Business Daily (CBD).
Justification of price reasonableness is noted in the PO file.
Finally and significantly, the faster turnaround time for a small
purchase is usually a matter of days compared with months for
large contract purchases.
Small purchases are awarded by the SPU in PCMB, Office of
Administration and Resources Management. The SPU is divided into
two teams each having a team leader and two or three other
purchasing agents. SPU officials use an automated information
system, called SPAMS, to help manage the procurement process.
The SPU processes small purchases and other simplified purchase
procedures, namely BPAs and imprest fund requests. SPU also
awards orders from the Federal Supply Schedule (FSS) and other
government agencies, such as the Government Printing Office and
the Federal Prison Industries. A purchase from the FSS can also
be competed if it is not mandatory or if there is more than one
vendor scheduled. Orders from the FSS or another government
agency may exceed the $25,000 limit. The vast majority of POs
awarded by SPU are for Headquarters PRs.
To process a small purchase, the program office initiates a PR,
obtains the required approvals, and sends it to SPU. To award a
PO, SPU follows the procedures prescribed by the FAR, EPA
Acquisition Handbook, EPA Contracts Management Manual, and EPA
Acquisition Regulation. Requirements for processing PRs include
avoiding split purchases (use of more than one PR to exceed the
$25,000 small purchase limit), assuring adequate competition and
verification of price reasonableness for purchases over $1,000,
and processing PRs within the standard leadtimes.
The FAR states that a BPA is "a simplified method of filling
anticipated repetitive needs for supplies or services by
establishing 'charge accounts' with qualified sources of supply."
To establish a BPA, the program office sends a PR to SPU naming a
source and the service or supply required and identifying the
authorized callers. SPU prepares the terms and agreement and
sends it to the vendor for signature. The BPA is approved by the
Chief, PCMB. Thereafter, SPU reviews the monthly record of calls
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and deliveries to ensure that authorized limits are adhered to,
callers are authorized, purchases are not split, and orders are
within the scope of the BPA. The total amount of all calls
placed against a BPA shall not exceed $100,000 over a three-year
period. However, this ceiling may be waived by the Chief, PCMB.
According to the FAR, an imprest fund is "a cash fund of a fixed
amount established by an advance of funds, without charge to an
appropriation, from an agency finance or disbursing officer to a
duly appointed cashier, for disbursement as needed from time to
time in making payment in cash for relatively small purchases."
Imprest fund PRs are limited to $500. The Property Management
Office is authorized to approve imprest fund PRs up to $150. All
others must be processed by a SPU purchasing agent with a $1,000
warrant authority.
According to SPAMS, during fiscal 1989 SPU awarded 6,142 PRs for
a total obligated amount of approximately $13,616,000. Included
in this total are BPAs, imprest fund POs, and purchases from the
FSS and other government agencies.
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FINDINGS AND RECOMMENDATIONS
i. INCREASED' ATTENTION is NEEDED TO THE ACQUISITION OF
CONSULTING SERVICES THROUGH SMALL PURCHASES
Program offices used small purchases to acquire consulting
services without always considering the Agency's organization
development contracts and, in some cases, when EPA employees
could have performed the work. As a result, the Agency may not
be obtaining consulting services in the most economical manner.
Program personnel either did not know about the Agency's
organization development contracts or did not want to use the
contracts. In some cases, program offices hired consultants to
develop information, despite the fact that the information seemed
to be readily available within the Agency.
Program Offices Need To Give More Consideration To Using
The Agency's Organization Development Contracts
Program offices frequently obtained organization development
services through small purchases, instead of using the Office of
Human Resources Management's (OHRM) organization development
contracts. We identified four fiscal 1989 purchases, totaling
$51,900, in our sample of 28 that could have been obtained
through these contracts.
The OIG issued a special review report dated June 11, 1987,
titled "EPA Officials Channel More Than $300,000 To One Facili-
tator's Teambuilding Sessions," which identified significant
concerns with the repetitive sole source acquisitions. One of
the Agency's corrective actions was to establish contracts with
organization development specialists, which program offices could
then use on an ad hoc basis.
We found that the Agency's corrective actions were not entirely
effective, because program offices have continued to obtain
organization development consultants, including this same
teambuilding facilitator, through sole source acquisitions.
These written sole source justifications were frequently
inadequate, being based on statements such as the following:
The contractors are very familiar with EPA and have a
good relationship with EPA.
The contractors are unique in that they offer a broad
range of management training, including team-building,
cross-cultural differences, and conflict resolution.
The firm which previously performed teambuilding sessions
has already developed a rapport with the staff.
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The originator of one procurement request advised us that the
program office wanted the specific consultant because he "knew
the office forwards and backwards." The facilitator was the same
facilitator identified in the OIG special review report as having
been used repetitively by some program offices.
FAR section 13.106(b) states that small purchase solicitations
may only be limited to one source if the contracting officer
determines that only one source is reasonably available. FAR
13.106(b)(6) adds that the following factors influence the number
of quotations required:
The nature of the article or service to be purchased and
whether it is highly competitive and readily available in
several makes or brands, or is relatively noncompetitive.
Information obtained in making recent purchases of the
same or similar item.
The urgency of the proposed purchase.
The dollar value of the proposed purchase.
Past experience concerning specific dealers' prices.
EPA set up the OHRM organization development contracts so one
office in Headquarters could manage and oversee the Agency's
procurement of organization development services. These
contracts were designed to improve the effectiveness of indivi-
duals, teams and groups, intergroup relations, and the total
organization. The four contracts cover consulting services for
the following areas: (1) communication; (2) meeting management;
(3) teambuilding; (4) career development; and (5) strategic
planning. The project officer for the contracts said that OHRM
needs six to eight weeks leadtime to provide service under the
contracts. Additionally, OHRM in-house personnel also provide
organization development services.
This condition occurred because some program office personnel
were not aware at the time they initiated procurement requests
that the Agency had organization development contracts. Also,
there is no requirement to use the contracts or OHRM in-house
personnel for organization development work, or justify why it
is not advisable to do so.
Details of two example cases follow.
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Case #1
As previously mentioned, the OIG special review report identified
the repetitive sole source acquisition of one facilitator as
being an abuse of the procurement process. We believe some
Agency components are still abusing the procurement process via
small purchases. For example, the Office of Solid Waste (OSW)
used this same facilitator, with the same justification, once in
fiscal 1989. This procurement totalled $9,900. We believe the
OHRM contracts could have been used in this case.
Because we identified this continuing condition, we reviewed
SPU's fiscal 1988 log book to determine if the facilitator
identified in the OIG special review report and another
facilitator, who was acquired during fiscal 1989 with similar
questionable sole source justifications, had also been used by
program offices in fiscal 1988. We found that the Office of
Solid Waste and Emergency Response (OSWER) had contracted with
these facilitators five times in fiscal 1988, for a total of
$29,100. One of the five purchase orders was not required to be
competed because it was at the $1,000 competition limit. Two of
the five purchase orders were awarded as sole source procure-
ments. However, the other two purchase orders were unauthorized
procurements that were ratified in accordance with EPA Acquisi-
tion Regulations section 1501.670; in both of these instances,
OSWER used the facilitator even though the procurement had not
been authorized by SPU.
OSWER officials justified the repetitive sole source acquisition
of this one teambuilding facilitator by stating that he
understands the dynamics of the OSW organizational structure, as
well as OSW's mission, staff, attributes, and problems. These
officials further stated that this facilitator has been effective
in working with OSW in the past. They believed that they would
have had to pay considerably more to obtain the same service that
this facilitator provided. While these perspectives may be
correct in the short run, a competitively procured facilitator,
or one obtained through OHRM's contracts, could also fulfill
OSWER's needs. The OIG is still concerned that, as in 1987, this
same facilitator's services are being procured through sole
source means, using his previous knowledge of and relationships
with the Agency as justification.
Case »2
Another example was an OSWER purchase order for meeting manage-
ment, in which the OHRM contracts were not used. Several other
abuses also occurred in this procurement, including splitting
purchases and directing a contractor to perform unapproved work.
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In March 1989, officials in OSWER and the Office of Research and
Development were planning for a conference to be held in June.
OSWER had in place at that time a contract (with a prime contrac-
tor and at least two subcontractors) for analytical services.
One of these 'subcontractors had been doing preliminary work for
this conference, so the subcontractor was familiar with the
subject matter. Furthermore, OSWER had previously issued work
assignments under the same analytical services contract for
conference logistics, so they believed they could do so again.
Therefore, an OSWER official issued a work assignment in May
1989 totaling $38,500 under this contract for both the meeting
management needs and some analytical services. However, the
contracting officer rejected the part of the work assignment
pertaining to meeting management needs because, in his opinion,
meeting management was not included in the contract's scope of
work.
The OSWER official then tried to determine if they could hire
this same contractor under another existing Agency contract.
However, the OSWER official said that contracting officials
stated that the contractor was not associated with any other
Agency contracts. The OSWER official believed that they could
not initiate another formal contract because of the 12- to 18-
month process required. Therefore, they issued a $25,000 PR to
SPU for the meeting management needs.
SPU received the PR six weeks in advance of the meeting, which
was not enough time to use the organization development
contracts. However, had the program office considered these
contracts in March, they would have had enough leadtime.
This $25,000 PR was the initial phase of an attempt to make a
split purchase. SPU received this first PR on May 4, 1989, for
the conference to be held in two phases, June 19-21, 1989, and
June 22-23, 1989. SPU competed the PR among the prime contractor
and two subcontractors on the contract discussed above, and
awarded a purchase order to the subcontractor previously identi-
fied by OSWER as the one they wanted. The SPU competition work-
sheet did not give a detailed breakout of costs for any of the
competitors.
Before the conference, OSWER then issued a second PR for $6,000
to the same contractor for additional meeting management work
related to the June 22-23 phase of the conference. SPU
apparently received this PR on June 28, 1989, but they rejected
this second PR because the June 22-23, 1989, meeting had already
taken place.
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However, another OSWER official assumed that the second PR was
approved, and orally directed the contractor to perform the
additional work. This OSWER official advised us that they
thought the second PR had been approved by SPU before leaving for
the conference. However, as discussed above, SPU did not receive
the PR until five days after the conference ended. The OIG
reported this same condition in a March 13, 1989, report titled
"Management of Contracts Supporting the Office of Solid Waste."
The draft and final OIG audit reports were both issued before
OSWER orally directed the contractor to perform unauthorized
work.
Subsequently, OSWER responded to the rejection of the second PR
by issuing a third PR for $13,500. SPU apparently received this
PR on September 7, 1989. SPU then awarded a $7,500 purchase
order on September 30, 1989, for an expanded report of the
meetings and a data base directory, which an SPU official stated
was not related to the first purchase order. SPU is processing
the other $6,000 for the June 22-23 phase of the conference as
a ratification. The $25,000 small purchases limit would be
exceeded by ratification of the $6,000.
Additional Attention To The Need For Some Consulting
Services Is Required
In our review of 28 procurements of consulting services, we found
that two of the procurements were for services that could have
been adequately performed by EPA employees. The two cases
involved three separate purchase orders totaling $50,894.
OMB Circular A-120 addresses advisory and assistance needs.
Section 7B states that advisory and assistance services shall not
be: (1) "used in performing work of a policy, decision-making, or
managerial nature which is the direct responsibility of agency
officials"; (2) "awarded on a preferential basis to former
Government employees"; or (3) "obtained for professional or
technical advice which is readily available within the agency or
another Federal agency, except when the contract is entered into
pursuant to the procedures and provisions of Circular A-76".
Case tl
OSW spent $17,250 for assistance in developing a communications
plan for a recent final rule, even though the Agency has prepared
many such communications plans in the past. The Statement of
Work that accompanied the PR stated that OSW employees would
actually be developing the communications plan. The contractor
would only be facilitating a meeting to scope out major
components of the plan, and reviewing and commenting on the draft
plan developed by OSW employees.
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The Statement of Work required the contractor to perform the
following tasks:
(1) Hold one or more meetings with pertinent staff to obtain
a geheral understanding of the regulation/guidance to
be promulgated, and to understand who the audiences
were that would be affected.
(2) Review all pertinent information that could provide a
more thorough understanding of the subject at hand.
(3) Facilitate a meeting with pertinent OSW staff to scope
out the major components of a comprehensive communica-
tions plan - keeping in mind: the audiences, the
messages, time and resource constraints, communication
approaches (techniques), etc.
(4) Review and comment on the communications plan developed
by OSW staff for clarity, comprehensiveness, effective-
ness and innovativeness.
(5) Review and comment on the actual components of the
communications program developed by OSW staff.
Task (4) is clear in that OSW employees would actually be
developing the communications plan.
An OSW official stated that this communications plan was for a
rule that will have a major impact at the state and local level.
Top level management did not consider amending any other Agency
communications plans because they considered this to be a rule
that required a "big deal". Although, OSWER officials agreed
that this communications plan could have been developed by in-
house personnel, they justified the acquisition of this
consultant's services to us by stating that the consultant was to
provide expert advice to OSW management regarding the viewpoint
of the constituents who would be affected by the rule. OSW
management believed this expert advice could not be obtained from
in-house Agency resources. In our opinion, in an organization
such as EPA, which deals extensively with the public on a wide
variety of issues, it would seem likely that many of the
perspectives in question would have already been known to Agency
personnel. For those which might not have been known, EPA
contracted for 122 hours of effort at $125 per hour to learn of
them.
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Case »2
OSW simultaneously initiated two fiscal 1989 procurement request
amendments for two different consultants for work related to the
Municipal Solid Waste Program Task Force. The amendments were
for additional effort and final written products for work started
under POs issued in fiscal 1988. The total for these two pur-
chase orders and two amendments was $33,644. The original
procurements involved $19,180, and the amendments $14,464. The
Headquarters Accounting Operations Branch master file listed
total disbursements at $26,295.
The Municipal Solid Waste Program Task Force was established to
help prepare for the transition to a new Administrator. OSW
wanted to develop materials for informing the new top management
about critical issues involving the Solid Waste Program. These
issues would be of a broad policy nature and involve the future
direction of the program.
To assist this task force, OSW hired two consultants. The
Justifications for Sole Source Acquisition for the original
procurement requests were not verbatim, but were very similar.
And the duties outlined in the two Statements of Work were
virtually identical (see Figure 1 on page 15}.
The Justifications for Sole Source Acquisition were also
identical for both amendments, except for the consultant name.
Again, the duties in the Statements of Work were essentially the
same (see Figure 2 on page 16), except that one contractor was to
deal with issues critical to incoming political appointees, and
the other contractor with issues critical to legislative
officials. The OSWER official who originated all four
procurement actions admitted that both consultants' work was for
the "same general project."
The original procurement requests did not require final reports,
which was the major focus of the amendments. The originating
official stated that the consultants were responsible for writing
two different chapters for a briefing document for the new
Administratorone chapter being political appointee analyses and
the other chapter being legislative strategy. The official added
that one of the consultants was asked to combine both chapters
into one report. This same official also said that OSW met with
the consultants once after the draft reports. However, OSW then
decided a final report was not needed and informed the
consultants that their services were no longer required. A
briefing document was never prepared and the draft reports were
not used.
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FIGURE 1. DUTIES FROM THE
ORIGINAL STATEMENTS OF WORK
Consultant #1
Meet with the task force on
a regular basis;
Aid in the identification
and explanation of issues
critical to the new manage-
ment of EPA;
Prepare a series of strate-
gies for resolving critical
issues identified by the
task force in addressing the
concerns of political
transitions;
Assist the task force in
identification of options
for long-term solutions;
Present strategies to exist-
ing Office of Waste Programs
Enforcement (OWPE) and OSW
senior management related to
responding effectively to
programmatic shifts in the
focus of EPA programs; and
Develop a draft narrative
summary of the analyses for
use by current management
during the transition
period.
Consultant #2
Meet with the task force
three times to (1) identify
broad issues; (2) flesh out
and discuss issues of
concern; and (3) report back
on recommendations on a
regular basis.
Aid in the identification
and explanation of issues
critical to the new manage-
ment of EPA;
Prepare a series of strate-
gies for resolving critical
issues identified by the
task force in addressing the
concerns of political
transitions;
Assist the task force in
identification of options
for long-term solutions;
Present strategies to exist-
ing OWPE and OSW senior
management related to
responding effectively to
programmatic shifts in the
focus of EPA programs; and
Develop a draft narrative
summary of the analyses for
use by current management
during the transition
period.
15
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FIGURE 2. DUTIES FROM THE
AMENDED STATEMENTS OF WORK
Consultant #1
Meet with the task force
once;
Prepare a final report
identifying and explaining
issues critical to incoming
EPA political appointees;
Finalize the strategies for
resolving critical issues
identified by the task force
in addressing the concerns
of political transitions;
Prepare a final narrative
summary of the analyses for
use by current management
during the transition
period; and
Present strategies to exist-
ing OWPE and OSW senior
management related to
responding effectively to
changes in political admini-
strations.
Consultant #2
Meet with the task force on
a regular basis;
Prepare a final report
identifying and explaining
the critical issues needed
by management to communicate
to legislative officials
(Congressmen and legislative
staff);
Finalize the strategies for
resolving critical issues
identified by the task force
in being able to communicate
effectively to Congressmen
and legislative staff;
Prepare a final narrative
summary of the analyses for
use by current management
during the transition
period;
Present strategies to exist-
ing OWPE and OSW senior
management; and
Consolidate two draft
reports into one final
report for consistency of
style and tone.
16
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Both of the consultants were former EPA employees. One of the
consultants was a former EPA Deputy Chief of the Regulatory
Reform Staff, who had also worked on a Congressional staff; this
consultant was hired to handle the legislative focus. The other
consultant was a former EPA Regional Administrator. The
Justification for Sole Source Acquisition stated that he had
"worked with both State Legislators and Congress." However, a
decision was apparently made that he should not handle the
legislative focus; so he was hired to handle the presidential
appointee focus. Neither consultant had been employed with EPA
for at least four years.
Both sole source justifications for the original PRs state "no
other individual that we know of has these qualifications." The
sole source justifications also stated that there were no current
EPA contractors qualified to do the work, and other former
Regional Administrators did not have the necessary experience or
were unavailable to assist. However, there was no discussion of
why there was nobody in the Agency who could do such things as
identify and explain the critical issues, identify solutions, or
prepare strategies. In addition, the sole source justifications
said that timing was of the essence. Finally, regarding the
amendments, the originator of the procurement requests said that
OSW wanted to react to draft written material before deciding on
a final product.
The consultants provided several draft reports as required by
OSW. A review of the draft reports verified our concerns that
the information could have been compiled by in-house personnel.
In our opinion, the information provided by the consultants was
of a general, nontechnical nature and was readily available
within the Agency, some within OSW itself. In most cases, the
draft reports did not contain any specific recommendations, and
did not always discuss the issues in detail.
OARM COMMENTS AND PIG EVALUATION
in his March 7, 1990, memorandum, the Assistant Administrator for
Administration and Resources Management agreed with the recom-
mendations made in our draft report (see Appendix 1). The
Assistant Administrator provided comments to clarify issues and
indicated certain corrective actions were underway before we
issued our draft report. Appendix 2 is our analysis of selected
portions of the OARM response.
We have accepted OARM's proposed changes to two of our recommen-
dations. We believe that OARM's corrective actions will be very
positive steps in improving Agency controls over making small
purchases.
17
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RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and ResourcesrManagement:
Not process small purchase orders for organization
development services unless the program office provides
documentation from OHRM as to why the organization
development contracts can not be used.
Not authorize purchase orders that exceed the $25,000
statutory limit.
Take administrative action against employees who direct
contractors to perform unapproved work or who make
unapproved purchases.
Publicize within the Agency the adverse results of these
administrative actions, to maximize the deterrent effect
of this control.
Issue a memorandum to Agency program offices emphasizing
the need to carefully review each small procurement
request before authorizing the acquisition of consulting
services.
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2. INCREASED COMPLIANCE WITH PROCESSING GUIDELINES IS NEEDED
OARM did not always comply with written procedures when process-
ing small purchases and other simplified purchases. SPU and HAOB
personnel were generally aware of these written procedures, but
our review of, a sample of purchases showed that: (1) some small
purchases were not processed within standard leadtimes; (2) not
all PRs were properly approved; (3) some competition and price
reasonableness determinations were not documented; and (4) maxi-
mum dollar limitations were exceeded on some BPA and imprest fund
purchases. As a result, potentially unauthorized procurements
could be made, purchases may not have been made in the most
advantageous manner, and program offices might not receive goods
or services by the requested delivery date.
SPU Did Not Always Process Purchase Orders Within Standard
Leadtimes
Procurement leadtime is the time from receipt of an acceptable
PR to the date the Agency issues the PO. The actual procurement
leadtime for any PO can be determined by comparing the date of
the PO with the date the PR was received. Unit 8 of the EPA
Acquisition Handbook contains the Agency's procurement leadtime
goals. Figure 3 shows these standard leadtimes.
FIGURE 3. STANDARD LEADTIMES
Fiscal 1989
Standard in
Work Days
Purchase
Category
Competitive Order
Oral $1,000 to $10,000 10
Written $1,000 to $10,000 19
Written $10,000 to $25,000 45
Sole Source Order
Oral $10,000 or less 10
Written $10,000 or less 17
Written $10,001 to 25,000 60
BPA 45
Fiscal 1988
Standard in
Work Days
5
19
60
4
17
60
17
In our sample of 29 fiscal 1989 POs, SPU did not process four (14
percent) within the standard fiscal 1989 leadtime. The average
was seven days late with a range of one to 18 days late. Because
SPU did not always comply with written procedures, program
offices might not receive goods or services by the requested
delivery date.
19
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The 14 percent lateness rate we identified was better than the 23
percent rate identified in an internal Procurement Management
Review report dated May 26, 1989. However, as is shown in Figure
3, three of the six Agency standard leadtimes changed for fiscal
1989 processing. Compared to fiscal 1988 leadtimes, the 1989
standards were lengthened in the two highest volume purchase
categories, and shortened in another category. We compared the
actual processing time for our 29 sample cases to these fiscal
1988 leadtimes to determine whether the SPU had truly improved
its processing rate compared to fiscal 1988, or whether the
improved lateness rate was potentially due to measuring timeli-
ness against the new leadtime standards. We found that 13 {45
percent) of the 29 POs did not meet the fiscal 1988 standard
leadtime, with an average of five days late and a range of one to
23 days late.
The 45 percent rate we identified appears to be some improvement
from fiscal 1988 processing, but we were unable to quantify the
improvement. The Procurement Management Review report discussed
above pertained to fiscal 1989, but stated that the lateness rate
cited was an improvement over fiscal 1988. While we could not
identify a specific fiscal 1988 lateness rate, another Procure-
ment Management Review report, dated April 5, 1988, stated that
"The award of most (fiscal 1988) procurements reviewed were in
excess of Agency leadtime goals."
We analyzed the SPU process to determine whether there was a
specific problem which caused the delays in processing? we did
not identify any individual choke point. However, during this
analysis, we also found that it took an average of 2.13 days from
the date the PO was signed until it was distributed. This time
is not counted in the Agency's leadtime calculation, but it is
important because the procurement does not actually occur until
the PO is issued to a vendor. We added two days to the standard
fiscal 1989 leadtime for our 29 sample cases, and then used the
actual PO issuance date in a revised timeliness calculation.
This analysis showed that an additional PO would not have been
considered timely processed, bringing the total to five (17
percent) of 29.
Procurement Requests Did Not Always Contain All Approval
Signatures
SPU awarded POs when the PRs submitted by program offices did not
contain the required approval signatures of all appropriate
officials. Five of the 29 PRs in our sample, worth approximately
$10,450, had either a missing signature or an improper signature.
In addition to the sample of 29 PRs, we reviewed nine different
management consulting services PRs received by SPU in the fourth
quarter of fiscal 1989 and found that two did not contain appro-
val signatures two levels above the initiating office. SPU did
20
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not reject any of these PRs and require the proper signatures.
Without the authorization of all the appropriate officials,
potentially unauthorized procurements could be made.
The Contracts'Management Manual, Chapter 2, describes the
required approvals for procurements of fifteen different types
of items. Further, PRs for management consulting services must
include approval from a program official at least one organiza-
tional level above the initiating office and, when the award is
to be made during the fourth quarter of the fiscal year, at least
two organizational levels above the initiating office. One of
the signature blocks on the PR is for the property officer.
Subsequent to reviewing our 29 sample cases, we were orally
informed that property officer signatures are no longer required
on all PRs. However, we were unable to locate the documenta-
tion to support which items now require a property officer's
signature.
We identified a variety of problems with the approval signatures
in our seven error cases. For example, on one PR an employee not
authorized as a property management officer/designee signed in
the "Property Management Officer/Designee" block. The originator
of another PR signed for both the branch chief and division
director and then signed his initials. On the third PR, the
originator signed for another individual in the "Funds Listed
Above Are Available And Reserved" block for a $709 amendment to a
$1,081 PO already issued. Another PR did not have a required
Property Management Officer/Designee signature. In the fifth
case, someone other than the branch chief signed the "Branch/
Office" block, and the "Division/Office" block was not signed.
As previously mentioned, the other two cases were for management
consulting services PRs received by SPU in the fourth quarter
that did not contain approval signatures two levels above the
initiating office.
Adequate Competition May Not Have Existed For Some Purchases
Over $1.000
Nine of the POs in our sample involved procurements of over
$1,000. For five of these, worth approximately $15,510, we were
unable to determine whether adequate competition existed. For
example, one of these five purchase orders had a competition
worksheet that gave a detailed breakdown of all costs for all
items for the selected vendor, but only a total cost for the
other competitors. Two purchase orders had competition work-
sheets which did not give a detailed breakdown of all costs for
any of the vendors. Finally, two purchase order files did not
contain any competition worksheets at all. The potential exists
that the Government did not make these purchases in the most
advantageous manner.
21
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For purchases over $1,000, FAR 13.106 requires contracting
officers to solicit quotations from a reasonable number of
sources to promote competition to the maximum extent practicable.
Contracting officers are also required to ensure that the
purchase is advantageous to the Government, price and other
factors considered.
Price Reasonableness Determinations Were Not Always
Documented On Purchase Orders Over $1,000
Of the nine POs in our sample over $1,000, five did not contain
any written determination of price reasonableness, and one pur-
chase order just stated "adequate competition" as the reason for
price reasonableness. These six POs were valued at approximately
$18,624. This condition was previously identified in the Pro-
curement Management Review dated May 26, 1989. As a result, the
Agency did not always ensure that Government funds were spent at
a reasonable price.
FAR 13.106(c) requires that a determination be made prior to
issuing a purchase order that the price of goods and services is
fair and reasonable. Price reasonableness determinations, when
not based on competitive quotations, must be based on facts
contained in the file which clearly establish the price to be
fair and reasonable.
Controls Over Blanket Purchase Agreements Need Improvement
Two of the six BPAs we reviewed exceeded their maximum dollar
limit without prior approval from the PCMB Chief. One BPA
exceeded its $200,000 authorized limit by $33,669 {17 percent),
and a second BPA exceeded its authorized limit of $100,000 by
$1,973 (2 percent). Also, for these same two BPAs and two more
BPAs, not all fiscal 1989 monthly call records complied with
Agency signature requirements; they had either a missing
signature, or the same person signed as both the ordering
official and receiving official. In fact, one of these BPAs had
a monthly call record totaling $8,480, which had no ordering or
receiving signatures at all. The possibility of misuse of funds
is increased when maximum authorized limits are exceeded, and
when the same individual orders and receives goods or services.
The Agency's Contracts Management Manual, Chapter 4.6, states
that "Individuals who are authorized to place calls under BPAs
must ensure that sufficient administrative reservations of funds
(commitments) are made to cover all BPA orders made under their
office's funding allowances." Orders shall not be placed which
exceed committed funds. Further, EPA Form 1900-63 must be signed
by both the ordering official who placed the calls and a
receiving official cognizant of the receipt of the materials.
22
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One person can not sign in both capacities. Finally, SPU's
internal procedures require SPU to review monthly call records to
ensure authorized limits are not exceeded and the same personnel
do not both order and sign for receipt of the services.
r
These conditions occurred because no effective controls exist
in SPU or HAOB to identify either total BPA obligations on a
systematic basis, or signature problems. In some cases, BPAs
have multiple callers in different organizations, none of whom
apparently know how much the others have spent. For the
signature deficiencies, SPU did not write memorandums to the
callers involved notifying them of the requirements, to help
prevent a recurrence of the condition. Also, an HAOB official
said they only check for a commitment clerk signature before
making payment; they do not verify that ordering and receiving
signatures are different. EPA requirements are not clear as to
who should ensure proper signatures are on the monthly call
records before HAOB makes payment.
Controls Over Imprest Fund Procurements Need Improvement
We found that in two of our six sample cases, the Agency made
imprest fund payments for more than the amount authorized by the
contracting officer. Both were also for more than the $500
emergency imprest fund limit. In one case, a PR was approved for
$480, but the $566 actual cost of the emergency repair was paid
by the imprest fund. The other PR was approved for $500, but the
imprest fund paid the actual cost of $505. The potential for
fraud, waste or abuse is increased when imprest fund payments are
made for more than the amount authorized and for more than the
imprest fund limit.
Internal EPA guidance on imprest fund limits is contradictory.
The EPA Acquisition Regulations, Subpart 1513.4, state that
imprest funds may be used for small purchases when the trans-
action does not exceed $250 ($500 under emergency conditions).
In contrast, the Small Purchase Acquisition Guide for Program
Offices, issued by the Procurement and Contracts Management
Division in September 1986, listed imprest fund limits at $500
for regular supplies and services, and $750 for emergency
situations. These limits are also being proposed in a draft
Resources Management Directive 2750 Chapter 4, "Imprest Funds,"
which has been in development since 1986 and is currently under-
going review within the Agency. Further, Comptroller Policy
Announcement No. 86-13, dated April 15, 1986, promulgated the
$500 imprest fund transaction limit, but did not mention the $750
emergency limit discussed in the acquisition guide and draft
directive. Therefore, while the limit for regular imprest fund
transactions appears to have been raised in 1986, in our opinion
there was no official Agency guidance raising the emergency limit
to $750 at the time of our review.
23
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When questioned about exceeding the amount authorized and the
emergency fund limit, an HAOB official stated that she believed
HAOB could pay an amount above the amount authorized by the
contracting officer for an emergency imprest fund payment.
Further, HAOBrofficials believed that the $750 emergency limit in
the draft Resources Management Directive was Agency policy at the
time these two procurements were made.
OARM COMMENTS AND PIG EVALUATION
In his memorandum of March 7, 1990, the Assistant Administrator
agreed with our recommendations (see Appendix 1). We agree with
the corrective actions planned by OARM, and believe they will
improve controls over processing small purchases transactions.
Appendix 2 is our analysis of selected portions of OARM's
comments.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources Management:
More closely monitor small purchases transactions to
better ensure compliance with regulations.
Review periodic accounting reports of BPA dollars
obligated to ensure BPA maximum dollar limits are not
exceeded.
Ensure that proper signatures are on BPA monthly call
records before payment is made.
Notify BPA callers of signature deficiencies on BPA
monthly call records, and replace authorized callers if
the problem persists.
Ensure that all Agency guidance regarding imprest fund
limits is accurate and in agreement.
Establish controls to ensure that imprest fund payments
do not exceed the amount authorized and do not exceed the
maximum limits.
24
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3- OPPORTUNITIES EXIST FOR INCREASED ECONOMY IN SMALL PURCHASES
The Agency can improve the economy of its procurement of
subscriptions^. During fiscal 1989, SPU processed numerous
procurement requests for subscriptions to the same publications
for different Agency offices; each of these processing actions
cost EPA an estimated $250. We found that some subscription
service companies offered quantity discounts, but EPA almost
always did not take advantage of them. Further, subscription
service companies usually charged significantly higher prices for
publications than the publishers charged. In addition, EPA
awarded as many as 80 purchase orders during fiscal 1989 for
publications issued by the Official Airline Guide. However, the
information in these publications is available through other
sources, such as a free General Services Administration (GSA)
publication, the Agency's travel services contractor, and the EPA
library's copies of these Official Airline Guide publications.
In each of these cases, the Agency spent more money for subscrip-
tions than it needed to spend.
These conditions occurred because program offices submitted
separate procurement requests for subscriptions, which were then
frequently handled by different SPU purchasing agents. SPU
officials did not realize that there was a pattern to these
procurements because they did not formally monitor this, and
there is no EPA guidance in this area. Finally, personnel in
program offices stated they needed their individual copies of the
publications from the Official Airline Guide because they
believed the other sources of information were inconvenient or
undependable.
The Agency Could Save Money Bv Consolidating Purchase
Orders For Subscriptions
SPU did not consolidate POs for subscriptions to the same
publishers, and thereby reduce processing costs and take
advantage of quantity discounts. In addition, we found that some
subscription services charged much higher prices for publications
than the publishers themselves charged. In both cases, the
Agency spent more money for the subscriptions than was necessary.
In fiscal 1989, SPU processed 55 separate POs for publications
issued by Inside EPA, 31 POs for publications issued by Food
Chemical News, Inc., and 80 POs for publications issued by the
Official Airline Guide. These 166 POs were for publications
costing a total of $69,590. In these cases, EPA did not
consolidate the POs and minimize the processing costs, which
involved an estimated $41,500 or almost 60 percent of the
purchase price. If EPA had issued three POs, instead of 166, as
much as $40,750 might have been saved.
25
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EPA did not always take advantage of quantity discounts. For
example, in a March 10, 1989, procurement a subscription service
company renewal notice for the Federal Yellow Book offered
substantial quantity discounts, stating that a one year subscrip-
tion normally costs $150, but additional subscriptions cost only
$105 (30 percent less). On November 22, 1988, the Agency had
obtained the Federal Yellow Book from a different subscription
service company for $145, which is 38 percent more than the first
service's quantity discount price. We were unable to determine
how many copies of the Federal Yellow Book were purchased in
fiscal 1989 because only two were purchased direct from the
publisher; the rest were purchased through subscription service
companies and could not be individually identified from our SPAMS
printouts.
In still other cases, we found that program offices paid exces-
sive amounts for subscriptions because they used subscription
service companies. For example, one program office obtained the
Wall Street Journal directly from the publisher for $129. How-
ever, another office subscribed through a service company, which
charged $224 (74 percent more) for a similar one year subscrip-
tion. In another instance, a program office subscribed to The
Washington Post through a subscription service company for $107,
when it only cost $62 (42 percent less) directly from the
publisher. By reviewing SPAMS printouts, we were unable to
determine how many subscriptions to the Wall Street Journal or
The Washington Post were purchased in fiscal 1989 because some of
them were purchased from subscription service companies.
Some program offices combined requests for subscriptions from
different publishers on one procurement request to be issued to a
subscription service company. Even though subscription service
companies' rates are usually higher than publisher rates, there
can be a savings to the Agency by combining subscription orders
in this manner, because it saves EPA processing costs.
PCMB officials estimated that each PO cost approximately $250 to
process from origination through payment. FAR 13.106 requires
contracting officers to ensure that the purchase is advantageous
to the Government, price and other factors considered, including
administrative cost of the purchase.
SPU has seven purchasing agents who process POs, each of whom
handles different Headquarters program offices. Because these
purchasing agents process hundreds of procurements each year,
they did not detect a pattern to these subscription purchases.
In addition, SPU managers did not formally monitor this type of
issue, and there is no EPA policy or guidance in this area.
Further, SPU officials advised us that the Small Purchase
Acquisition Guide for Program Offices section on the acquisition
of subscriptions is obsolete.
26
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SPA Should Reassess The Need For Certain Subscription
Purchases
During fiscal 1989, the Agency spent $20,499 through small
purchases for 80 subscriptions from the Official Airline Guide,
a publisher of airline and hotel/motel information. Some offices
had more than one purchase order for a subscription from the
Official Airline Guide. For example, one office had three pur-
chase orders signed in the fourth quarter of the year for such
subscriptions. Processing costs for these 80 POs were approxi-
mately $20,000. However, Agency offices receive the monthly GSA
publication, the Federal Travel Directory, which details all
contractor airline flights and hotel/motel discounts, free of
charge from the Office of the Comptroller, Customer Assistance
Unit. Also, EPA has a contract with the Omega Travel Agency
(Omega) to make ticket arrangements for employees. Omega can
answer any airline travel question over the telephone.
Discussions with Financial Management Division (FMD) officials
revealed that there are different opinions about the usefulness
of the Official Airline Guide publications. One official said
that they are useful in answering general questions and that
Omega would be overwhelmed if they had to answer all the general
questions. This official added that EPA does not receive the
Federal Travel Directory until the middle of each month. In
contrast, a second FMD official stated that "there is no reason
for program offices to have the Official Airline Guide publica-
tions. " This official added that personnel can call Omega and
use the Federal Travel Directory, and that Omega is required
under the GSA contract to provide service to EPA no matter what
the volume of requests for information.
The Federal Travel Directory requires EPA employees to make
reservations through Omega, stating that GSA uses professional
travel agents in various areas of the country to manage Govern-
ment travel, and lists Omega as the Federal Travel Management
Center for EPA. Further, the EPA Resources Management Directives
Section 2550B Chapter 4, paragraph 6 (a) requires program offices
to "make reservations for required flights through the Travel
Management Center", which is Omega. This paragraph encourages
program offices to use the Federal Travel Directory.
Program officials advised us that they renew Official Airline
Guide subscriptions yearly for the convenience of their traveling
staff. They were aware of the free Federal Travel Directory, but
find that there are usually not enough to go around each month.
These officials were also aware that all travel information is
available from Omega. However, many program personnel believe it
is quicker to plan their own schedule before contacting Omega.
Program offices gave these additional responses when asked about
their use for the Official Airline Guide publications!
27
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The head office has the copy of the Official Airline
Guide publication. The rest of the office has a
December 1988 copy of the Federal Travel Directory that
receives frequent use.
-- The staff travels from plant to plant and likes to have
its itinerary set before calling Omega. The manager of
the office was reluctant to order from the Official
Airline Guide, but the staff convinced the manager that
the subscription was necessary.
If the office could be sure of getting the Federal
Directory/ their office would not need a subscription
from the Official Airline Guide publications.
Their office travels a great deal. Staff members plan
their own trips and give them to the secretary to prepare
the travel papers. Since they are in the West Tower, it
would be a hardship for them to go to the library or
Omega whenever they need travel information.
The secretaries always use Omega for information when
making travel arrangements . They admitted that it would
be no problem for their office if they no longer received
publications from the Official Airline Guide.
OARM COMMENTS AND PIG EVALUATION
In his memorandum of March 7, 1990, the Assistant Administrator
agreed with three of our recommendations {see Appendix 1). We
believe OARM's proposed corrective actions will enhance the
economy of certain types of small purchases .
OARM did not believe that they were in a position to dictate the
number of purchases of Official Airline Guide publications.
Also, OARM believed that sufficient steps are being taken to
evenly distribute the several dozen copies of the Federal Travel
Directory throughout Headquarters. However, as we discussed in
our report and in Appendix 2, we believe there are other lower
cost alternatives for acquiring the same information contained in
the Official Airline Guide publications. Consequently, we have
modified our final two recommendations. We believe that OARM
should request more copies of the Federal Travel Directory, which
is available free of charge, and urge increased use of the
Federal Travel Directory and decreased purchases of Official
Airline Guide publications. Appendix 2 is our detailed analysis
of selected OARM comments .
28
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RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources' Management:
Consolidate multiple purchase orders for subscriptions
from the same publisher and order directly from the
publisher, whenever it is most economical to do so.
Periodically review subscription procurements on SPAMS to
identify any additional items for consolidation.
Update the Small Purchase Acquisition Guide for Program
Offices.
-- Encourage program offices to minimize purchases of
Official Airline Guide publications.
Obtain additional copies of the Federal Travel Directory
for greater distribution throughout the Agency.
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4. EPA NEEDS TO ELIMINATE DUPLICATION OF EFFORT IN SMALL
PURCHASES AUTOMATED SYSTEMS DEVELOPMENT
EPA has developed at least two separate small purchases automated
systems. Both systems perform very similar functions, and were
developed in the same general timeframe. An unknown amount of
funds could have been saved by adequately planning for the
development of one system acceptable to multiple EPA locations.
Sound management practices dictate that organizations avoid
duplicating efforts. OMB Circular A-109 encourages the preven-
tion of unwarranted duplication of technological efforts. Also,
in July 1986, the General Accounting Office (GAO) issued a
Technical Guideline titled Evaluating the Acquisition and
Operation of Information Systems, which states that management
has an important role in ensuring that information systems are
acquired/developed in a planned and controlled manner. The GAO
document adds that to support the organization in achieving its
mission, goals, and objectives, top management should establish a
formal planning and budgeting process that identifies organiza-
tion-wide needs for information systems and lays out long- and
short-range strategies for acquiring, developing, operating, and
maintaining them.
SPATS provides users with paperless purchase order processing and
management reports. It was developed for use on the PRIME
mainframe computer system. On the other hand, SPAMS is primarily
a management information system. However, it has recently been
upgraded to provide the SPU with the ability to generate hardcopy
purchase orders. SPAMS also runs on the PRIME system.
AWBERC officials brought a SPATS pilot system on-line in July
1985, and tested it before it became fully operational in October
1986. Headquarters PCMB personnel believed that they needed a
management tracking system before SPATS was scheduled to be
completely tested. Thus, Headquarters began development of
SPAMS. SPAMS also became fully operational in 1986, but PCMB
officials were not able to provide us with the exact month it
became operational.
We attempted to determine the development costs of each of these
two systems, but were unable to completely do so because we could
not always locate sufficient documentation. An official at the
AWBERC advised us that SPATS' development costs totaled approxi-
mately $40,000 for a consultant, plus an undetermined amount of
EPA employee time. SPATS annual maintenance costs are approxi-
mately 10 percent to 20 percent of the time of two employees, or
about 30 percent of a staff-year. However, these EPA employee
costs were not individually tracked. For SPAMS, a Headquarters
30
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PCMB official estimated that initial development costs totaled
$10,000, but she did not know the total development costs. This
official also stated that SPAMS' annual maintenance costs are not
separately identified under the Automated Procurement Data
Systems (APDS) contract. Further, funds continue to be spent on
modifications' and enhancements to the system. For example, a PO
dated August 31, 1989, for $14,673, included a number of tasks,
most of which were to customize software for SPAMS based on
revisions to the APDS. However, at least one of the tasks was
for an enhancement to the present system.
At the time these two systems were developed, no formal Agency
plan existed to chart the development of one nationwide small
purchases automated system. However, if the Agency had developed
one system for implementation at both locations, the development
costs of the second system would have been saved.
OIRM has recently contracted for a mission needs analysis to
develop the procurement aspects of the Integrated Administrative
System. The mission needs analysis, scheduled to be completed in
January 1990, is expected to move the Agency closer to the
development of a National Small Purchasing System. An Agency
official also told us that a commodity purchasing module, which
includes a small purchases package, is still being considered as
part of the Integrated Financial Management System Phase II.
We found SPAMS' security and internal controls to be generally
adequate. However, we did identify one problem with SPAMS'
ability to accurately accept decreases. Instead of recording the
decreases as input, SPAMS would place the number 13 before the
transaction amount, and record the transactions as increases,
some of which became very large dollar amounts. For example, a
$12,000 purchase order decrease was shown in SPAMS as a
$1,312,000 increase. Because management uses SPAMS to track
purchase order and dollar totals, management decisions could not
be made using accurate dollar figures. We orally notified PCMB
management of the system problem, and they assured us that the
problem would be corrected.
Correcting system problems like the one we identified is
necessary to have accurate, reliable data. However, the Agency
could save funds by not developing any additional systems, or
enhancing the existing systems, until OIRM's mission needs
analysis is complete and a decision is made on the future of a
national system.
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OARM COMMENTS AND PIG EVALUATION
In his March 7, 1990, memorandum, the Assistant Administrator
agreed with our recommendation (see Appendix 1). We agree with
the action planned by OARM, and believe it will help minimize
further expenditures on the existing systems.
RECOMMENDATION
We recommend that the Assistant Administrator for Administration
and Resources Management prohibit the development of any addi-
tional small purchases automated systems, or the making of any
major enhancements to the existing systems, until OIRM completes
the mission needs analysis for the National Small Purchasing
System.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 20440
iNO^E SOL, aces
o 7 mi
MEMORANDUM
SUBJECT: Response to Draft Audit on Improvements Needed in
Controls Over Snail Purchases
FROM: Charles L. Grizzl
Assistant Administrator
«" ^~"
To: Kenneth A. Konz
Acting Assistant Inspector General for Audit
I appreciate the opportunity to respond to your draft audit
of Improvements Needed in Controls Over Small Purchases and have
attached ray response to each recommendation pertinent to the office
of Administration and Resources Management.
Overall, I agree with most of your recommendations, we have
already taken steps to ensure better small purchase file documen-
tation, improve the ratification problem, track expenditures
against Blanket Purchase Agreement ceilings, combine orders to take
advantage of quantity discounts, and issue more definitive imprest
fund guidance. Specifically, imprest fund guidance was completed
for the Resources Management Directives Systems which was provided
to the Management and Organization Division on February 20, 1990,
for final approval and issuance.
I disagree with the recommendation that the number of copies
of the Official Airline Guide should be limited and that the
Federal Travel Directory needs to be better distributed.
There are several other areas we are attempting to correct,
and we will make every effort to expedite our proposed corrective
actions. Should you have any questions, please contact
Frederick c. Gaman, Director, Program Operations and Support Staff
on 382-4085.
Attachment
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APPENDIX 1
Page 2 of 8
See APPENDIX 2
Note 1
Note '2
Attachment
Page 1 of 7
Office of Administrative and Resources Management Response
to Draft Audit Report E1BMF9-11-0040-DRAFT
"Improvements Needed in Controls Over Small Purchases"
RECOMMENDATIONS
OARM should not process small purchase orders for organization
development services unless the program office provides
documentation from OKRM as to why the organization development
contracts cannot be used.
RESPONSE
The Procurement and Contract Management Division communicated
with OHRM official* about the possibility of requiring their sign
off on all PR's for organization development services. This would
ensure that consideration would be given to using their contracts
before a decision i* made to issue a purchase order for this type
of service. The current contracts, however, do not have sufficient
capacity to support the entire agency's organization development
needs, nor do they provide the response time needed in many cases,
so the sign off procedure at this point might be sonewhat
meaningless. However, OHRM ha* taken this recommendation under
consideration, and we will work on developing an acceptable review
procedure over the next several month*.
R E C
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APPENDIX 1
Page 3 of 8
Attachment
Page 2 of 7
RECQMMENDATIQN
OAKM should not ratify purchase orders for work already
performed.
RESPONSE
Unauthorized procurement actions are ratified when it is
determined in accordance with EPAAR 1501.670 that the commitment
would have been valid had it been authorized by a Contracting
Officer. It is very difficult to deny a ratification action when
the Government has already received a benefit from the services
performed. Any Government denial, if appealed, would likely be
over turned by the Board of Contract Appeals or the Courts.
However, policy is currently being developed which will strengthen
the administrative actions which can be taken against EPA employees
who commit the Government without proper authority.
RECOMMENDATION
OARM should publicize within the Agency the adverse results of
refusals to ratify, to maximize the deterrent effect of this
control .
RESPONSE
An upcoming revision to the Contracts Management Manual, which
is almost ready for "Striped Border" Review, will cover this issue.
In addition, a section will be added to the Small Purchase
Acquisition Guide for program offices in its next revision. This
will include stronger wording to deter program offices from
unauthorized commitments. Finally, we plan to work with OHRM to
develop something to be presented to new employees during their
orientation to EPA, which will warn them of the liabilities
inherent in making an unauthorized commitment.
OARM should issue a memorandum to Agency program offices
emphasizing the need to carefully review each small procurement
request before authorizing the acquisition of consulting services.
RESPONSE
The whole arena of Advisory and Assistance services is being
scrutinized very carefully right now for contracts of all sizes,
not just small purchases. EPA has promised the Senate Committee
on Government Affairs that we will review our internal guidance in
this area to determine how we can gain better control over
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APPENDIX 1
Page 4 of 8
Attachment
Page 3 of 7
Advisory and Assistance contracts. It is likely that we will either
revise our policies in this area or publicize them more widely to
ensure, at a minimum, that each requirement is carefully reviewed
before a decision is made to proceed.
See APPENDIX 2
Note 3
OARM should nor* closely monitor small purchase transactions
to better ensure compliance with regulations.
RESPOND
He agree, that we need to monitor small purchase transactions
better for compliance with all regulations. However, we consider
leadtimes as standards we try to meet, not as regulations. While
we make every effort to meet these leadtimes, our processing tine
depends greatly on a fluctuating workload and the nature of the
requirement* on hand. We will, however, monitor these more
carefully, as wall a* our file documentation. More reviews by the
Unit Chief and Section Head will be made to ensure compliance with
all regulations.
RECOMMENDATION
OARM should review periodic accounting reports of SPA dollars
obligated to ensure BPA maximum dollar limits are not exceeded.
RESPONSE
We agree with the recommendation. The Headquarters Accounting
Operations Branch (HAOB) will implement a system to periodically
track Blanket Purchase Agreement (BPA) obligations over a three
year period (life of the BPA). The purpose of the system will be
to ensure that BPA dollar limit* are not exceeded. HAOB will
notify the Procurement and Contract Management Division (PCMD)
when th* obligation is approaching the total authorized amount in
the BPA. PCKD will insert a clause in all BPA requiring the vendor
to notify the Contracting Officer when total order* placed reach
75% of th* ceiling amount under the BPA.
MCQIOmiOATTOM
OARM should ensure that proper signatures are on BPA monthly
call record* before payment is made.
36
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Paqe 5 of
Attachment
Page 4 of 7
RESPONSE
We agree with the recommendation that proper signatures need
to be on the SPA monthly call records before payment is mass.
HAOB will institute a process to ensure that proper signatures are
on these records before a payment is made. BPA monthly call
records without proper signatures will not be paid.
RECOMMEMDATIQH
OARM should be required to notify BPA callers of signature
deficiencies on BPA monthly call records, and replace authorized
callers if th* problem persist*.
RESPONSE
PCMD and FMD will jointly conduct a "refresher" workshop with
all BPA callers to discuss all issues, rules, and regulations
applicable to BPA.
RECOMMENDATION
OARM should ensure that all Agency guidance regarding imprest
fund limits are accurate and in agreement.
RESPONSE
We agree that all guidance regarding imprest fund limits
should be accurate and in agreement.
Although EPA did not formally revise the limit on small
purchases through a policy announcement, the $750 emergency limit
was already authorized by the U.S. Department of Treasury through
the Treasury Financial Manual. To implement the change in small
purchase limits ($500 for routine purchases, and $750 in emergency
situations), and to provide comprehensive guidance on the
administration of the Agency's imprest funds, the Office of the
Comptroller developed the Resources Management Directives System
(HMDS), Division 2540, Chapter 4, Cash Management, imprest Fund.
Recently, this Directive completed the Green Border Review
and Clearance Process. All comments were addressed, and on
February 20, 1990, this Directive was provided to the Management
and Organization Division for final approval and issuance.
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Paae 5
Attachment
Page 5 of 7
RECOMMENDATION
OARM needs to establish controls to ensure that imprest fund
payments do not exceed the amount authorized and do not exceed the
maximum limits.
RESPONSE
We agree that controls need to be strengthened to ensure that
imprest fund payments do not exceed amounts authorized or maximum
limits. The issuance of the final directive on the imprest fund
will clarify the limits on imprest fund payment. HAOB will follow
Policy Announcement #86-13 ($500 limit) until the Directive on the
Imprest Fund is issued in final. As discussed in the previous
recommendation, this Directive was provided to the Management and
organization Division for final approval and issuance.
Additionally, HAOB will ensure that tolerances are specifically
authorized prior to payment on items exceeding the obligation, but
falling within the ten percent tolerance level small purchases.
RECOMMENDATIONS
OAJRM needs to consolidate multiple purchase orders for
subscriptions from the same publisher and order directly from the
publisher, whenever it is most economical to do so.
RESPONSE
we seek to combine orders for subscriptions and other
requirement* whenever possible. It was determined that the
administrative burden during the distribution of orders and in the
payment process was not offset by quantity discounts offered by the
vendors.
Generally, PCMD combines orders only from the same program
office. However, we will revisit this issue again, and together
PCMD and FMO will work together to resolve this problem. PCMD will
also ensure that they place orders with the supplier offering the
most favorable price.
OARM should periodically review subscription procurements on
SPAMS to identify any additional items for consolidation.
38
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APPENDIX 1
Page 7 of 8
See APPENDIX 2
Note 4
See APPENDIX 2
Notes
.
Note
Attachment
Page 6 of 7
RESPQHSfi
we concur in this recommendation, and will do this, as
suggested. He would like to comment, however, on the Inspector
General's analysis of possible cost savings. Although the $250.00
figure represent* the average cost of processing a purchase order,
subscription orders would fall at the low end of the scale. Many
tiaes, the purchasing agent has a renewal notice to go by, and does
not even have to place a telephone call. In addition, many sub-
scription orders are placed with the BanJccard in lieu of a written
purchase order, which costs us only about $3.00 per transaction.
Therefore, the estimated cost savings mentioned in the draft audit
report appears to us to be somewhat inflated.
OARM should update the f?m.all Purchase Acquisiti
Offices.
RESPONSE
He agree that this document needs to be updated, and will add
this as an initiative to be accomplished.
RECOMMENDATION
OARM should consider limiting the Official Airline Guide
purchases to central locations, such as the Customer Assistance
Unit, EPA library, Fairchild building and Crystal Mall building.
RESPONSE
He will look into quantity discounts for purchases of multiple
copies of Official Airline Guides. However, we feel that the
amount of travel performed on short notice by many EPA employees
requires access to immediate information to airline schedules.
Therefore, we do not feel that we are in a position to dictate the
quantity of these publications to each individual office.
OARM should ensure that the Federal Travel Directory is evenly
distributed throughout the Agency and obtain additional copies, it
necessary.
He believe the steps taken by FXD are sufficient to ensure
that copies of the Federal Travel Directory are evenly distributed.
Each month HAOB receives several dozen copies of the Directory from
39
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ace
Of
Attachment
Page 7 of 7
the General Services Administration. Copies of the Directory are
easily obtained by picking them up at HAOB's Customer Assistance
Office.
RECOHMf;tfpJVXIPM
We recommend that OANf prohibit the development of any
additional small purchases automated systems, or the making of any
major enhancements to the existing systems, until OIRM completes
the mission needs analysis for the National Small Purchasing
System.
RESPONSE
We concur in the need for a National Small Purchasing System.
However, since the national system is only in the planning stage
at *this time, and it could be several years before its
implementation, we need to ensure that our current systems retain
the capability to respond to constantly changing program needs.
He may need to make modifications, but such enhancements will not
involve a major expenditure of funds.
40
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APPENDIX 2
Page 1 of 2
ADDITIONAL PIG COMMENTS TO MARCH 7. 1990.
RESPONSE TO DRAFT AUDIT REPORT
The following notes present the OIG's response to OARM's comments
which we did not address in the body of our report.
Note
We believe that if the current contracts do not
have sufficient capacity, OARM should take steps
to increase their capacity to meet the Agency's
needs in this area. We also believe that OARM
needs to address the leadtime requirements of the
contracts; to use them in lieu of a small purchase
would necessitate leadtimes more like the current
small purchase leadtimes. Finally, OARM should
consider a more simplified process for using these
contracts, similar to that used for a small
purchase.
OARM's comments only actually address one of the
four specific examples we discussed in our report.
We included this particular example in the report
because of our concern over the very duplicative
tasks of the two consultants, not over an issue of
exceeding the $25,000 threshold for small
purchases. We still believe that one of the other
cases which did, however, exceed the $25,000
threshold was an attempted purchase split. In
fact, in documentation provided to us by OSWER
after we issued our draft report, one of the
program officials involved in the procurement
wrote that the original purchase "was initially
more (i.e., [over] $30,000) for both meetings.
Since [the] small purchase limit was $25,000,
[after rejection the procurement was] resubmitted
as two separate PRs ($25,000 and $6,000) based on
2 separate meetings." [Bracketed words added by
OIG for clarity.] This is exactly what a split
purchase is a procurement constructed as
multiple individual actions to avoid the
threshold.
We are pleased that OARM agrees with our
recommendation and is taking action to correct the
problem. However, we believe that OARM needs to
clearly define when an obligation is "approaching"
the total authorized amount in the BPA. For
example, does this mean when the obligation is
41
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APPENDIX 2
Page 2 of 2
within 10 percent of the ceiling, or 20 percent,
etc.? In addition, we do not believe that
reliance should be placed on the vendor to notify
the Government when total orders placed reach 75
percent of the ceiling amount. Government
officials, not vendors, are responsible for
controlling Government spending.
We wish to point out that our analysis of
potential savings in this matter was based on the
$250 figure which SPU officials provided to us.
These officials stated that they had no more
specific figure for processing subscription
transactions. Although the purchasing agent may
have a renewal notice to go by, nevertheless in
these cases we reviewed, a PR and a PO were still
prepared. Further, in our sample, none of the
subscription purchases were made using the
Bankcard.
We are pleased that OARM will look into quantity
discounts for purchases of Official Airline Guide
publications. However, we still believe that the
Agency needs to minimize the number of these types
of purchases. As we discussed in our report, the
Omega Travel Agency is available at Waterside Mall
to answer questions by telephone or in person.
The information they provide is even more current
and complete than that contained in Official
Airline Guide publications. And the GSA's Federal
Travel Directory is available free of charge. We
believe that OARM should request more copies of
the Federal Travel Directory, and should urge
program offices to increase its use and decrease
purchases of Official Airline Guide publications.
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APPENDIX 3
DISTRIBUTION OF REPORT
Assistant Administrator for Administration
and Resources Management (PM-208)
Assistant Administrator for Solid Waste
and Emergency Response (OS-100)
Comptroller (PM-225)
Director, Financial Management Division (PM-226F)
Agency Followup Official (PM-225)
Attn: Resource Management Division
Agency Followup Official (PM-208)
Audit Followup Coordinator (PM-208)
Attn: Program Operations Support Staff
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